The International Monetary Fund (IMF) has expressed its reservations over a number of provisions, including those relating to acquisition of problem banks and the tenure of bank directors that were incorporated in the proposed Bank Company Act (BCA)-2012, official sources said.

Besides, the multilateral capital donor has also raised questions on the proposed regulation about maintenance of capital adequacy and suggested that the authorities concerned should specify appropriate and relevant criteria for directors and officials of banks and also for establishing new banks.

The observations of the IMF, along with its specific proposals, have recently been submitted to the Bangladesh Bank (BB), the relevant sources added.

The IMF said any acquisition of problem banks, if necessary under certain circumstances, should be made by the BB, instead of the government which was proposed in the BCA.

'Section 58(b) gives the government the decision-making authority, instead of the BB. Also the government may acquire the banking company or one or more of its branches or its undertakings; any intervention\resolution should be considered on a least-cost-to-the-government basis and this section appears to disregard a market-based solution to problem banks," reads the observation of the IMF.

However, top BB officials said, taking lessons from the global financial crisis in 2008, the involvement of the government should be preferred when acquisition of any bank becomes inevitable.

About the tenure of bank directors, the IMF has suggested for two consecutive terms for a director, each spanning for a period of three years.

According to the proposed amendment, the maximum tenure of a bank director has been fixed at three years. The provision, however, will not be applicable to the managing directors of banks, who are also ex-officio bank directors.

The current provision under the BCA, 1991 allows bank directors to serve up to six years in two consecutive terms.

The BB officials concerned said the final decision on this specific issue would be taken later, taking the suggestion of the IMF into consideration.

They, however, said the IMF has endorsed the proposal for restricting the number of directors of a bank company up to a maximum of 13 and also for abolishing the provision for having independent directors in the boards of banks.

The Bangladesh Bank (BB) has recently prepared the draft of the amended act and submitted the same to the Ministry of Finance (MoF) for completion of all the necessary formalities.

Officials in the MoF said a high-powered committee, headed by former Secretary, Mr Abdul Mubin, has been formed to scrutinise the proposed amendments. Upon the completion of this examination, the amendment would be placed before the cabinet and then before the parliament for its approval.

In its suggestions, the IMF said the proposed two-year grace period for fulfilling the requirement for the minimum level of capital should be shortened.

'The minimum capital requirement provides the minimum amount of capital to ensure depositors' confidence and a bank's credibility, irrespective of the amount of a bank's deposits and risk assets,' reads the suggestion of the IMF.

The multilateral body, in its note, said additional criteria are needed in the amendment of BCA (2012) for the licensing of new banks, the sources said.

The BB officials concerned, talking about this particular issue, said the BB has a separate guideline about it.

"It is not essential to enumerate every single detail in the statute," a top BB official told the FE.

Financial Express/Bangladesh/ 8th May 2012