Banking
Islami Bank accords reception to CDCS
BB powerless over independent directors of banks
The central bank has been given no authority in appointing independent directors to private banks under the recently amended Banking Companies Act.
The law, passed in parliament on July 14, stipulates that three independent directors be appointed to a private bank—a new provision of the banking law.
But it is the Bangladesh Securities and Exchange Commission (BSEC) that would give the final approval—and not the central bank, despite being the custodian of banks and depositors’ money.
If the bank has fewer than 20 directors, then the number of independent directors will be two.
The copy approved at the cabinet, however, had stated that each bank would get four independent directors; the BSEC would give consent to two directors and Bangladesh Bank (BB) the other two.
“The change came during a review by the parliamentary standing committee on finance ministry before the house passed it,” said a finance ministry official.
Khondker Ibrahim Khaled, a former deputy governor of the central bank, said it was the responsibility of BB—not the BSEC—to control the banks.
“It is wrong that the BSEC consent is essential for appointing independent directors. I will only say it has not been done professionally.”
The previous law, however, had no provision that private banks’ boards should include independent directors.
Some listed private banks had one independent director to look after the interests of shareholders, and their selection was decided by the stockmarket regulator under its law.
Banks officials were sceptical of the success of the clause, as the positions were filled by relatives of the regular directors.
“The independent directors would not be able to play an active and independent role and only further the causes of the directors,” said a high official of a private bank.
In contrast, around the world the independent the directors are appointed from a central bank list of professionals with expertise and academic knowledge.
The cabinet’s decision did not prevail in another situation as well. The bill that got the cabinet’s nod forbids an individual from being a director of a bank and a non-bank financial institution simultaneously.
But the amended law allows a bank director can be a director of an insurance company for two terms. This, however, conflicts with the Insurance Act, which stipulates that the director of an insurance company cannot be a director of a bank.
Many former BB governors said the government made significant compromises in several areas with the amendment of the act.
Take, for instance, the section in the act which gives the central bank the power to remove the managing director of a state-run bank but not the board.
Khaled, also a former chairman of Krishi Bank, said the central bank should have been given adequate power in controlling the board of the state-owned banks.
Former BB governor Salehuddin Ahmed said it would have been better if the maximum number of bank directors had been fewer than 20.
“That is why the central bank had recommended making the number 13. It is only logical to take consent of the central bank in appointing the directors to protect the interest of the depositors.”
Both the former central bankers, however, agreed that a number of amended clauses were good.
Bringing down a bank’s exposure to the share market to 20 percent of their capital and increasing the banks’ paid-up capital amount to Tk 400 crore, were some examples cited.
“If the provision had been in force earlier, the share market crash in 2010 would not have happened,” said Khaled, who led the stock market probe committee.
Copies of the amended act were distributed among the banks’ managing directors on Monday, who were instructed to relay it to their respective boards and notify BB after implementation.
Lawyers divided over loan rescheduling plan
Sonali Bank’s lawyers are split about the proposed rescheduling of Hall-Mark Group’s loans worth Tk 2,600 crore loans, taken out through fraudulence.
“Some of the lawyers are of the opinion that the amount was not a loan but embezzlement, so the question of rescheduling does not even arise. Rather, the steps taken in case of fraud need to be enforced,”
said a high official of Sonali Bank upon condition of anonymity.
The other lawyers, however, are in favour of rescheduling, as it will ensure the recovery of at least a portion of the amount.
They suggested that the bank gets hold of proper documentation and collateral and reschedules the loan against them.
“They are of the opinion that those funds are gone forever, otherwise,” the official added.
Of the outstanding amount, around Tk 200 crore was taken out as loan and the rest through various irregularities.
The official cited the withdrawal of Tk 1,000 crore against a mere “slip” as an example of the irregularities that took place.
The official said the proposal together with the legal team’s differing views would be placed before the board today. “What the board decides, we will put into action.”
Meanwhile, Sonali Bank, upon finance ministry’s instruction in March, has evaluated the assets of Hall-Mark Group and found their value to be in the region of Tk 700 crore.
The ministry also asked the bank to come up with ways to resume Hall-Mark Group’s operations, such that its 40,000 workers can continue to be gainfully employed. The move, however, faced staunch criticism from different quarters.
Private banks’ capital goes up 7.75pc in six months
Private banks’ capital increased by 7.75 percent in the first half this year though their default loans marked a rise during the period due to the recent political unrest and low investments.
Their capital stood at Tk 42,592 crore as on June 30, a rise by Tk 3,065 crore from December 31 last year, according to central bank statistics.
Among 36 private banks, capital of all but three went up. The surplus capital of the banks was Tk 2,751 crore on June 30.
However, their default loans rose by more than Tk 6,000 crore during the January-June period.
Helal Ahmed Chowdhury, managing director of Pubali Bank Ltd, said though default loans increased in these banks, there was no provision shortfall against their bad loans. As a result,
the banks were able to increase their capital, he added.
After 2015, the banks will have to maintain higher capital as per the Basel-III requirements, Chowdhury said.
At present,
they maintain capital at 10 percent of their risk weighted asset in line with Basel-II requirements. Basel-III regime will be the latest version of risk-based capital standards set for banks worldwide.
Keeping the future requirements in mind, the banks are increasing capital every year so that they do not face pressure after 2015, the Pubali Bank chief executive said.
As the banks had to raise capital, most of them gave stock dividends instead of cash dividends in 2012, he said.
Chowdhury also blamed the rise in default loans in the private banks on political unrest, low investment in the run-up to the national elections and the central bank’s new loan provisioning rules.
However, he said, compared to the public banks, the financial base of the private banks is stronger as they are operating under strict monitoring by the central bank.
The state banks’ capital did not increase rather the amounts fell short of the requirements, according to central bank statistics.
On June 30, the capital shortfall of the state banks was Tk 9,062 crore and that of specialised banks Tk 5,650 crore.
Among the private banks, ICB Islamic Bank had the highest amount of capital shortfall — Tk 1,302 crore, followed by Bangladesh Commerce Bank’s Tk 250 crore, and Premier Bank’s Tk 183 crore.
Premier had a capital surplus of Tk 47 crore in December last year, but the other two had a deficit in the month.
Al-Arafah Islami Bank holds EC meeting
Alhajj Abdul Malek Mollah, Vice Chairman of the EC of Al-Arafah Islami Bank Ltd, presides over the EC meeting at the bank’s board room in Dhaka on Wednesday.
The 404th meeting of the Executive Committee of Al-Arafah Islami Bank Limited was held at the bank’s board room in Dhaka on Wednesday.
Alhajj Abdul Malek Mollah, Vice Chairman of the EC of the bank, presided over the meeting, said a press release.
Nazmul Ahsan Khaled, Hafez Md Enayet Ullah, Ahmedul Hoque, Abu Naser Mohammad Yeahea and Engineer KH Mesbah Uddin Ahmed, Members of the committee, Md Habibur Rahman, Managing Director, and Md Mofazzal Hossain, Company Secretary and Deputy Managing Director of the bank, attended the meeting.
The meeting was reviewed overall business performance of the bank.