BB tightens rules on bank shareholding, representative directors

Bangladesh Bank (BB) on Thursday issued new directives restricting corporate shareholding in banking companies and setting eligibility criteria for appointing representative directors to bank boards.

The Banking Regulation and Policy Department-2 (BRPD-2) of the central bank issued the instructions through BRPD Circular No. 06, signed by its Director Md Bayzid Sarkar.

The circular was sent to the chairmen, boards of directors, and managing directors or chief executive officers of all scheduled banks operating in Bangladesh for immediate implementation.

The central bank stated that the directives aim to ensure transparency and stability in bank ownership structures, reduce disproportionate investments relative to a corporate shareholder’s financial capacity, enforce accountability among representative directors, and safeguard depositors' interests.

Under the circular, no company will be allowed to hold bank shares, at purchase value, in one or more banking companies exceeding its own net worth.

Companies currently holding bank shares beyond their net worth must bring their shareholding down to the permissible limit within six months from the issuance of the circular.

A representative director nominated by a shareholder company to a bank board must be either the managing director or a director of that shareholder company.

Before being nominated as a representative director, the individual must hold an unencumbered paid-up capital shareholding of at least 2 percent in the case of a listed public limited company, or at least 20 percent in the case of other companies, under their own name.

This minimum unencumbered ownership must be maintained throughout their tenure as a representative director.

When seeking Bangladesh Bank's prior approval for the appointment, reappointment or replacement of a representative director, banks must submit supporting legal documents proving the nominee's ownership stake in the shareholder company.

The new criteria will strictly apply to any future reappointment or change of representative directors currently serving on bank boards.

Bangladesh Bank instructed bank management to place the contents of the circular before their respective board meetings to inform directors and initiate necessary action. Banks were also directed to bring these rules to the attention of all relevant officials and shareholders. -UNB