BB tightens rules for bank nominee director appointments

Bangladesh Bank (BB) has tightened rules for appointing nominee or representative directors to banks' boards to tackle irregularities and bring greater transparency to the banking 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 today.

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Before appointing such a person to a bank's board, the shareholder company must ensure that the nominee owns, in their own name and free from 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 circular said.

The nominee must maintain the required ownership throughout their tenure as a representative director.

Banks will also have to submit documentary evidence of the nominee's ownership or interest in the shareholder company when seeking Bangladesh Bank's prior approval for the appointment, reappointment or replacement of a representative director.

The same requirements will apply to the reappointment or replacement of representative directors who were appointed before the circular was issued.

Through the circular, the banking regulator has also barred companies from holding shares in one or more banks worth more than their net worth, aiming to ensure transparency and stability in bank ownership and protect depositors' interests.

Under the circular, 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.