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Bangladesh govt offers concessions to new banks

Publication Date : 02-11-2012

 

The Bangladesh government has offered concessions to the nine new banks and made room for other contenders having political clout to join the fray for making quick bucks as sponsor directors.

Under the draft Bank Company Act, no bank can appoint more than 15 directors. But the banking division of the finance ministry, which prepared the draft recently, has proposed appointing 20 directors for the newly approved banks.

This has been done to allow the original licence holders (sponsor directors) of the new banks to sell the positions of the five additional directors to make extra money, industry experts say.

The sponsor directors have already sold out those positions at much higher prices to new investors for collecting the required capital, they added.

Some directors are also selling their shares at exorbitant rates, said a Bangladesh Bank (BB) official, preferring not to be named.

The central bank in April this year approved nine banks -- six local banks and three NRB (non-resident Bangladeshi) banks -- in the face of political pressure.

Among those who got the approval are former military ruler and Jatiya Party chief HM Ershad, Home Minister Mohiuddin Khan Alamgir and Awami League lawmaker and Prime Minister Sheikh Hasina's nephew Fazle Noor Taposh.

Asked to comment on the draft act, Krishi Bank Chairman Khandker Ibrahim Khaled said it would be "indecent" to pass such a law.

“It will become a bad precedent of damaging the rule of law through enacting a law.

"The law should be equal for all," added Ibrahim Khaled, a former deputy governor of the central bank.

Over the last decade, successive governments took a number of initiatives to limit the number of directors on the board for establishing corporate governance and disciplining the board of directors. But the moves fell flat owing to pressure from influential bank owners.

The existing law does not specify the number of directors.

During the time of the last Bangladesh Nationalist Party government, the central bank issued a circular and fixed the number at 13. The BB, however, failed to implement it as it could not include it in the Bank Company Act.

The current government has moved to amend the act to meet some conditions of the International Monetary Fund. The banking division proposed limiting the number of directors to 15, including the managing director and an independent director.

But the banks that were approved in 2012 can have 20 directors for the first two years, says the draft.

As per rules, for getting the licence a new bank has to make a mandatory deposit of 400 crore taka as paid up capital and the minimum share holding stake of a sponsor director is 1 crore taka and maximum 40 crore taka (10 per cent). (One crore is equivalent to 10 million.)

Seven of the nine new banks applied to the BB for licences last month. The other two sought more time for submitting the applications. The central bank will try to complete scrutiny of the applications by this month, a BB official said.

Before applying for the licences, the banks had to make the mandatory deposits and submit relevant documents to the BB.

On giving licences, Ibrahim Khaled said the BB had scrutinised the sponsors' eligibility before giving permission for setting up the banks. If a new sponsor now wants to become a director, the central bank should see whether it would be proper to give licences to these banks.

The BB official said the bank would send the documents of the new banks to the National Board of Revenue for examining whether the deposit money had been earned illegally. The BB will also see if any of the applicants is a loan defaulter.

If so, the BB will not give a licence to the applicant, the official added.

When the issue of setting up the new banks came up last year, the central bank, the sole authority to approve new banks, was against the move. It said there was no need for more banks with 47 public, private and foreign banks already in operation in the country.

 

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