BB tightens rules on representative directors, corporate bank shareholding

Bangladesh Bank has tightened rules on the appointment of representative directors nominated by shareholder companies to the boards of banks, while also restricting the amount of bank shares a company can hold.

The central bank issued the instructions in a circular on Thursday, aimed at ensuring transparency and stability in the ownership structure of bank companies, reducing disproportionate investment by shareholder companies, and strengthening the role, transparency and accountability of representative directors.

Under the new instructions, a company cannot hold shares in one or more bank companies whose purchase value exceeds the company's net worth.

If a company has already exceeded the prescribed limit, it will have to bring its shareholding within the limit within six months from the date of issuance of the circular.

The central bank has also set conditions for individuals nominated as representative directors on behalf of shareholder companies.

A person nominated as a representative director must be the managing director or a director of the concerned shareholder company.

Before being nominated, the person must have ownership in the shareholder company in his or her own name. In the case of a listed public limited company, the nominee must hold at least 2 percent of its paid-up capital free from any liability.

For other companies, the nominee must hold at least 20 percent of the paid-up capital free from any liability.

The required ownership must be maintained for the entire period during which the person serves as a representative director.

Bangladesh Bank also made it mandatory to submit documentary evidence of the nominee's ownership or interest in the shareholder company when applying for the central bank's prior approval for the person's appointment, reappointment or replacement as a representative director.

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

Banks have been instructed to place the circular's provisions before their boards for information and necessary action. They must also ensure that other officials and shareholders of the bank are made aware of the instructions.

The Bangladesh Bank issued the instructions under Section 45 of the Bank Company Act, 1991, and the circular will take effect immediately.