Tuesday, 30 May, 2023

Bank Company (Amendment) Act

Strengthening BB a must to get benefit: Experts

Economists and bankers are calling on the government to strengthen the Bangladesh Bank in order to fully benefit from the recent amendments to the Bank Company Act.

On Tuesday, the cabinet approved changes to the act, which now limits the number of family members on a bank's board of directors to three, down from four, and introduces provisions to curb willful loan defaulters and impose travel bans.

The existing law includes a provision allowing a director to be re-appointed for another three consecutive terms after a three-year break, as there are no obstacles in the law preventing them from holding the post after a hiatus.

Speaking to Daily Sun, experts described the initiative as a significant step for the banking sector, as the proposed law will specifically define individuals or companies who willfully default on loans, despite having the ability to repay them.

Former Bangladesh Bank Governor Dr. Salehuddin Ahmed emphasized that the central bank must be strengthened for the law to be effectively implemented. He expressed concerns that the amendment is only partially addressing the issue, and more comprehensive changes are needed.

Eminent economist Dr. Atiur Rahman praised the amendment as a step in the right direction, but criticized the unchanged tenure of directors, which remains at nine years. He suggested a shorter term of three or four years would be more prudent.

The government had previously amended the law in 2018, raising the maximum number of family members allowed on a bank's board to four from two, a decision that was widely criticized. Dr. Rahman believes that the ideal number of directors from a single family should be two.

Experts and practitioners are welcoming the amended law for bringing discipline to banking operations.

Syed Mahbubur Rahman, former chairman of the Association of Bankers Bangladesh (ABB) and managing director at Mutual Trust Bank, said the amendment will make bankers more responsible for credit management discipline.

Banks are now required to provide a list of defaulters to the central bank within 30 days.

However, Rahman noted that the implementation of the new law relies on the regulatory body and suggested that the existing Artha Rin Adalat should have more jurisdictions to handle new financial cases.

Bangladesh Institute of Bank Management (BIBM) Professor Shah Md Ahsan Habib highlighted the importance of the amended law for the financial sector, as it specifically classifies 'willful defaulters.' He raised concerns about the definition of willful defaulter and suggested that good borrowers should have an exit option.

Dr. Ahsan Habib also proposed social humiliation for those who divert funds for other purposes, such as restricting their access to business operations.