Banks' stock market exposure set at 40pc, BB denied control over SCBs
Tuesday, 2 October 2012
Nazmul Ahsan
Finance Minister AMA Muhith Monday gave decisions on two contentious issues -- bank's exposure to capital market and the role of Bangladesh Bank (BB) in respect of state-owned commercial banks (SCBs).
Both the issues remain integral parts of the proposed Bank Company Act (BCA), 2012.
The maximum limit of a bank's exposure to the capital market has been revised at 40 per cent of the total paid-up capital of a bank company, while any move to empower BB in firing bank directors, managing directors and abolishing boards of directors of state-owned commercial banks (SCBs) was disapproved by the finance minister, a top Ministry of Finance (MoF) official said.
Muhith gave his decision on the much-debated issues yesterday (Monday) as submission of the draft BCA, 2012 to Cabinet Division for approval has long been delayed due to indecision on the part of the finance minister.
The decisions of Muhith, however, have gone against the suggestions made earlier by the International Monetary Fund (IMF) that asked the government to fix bank's exposure to capital market at 25 per cent of the paid-up capital of a bank and grant enhanced power to BB to regulate SCBs.
The MoF will submit the draft BCA (amended), 2012 to Cabinet Division within a couple of days for approval, incorporating the decisions given by the finance minister.
"Confusions have been dispelled as the minister has cleared the draft of the Bank Company Act, 2012," a senior finance official told the FE on Monday.
"Capital market will be highly benefitted by the last moment decision by the minister," he added.
The existing exposure limit of a bank is 10 percent of its total liabilities as stipulated in the existing BCA (amended), 2003.
The conditions of IMF tagged under the Extended Credit Facility (ECF) include, among others, amending the BCA with the provisions of bank's exposure to capital market at 25 per cent of total capital and empowering BB in firing bank directors, managing directors and abolishing boards of directors of four SCBs.
The IMF asked the government to implement the provisions in the proposed BCA, 2012 as a condition for release of the second installment of its about $1 billion loan for Bangladesh.
The lender approved a $987 million loan to help it overcome macroeconomic pressures and build a buffer reserve.
Bangladesh entered the three-year loan deal by committing to a wide-range of structural reforms.
Muhith, according to a source, fixed the number of directors on the board of bank at 20 which got licences in 2012, while the number of directors has been fixed at 15 for all other existing banks.
According to the provision of Clause 46(6) of BCA, 2003(amended), the BB cannot remove the government-appointed bank directors, chairmen and MDs. It could only submit report to the government about the malpractices on their part, if the same take place in the banks concerned, the provision says.
The Clause 47 of the same Act also bars the BB from abolishing boards of government-owned banks. The appropriate authority of the BB after meeting certain conditions and formalities could fire bank directors, managing directors (MDs) and abolish the board of directors of private commercial banks only, stipulates the BCA, 2003.
A high-powered committee, commissioned by the MoF also recommended amendment to the Bank Company Act (BCA), 2012, with the provision of empowering the BB with the authority to remove bank directors, managing directors and abolish board of directors of four state-owned commercial banks (SCBs).
In the backdrop of Hallmark scam by a SCB, the justification to empower BB to regulate the boards of SCBs, as suggested by the IMF and government-commissioned high-powered committee, has been endorsed by economists and former central bankers.
The Committee, however, also recommended fixing the bank's exposure to capital market at 40 per cent of its total capital.
The finance officials believe Muhith has strong rapport with the IMF to justify his rejections.
Finance Minister AMA Muhith Monday gave decisions on two contentious issues -- bank's exposure to capital market and the role of Bangladesh Bank (BB) in respect of state-owned commercial banks (SCBs).
Both the issues remain integral parts of the proposed Bank Company Act (BCA), 2012.
The maximum limit of a bank's exposure to the capital market has been revised at 40 per cent of the total paid-up capital of a bank company, while any move to empower BB in firing bank directors, managing directors and abolishing boards of directors of state-owned commercial banks (SCBs) was disapproved by the finance minister, a top Ministry of Finance (MoF) official said.
Muhith gave his decision on the much-debated issues yesterday (Monday) as submission of the draft BCA, 2012 to Cabinet Division for approval has long been delayed due to indecision on the part of the finance minister.
The decisions of Muhith, however, have gone against the suggestions made earlier by the International Monetary Fund (IMF) that asked the government to fix bank's exposure to capital market at 25 per cent of the paid-up capital of a bank and grant enhanced power to BB to regulate SCBs.
The MoF will submit the draft BCA (amended), 2012 to Cabinet Division within a couple of days for approval, incorporating the decisions given by the finance minister.
"Confusions have been dispelled as the minister has cleared the draft of the Bank Company Act, 2012," a senior finance official told the FE on Monday.
"Capital market will be highly benefitted by the last moment decision by the minister," he added.
The existing exposure limit of a bank is 10 percent of its total liabilities as stipulated in the existing BCA (amended), 2003.
The conditions of IMF tagged under the Extended Credit Facility (ECF) include, among others, amending the BCA with the provisions of bank's exposure to capital market at 25 per cent of total capital and empowering BB in firing bank directors, managing directors and abolishing boards of directors of four SCBs.
The IMF asked the government to implement the provisions in the proposed BCA, 2012 as a condition for release of the second installment of its about $1 billion loan for Bangladesh.
The lender approved a $987 million loan to help it overcome macroeconomic pressures and build a buffer reserve.
Bangladesh entered the three-year loan deal by committing to a wide-range of structural reforms.
Muhith, according to a source, fixed the number of directors on the board of bank at 20 which got licences in 2012, while the number of directors has been fixed at 15 for all other existing banks.
According to the provision of Clause 46(6) of BCA, 2003(amended), the BB cannot remove the government-appointed bank directors, chairmen and MDs. It could only submit report to the government about the malpractices on their part, if the same take place in the banks concerned, the provision says.
The Clause 47 of the same Act also bars the BB from abolishing boards of government-owned banks. The appropriate authority of the BB after meeting certain conditions and formalities could fire bank directors, managing directors (MDs) and abolish the board of directors of private commercial banks only, stipulates the BCA, 2003.
A high-powered committee, commissioned by the MoF also recommended amendment to the Bank Company Act (BCA), 2012, with the provision of empowering the BB with the authority to remove bank directors, managing directors and abolish board of directors of four state-owned commercial banks (SCBs).
In the backdrop of Hallmark scam by a SCB, the justification to empower BB to regulate the boards of SCBs, as suggested by the IMF and government-commissioned high-powered committee, has been endorsed by economists and former central bankers.
The Committee, however, also recommended fixing the bank's exposure to capital market at 40 per cent of its total capital.
The finance officials believe Muhith has strong rapport with the IMF to justify his rejections.