Do you think the Bank Company (Amendment) Act, 2023 and PCA measures will improve discipline and governance?

Key Points of Bank Company (Amendment) Act, 2023

(a) The tenure of a director is increased to 12 years from 9 years.

(b) The number of board members from a family is reduced to 3 from 4.

(c) The banks must provide the willful defaulter list to Bangladesh Bank. Bangladesh Bank will publish the list.

(d) A willful defaulter will not be able to: go abroad, become a director of any company, or take part in any national or local-level elections.

(e) Previously, if a company became defaulter, the sister concerns were also treated as defaulter and weren’t eligible to get bank loans. But this restriction is relaxed. As per the amendment, a company will get loan even though the sister concern is defaulter.

Key Points of Prompt Corrective Action (PCA):

(1) Banks will be divided into 4 categories based on the Capital to Risk-Weighted Assets Ratio, Tier-1 Capital Ratio, Common Equity Tier-1(CET1) Ratio, Net Non-Performing Loan Ratio, etc.

(2) Bangladesh Bank will, if necessary, restrict lending, stop dividend payment, change bank management, or merge or liquidate a bank.

Opinion:

(a) The 12-year tenure of a director is quite lengthy and can jeopardize a bank’s good governance.

(b) Reducing the number of family members on the board from 4 to 3 is not quite good enough. This will not ensure good governance in the banking sector. Rather, this number should be limited to 1 member only.

(c) It is quite alarming that if a company becomes defaulter, the sister concern will not be treated as defaulter. This is clearly a motive for facilitating Politically Exposed Persons (PEPs). This amendment is irrational and will pave the way to destroy the banking sector.

(d) The prompt corrective actions seem to be paperwork only. The ultimate result depends upon accurate reporting of the scheduled banks. 98th BPE, 7(c)