Banks' boards to stay big as govt gives in

The government finally gave in to pressure from influential bank owners and backed off from its previous bid to lower the number of directors at commercial banks.
The cabinet yesterday approved in principle the draft of Banking Companies (Amendment) Bill, 2013, but the proposal to bring down the number of directors at banks was not accepted.
The finance ministry had proposed that the number of directors at commercial banks will have to be brought down to 15.
But the number has been set at 20, due to opposition from some ministers, a finance ministry official said.
Over the last decade, successive governments took a number of initiatives to limit the number of directors on the board to ensure sound corporate governance and discipline. But the moves fell flat due to pressures from bank owners.
The existing law does not specify the number of directors.
During the time of the last BNP government, the central bank set the maximum number of directors at 13 but could not implement the directive as the provision was not included in the Banking Companies Act.
The cabinet also turned down the proposal to close Islamic banking wings of traditional commercial banks.

The finance ministry had earlier proposed that only the full-fledged Islamic banks will be allowed to offer the shariah-based services to uphold the main spirit of Islamic banking.
But the cabinet rejected the proposal, saying the move would give the Islamic banks a monopoly.
After the meeting, Cabinet Secretary Musharraf Hossain Bhuiyan told reporters that there have been many changes in the domestic and international context since the last amendment to the Act was made in 2003.
The cross-border banking has expanded much, he added.
The Act is being amended after consultation with all the parties concerned, he said, adding that the International Monetary Fund also wanted changes to the Act.
Bhuiyan, however, said, “Not because of the IMF advice, the government itself feels the amendment is necessary.”
The amendment will bring stringent measures to curb frauds in fund collection from people in the name of deposits.
If any non-bank organisation collects deposits from the public, it will have to take approval from the central bank, according to the proposed amendment.
Bangladesh Bank will also monitor the activities of these organisations and take punitive measures against them if any irregularity is detected.
The ministry official said the changes will be included in the amendment as different organisations, including Destiny, collected deposits from their members and later embezzled the funds.
The cabinet secretary said a protective clause has been incorporated in the amended Act to bar the cooperatives from using the name 'bank' in illegal ways.
The proposed amendment also empowers the BB to remove any chief executive officer of the state banks.
Under the existing Act, the power of removing the chairmen, directors and other high officials, including the managing directors of state-run and specialised banks, remains in the hand of the government.
The existing Act says the BB can remove the chairman, any director or official of all commercial banks on charges of irregularities, except for the government-nominated chairman, director or chief executive.
In case of irregularities by any government-nominated official, the BB can only submit a report to the government for its consideration.
Besides, the banks' exposure to the capital market is being lowered to 25 percent of their regulatory capital. The existing law allows banks to invest 10 percent of their deposits in the stockmarket.
Bhuiyan said the initiative to limit the banks' exposure to the stockmarket has been taken to reduce risks of the banks and protect interests of small investors.
The power to suspend any clause of the Act has now been given to the central bank instead of the government for empowering the BB more.
However, in exercising the power, the central bank will consult the government. In line with the amendment, the central bank will decide on what the capital of the commercial banks will be.