No outsiders in board meetings remind Bangladesh Bank
Some banks now permit outsiders to take part in their board of directors' meetings, a practice that can be viewed as a breach of rules and severe insufficient corporate governance in the banking sector.
As confidential issues of clients are discussed in the meetings, the info leak because of the occurrence of outsiders, which put a detrimental effect on the interest of depositors, according to a central bank finding.
From this backdrop, the Bangladesh Bank yesterday warned banks, asking them never to allow non-members of their respective boards at the meetings under any circumstances.
Along with the outsiders, shareholders and officials of the banks are frequently attending the board meetings going against the banking regulation.
Only the company secretary is allowed to attend the board meeting regularly. Boards, however, are permitted to invite officials concerned, who are needed to dedicatedly present particular issues of the banks, at the board meeting.
But the officials must leave the meeting once they have accomplished their assignment.
In 2013, the central bank completed an abrupt investigation at a board meeting of a private bank where it uncovered some outsiders taking part in the meeting.
This forced the central bank to issue a notice in December 2013, instructing lenders never to allow any outsiders to board meetings.
Even though, a chairman of an exclusive bank frequently took part in the board meetings of another lender in 2016, according to a central bank investigation.
The person took a substantial amount of loans and grabbed shares of the lending company unanimously, jeopardizing the financial health of the brand new bank.
The central bank removed the chairman to bring discipline to the banking sector.
But all efforts of the central bank have almost become futile as outsiders have once again started to join the meetings.
The outsiders usually be a part of the board meeting to materialize their ill intent and influence the board to manage loans, a central bank official said.
In the majority of the cases, the non-members manage their loans from the banks without having satisfactory collateral and securities and towards companies that usually do not exist. They often attend the meetings by using political influences.
The financial health of the banking sector has been declining for the years because of the absence of corporate governance.
This past year, the central bank allowed defaulters to regularise delinquent loans in a relaxed manner. It has curbed the upward trend of classified loans for the moment, however, the amount will fuel again when the moratorium facility declared by the central bank leads to December.
Non-performing loans went up to Tk 96,116.65 crore in the first half of this year. It had been Tk 94,313 crore in December last year.
The central bank should exercise its power to restore good governance in the banking sector, if not lenders will face dire consequences in the times ahead.
The ongoing business slowdown caused by the coronavirus pandemic will widen the woe of banks further.
"Banks should prevent outsiders from attending the board meeting no matter what so that you can protect their business," said Md Arfan Ali, managing director of Bank Asia.
He also echoed the central bank notice, saying that clients' interests will be at stake if outsiders are permitted to attend the meetings.
