Bangladesh Bank Tightens Nominee Director Rules, Sets New Shareholding Requirements for Bank Boards
Bangladesh Bank has introduced stricter rules for appointing nominee directors to bank boards. The new requirements are aimed at making bank ownership and board representation more transparent and improving the accountability of directors.
What Is a Nominee Director?
A nominee director is a person appointed to the board of a bank to represent the interests of a shareholder company. For example, if Company A owns a significant number of shares in Bank B, Company A may nominate one of its directors to join Bank B’s board and represent the company’s interests.
New Shareholding Requirement
Under the new rules, a nominee director cannot simply be an employee or associate of the business group. The nominee must be a director or managing director of the shareholder company and must personally own a minimum number of shares in that company.
For a nominee representing a listed company, the person must personally own shares equal to at least 2% of the company’s paid-up capital. For a nominee representing a non-listed company, the requirement is much higher. The nominee must personally own at least 20% of the company’s paid-up capital.
Shares Must Be Free from Encumbrances
The shares owned by the nominee must be free from encumbrances. This means the shares cannot be pledged, mortgaged or used as security for a loan or any other obligation. The nominee must also continue to maintain the required shareholding for the entire period they remain on the bank’s board.
Bangladesh Bank Approval Required
Bangladesh Bank’s approval will be required before a nominee director is appointed, reappointed or replaced. The bank will also have to submit documents showing that the proposed nominee owns shares in the shareholder company as required under the new rules.
Why Has Bangladesh Bank Changed the Rules?
One of the main questions is who a nominee director actually represents. According to officials cited in The Business Standard report, there have been cases where business groups appointed their employees as nominee directors through shareholder companies. This raised questions about whether these directors were actually representing the shareholder company or mainly serving the interests of the wider business group.
The new requirement creates a more direct relationship between the nominee and the shareholder company. The nominee must have a significant personal ownership stake in the company they represent.
Focus on Transparency and Accountability
Bangladesh Bank says the new measures are intended to improve transparency and stability in banks’ ownership structures. They are also aimed at strengthening the accountability of directors and protecting the interests of depositors.
The rules could make it more difficult for business groups to appoint employees or close associates as nominee directors when those individuals do not have a meaningful ownership interest in the shareholder company.
Limit on Company Investment in Bank Shares
The new rules also provide that a company cannot invest in bank shares worth more than its own net worth. For example, if a company has net assets worth Tk100 crore, it cannot hold bank shares worth Tk150 crore. If its bank shareholding exceeds the permitted limit, the company will have six months to bring its holdings within the prescribed limit.
What the New Rules Mean for Depositors
The immediate potential beneficiaries of these measures are bank depositors and the banking system as a whole. The objective is to make bank ownership and board representation clearer and more transparent. It also seeks to ensure that people who sit on bank boards have a genuine ownership relationship with the companies they represent.
Greater Accountability for Bank Directors
Overall, Bangladesh Bank is seeking to ensure that individuals who influence decisions on bank boards have a clearly identifiable relationship with the shareholder they represent.
The new requirements are also intended to increase accountability and make it harder to use employees or associates as nominee directors without a meaningful ownership stake in the shareholder company.
