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Tuesday, May 12, 2009

Banks warned against rule breach

The Daily Star

The central bank has warned boards of directors and chief executive officers of private commercial banks against any violation of rules in governing the institutions, said a circular issued yesterday.

The Bangladesh Bank (BB) has also instructed the boards and CEOs of the banks to exercise their authority in line with a previous BB order issued in 2003.

The allegations, which are usually brought against chairman and directors of a bank, include intervention in loan approval process and regular administrative works, staying in the bank without any board meeting and unauthorised use of cars, telephone, staff and office room.

The BB also came down on the boards for forming some formal and informal committees, which it said are unnecessary.

The central bank observed that the CEOs of many banks are not exercising their authority in line with the Banking Company Act 1991.

Even the CEOs do not feel it necessary to inform the BB of any violation of regulations in their banks although it is mandatory for them to do so, the central bank said.

The BB also blamed the CEOs for not developing loan, risk and human resources management guidelines in their respective banks.

“The irregularities are a matter of concern and go against good governance,” said the circular.

A senior BB official told The Daily Star that for the banks, the roles of the CEO and the chairman of the board were clearly defined through a BB circular issued on July 24, 2003.

He said guidelines have also been issued regarding responsibility and accountability of the board, chairman of the board, and CEO/managing director of financial institutions to ensure transparency, accountability, and dynamism in overall financial, managerial, and administrative policies and executive activities.

“But we found that boards of directors and CEOs of many banks are violating the guidelines prescribed in the 2003 circular,” the official said, asking not to be named.

He said the BB as the regulator of banks and non-bank financial institutions in the country issued the new circular to warn them against any future violation.

The BB also instructed the banks to place the circular at their next board meetings.

Meanwhile, the central bank issued another circular on regulation of lending to the directors of financial institutions.

The circular asked the CEOs of financial institutions to mention any loan, guarantee or security given to or against a director's name in the balance sheet.

A director will not be allowed to receive more than 50 percent of his/her paid-up share capital, it said.

The BB also asked them to follow the Financial Institutions Act 1993 strictly.



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