Bangladesh Bank removes two-year cap on bank boards

Bangladesh Bank has removed the two-year statutory limit on its control of banks after cancelling their boards, allowing it to retain administrators beyond the period previously permitted under the Bank Company Act.

The central bank issued a circular today under Section 121 of the Bank Company Act, 1991, declaring that the provision under Section 47(2) governing the duration of board cancellation orders will not generally apply to banking companies.

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The move effectively allows Bangladesh Bank to continue running a bank through an appointed administrator beyond two years if circumstances warrant.

Under Section 47(1), the central bank can cancel a bank’s board if it finds that the board’s activities are contrary or harmful to the interests of the bank or its depositors.

Section 47(2) previously allowed the order to be extended from time to time, but capped the total period at two years.

Section 47(3) allows a Bangladesh Bank-appointed person to exercise the powers and perform the duties of the cancelled board.

The change comes as the central bank faces pressure over the tenure of administrators appointed to several troubled Islamic banks, whose two-year periods are approaching.

Bangladesh Bank has so far reconstituted the boards of 14 banks, although some include shareholder directors.

The move comes amid broader efforts to restructure the banking sector. On Sunday, the central bank declared three non-bank financial institutions non-viable and appointed administrators to expedite their liquidation.

It recently withdrew administrators from Exim Bank and Social Islami Bank as their operations were transferred to Sammilito Islami Bank following the merger of five troubled Islamic banks.

Administrators of First Security Islami Bank, Union Bank and Global Islami Bank are expected to hand back control by August 15.