Bank subsidiaries may go under BB control

Banks' subsidiaries including brokerage firms, merchant banks and asset management companies are going to fall under the purview of Bangladesh Bank as per the final draft of a bank company (amendment) act, 2023.

The cabinet approved the final draft yesterday.

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According to the draft, banks will have to follow the central bank's orders when recruiting the boards of directors, managing directors or chief executive officers.

Moreover, if existing officials do not meet qualifications and eligibility requirements stipulated by the central bank, they will lose the right to retain their posts.

If Bangladesh Bank is dissatisfied with the activities of the board members, managing directors or CEOs and if those are unacceptable or adversely affects the banks, the central bank will have the right to order the respective banks to take action against them.

The central bank will even be allowed to declare void the approval of the subsidiaries if they violate any condition imposed by the regulator or if those become involved in any activity that has an adverse effect, it said.

The banks' subsidiaries will also remain under the purview of the Bangladesh Securities and Exchange Commission (BSEC), explained an anonymity-seeking top official of a merchant bank which is a subsidiary of a renowned bank.

However, through the amendment the central bank will gain some control, he said.

Working under two regulators might be tough for the companies so the BB and BSEC should ensure that they have good cooperation in place, he added.

The banks will not be allowed to invest capital in the subsidiaries higher than that stipulated in the central bank's orders.

The banks will have to limit their capital market exposure so that the market value of their listed companies' shares, corporate bonds, debentures, mutual funds and lending in stock market related companies do not cross 25 per cent of their paid-up capital, share premium and retained earnings.

That the investments of banks in non-listed companies' shares, bonds, debentures and mutual funds are in line with the central bank's orders will have to be informed from time to time.