BB tightens rules for bank nominee directors

The Bangladesh Bank has tightened rules for appointing nominee or representative directors to bank boards, aiming to tackle irregularities and bring greater transparency in the sector.

Under the new rules, a representative director must be the managing director or a director of the shareholder company, according to a circular issued by the central bank yesterday.

Tap here to add The Daily Star as a trusted source

To be eligible for the post, a shareholder company nominee must own, in their own name and free of encumbrance, at least 2 percent of the paid-up capital of a listed public limited company, or at least 20 percent of the paid-up capital of other companies.

The nominee must maintain this ownership throughout their tenure, states the circular.

Banks must submit documentary evidence of the nominee’s ownership or equity in the shareholder company when applying for BB’s prior approval for the appointment, reappointment or replacement of a representative director.

The same rules apply to representative directors already in place before the circular was issued.

Through the circular, the regulator also barred companies from holding shares in one or more banks worth more than their net worth

The restriction was put in place to ensure transparency and stability in bank ownership and protect depositors’ interests, the central bank said.

A company whose investment in bank shares exceeds its net worth will have to bring its holdings within the prescribed limit within six months of the circular’s issuance.

The central bank directed banks to place the circular before their boards for information and necessary action and to bring it to the attention of all officials and shareholders.

The instructions, issued under Section 45 of the Bank Company Act, 1991, took effect immediately.