Some important questions and answers about the Bank and Banking Companies Act 2023

Q1. What are salient features of the newly introduced bank company (amendment) act, 2023?

Answer: The Bank Company (Amendment) Act 2023 was passed on 21 June 2023, with certain significant changes.

For instance,

1) The amendment has a provision extending tenure of bank directors to 12 years (per section 15AA). The Bank Company Act 1991 had provided that a director could hold the directorship for six years in a row. In 2013, the Act was amended, allowing a director to hold the bank directorship for six years, and the tenure was subsequently extended to nine years in 2018. Finally, this time around, the tenure has been extended to 12 years. The tenure of 12 years of a director in a bank is quite substantial and it may potentially jeopardize corporate governance in this sector.

II) Through the Bank Company (Amendment) Act 2018, the number of members of the same family in a private bank's board was increased from two to four. Now it has been reduced to 3 by the 2023 amendment.

III) As per the amendment, the banks must send list of willful loan defaulters to Bangladesh Bank (BB) and the BB will publish it. The loan defaulters can file an appeal with the BB within 30 days. If a bank fails to send the list of loan defaulters to the central bank in time, the bank can be fined Tk 50 lac to Tk. 1 crore. According to the amendment, if a person or institution willfully fails to repay a loan, they will be considered willful defaulter. A willful defaulter cannot be eligible to be a director of a bank or financial institution until five years pass after their exclusion from the list of willful loan defaulters. The willful defaulters will encounter restrictions in travelling abroad, purchasing shares, exercising his/her directorship and so forth. Nonetheless, this amendment is in a way friendlier to loan defaulters on one count. According to the amendment of section 27AA, the sister concern of a company can get loan from the bank even though its sister concern is a defaulter. Before this amendment, all enterprises of a group were considered defaulters if a sister concern were a defaulter.

IV) According to Bangladesh Corporate Governance Code, listed companies including banks, non-bank financial institutions, insurance companies and statutory bodies shall not have less than five and more than 20 directors at a time and among them at least one-fifth must be independent or non-executive directors. However, as per the 2023 amendment, there is scope for only 2 independent directors within a bank company.

 

Q2. Passing the Banking professional exam (former banking diploma examination) has been made mandatory in the promotion policy of the bank officials. What is your view on this initiative?

Answer: Introduction a Banking Diploma is a great initiative as a professional certification program designed to provide individuals with a comprehensive understanding of the banking industry and the skills necessary to work in various banking roles. The program covers a wide range of topics related to banking, including banking regulations, financial products, credit analysis, risk management, and customer service.

Upon completing the program, graduates may be eligible to work in various banking roles. Including teller, customer service representative, loan officer, and financial advisor.

Overall, earning a banking diploma can be a valuable credential for individuals seeking to start or advance their careers in the banking industry as well as NBFIs. It can provide them with the knowledge and skills needed to succeed in various banking roles and demonstrate to employers their commitment to professional development. The Bangladesh Bank made the two-part diploma, Junior Associate of The Institute of Bankers, Bangladesh (JAIBB) and Associate of the Institute of Bankers, Bangladesh (AIBB) examinations of the IBB mandatory for the promotion of bankers and NBFIs holding positions of senior officer or above, except for managing director and the immediate juniors, in all scheduled banks.

 

Q3. What are the recent directives given for paying provident/gratuity funds for contractual officials and employees of a bank company?

Answer: The employees who are appointed on contractual basis by commercial banks will not get provident fund, gratuity benefits after the end of their service period, said the Bangladesh Bank. The central bank’s Banking Regulations and Policy Department issued a circular in this regard and directing all commercial banks’ managing directors and chief executive officers (CEO) to follow the instruction.

Q4. What are the legal obligations to fill the position of Chief Executive Officer?

Answer: As per BRPD circular no. 05 dated 27 February, 2024,

ব্যবস্থাপনা পরিচালক বা প্রধান নির্বাহী কর্মকর্তা নিয়োগ বা পুনঃনিয়োগের জন্য যোগ্যতা ও উপযুক্ততা:

প্রধান নির্বাহী কর্মকর্তা পদে নিয়োগ বা পুনঃনিয়োগের ক্ষেত্রে নিড়ববর্ণিত যোগ্যতা ও উপযুক্ততা থাকতে হবে:

(ক) চারিত্রিক ও জনতিক বিশুদ্ধতা:

(১)  তিনি কোনো ফৌজদারী আদালত কর্তৃক দণ্ডিত নন কিংবা জাল-জালিয়াতি, আর্থিক অপরাধ বা অন্যবিধ অবৈধ (১) কর্মকান্ডের সাথে জড়িত ছিলেন না বা জড়িত নন;

(২) তাঁর সম্পর্কে কোনো দেওয়ানী বা ফৌজদারী মামলায় আদালতের রায়ে কোনো বিরূপ পর্যবেক্ষণ বা মন্তব্য নেই:

(৩) তিনি কোনো নিয়ন্ত্রণকারী কর্তৃপক্ষের বিধিমালা, প্রবিধান বা নিয়ামাচার লঙ্ঘনজনিত কারণে দণ্ডিত হননি;

(8) তিনি এমন কোনো কোম্পানী বা প্রতিষ্ঠানের মালিকানার সাথে যুক্ত ছিলেন না যার নিবন্ধন অথবা লাইসেন্স বাতিল করা হয়েছে অথবা কোম্পানী বা প্রতিষ্ঠানটি অবসায়িত হয়েছে;

(৫) তিনি এমন কোনো কোম্পানী বা আর্থিক প্রতিষ্ঠানের কর্মকর্তা হিসেবে যুক্ত ছিলেন না যার নিবন্ধন অথবা লাইসেন্স তাঁর সরাসরি বা পরোক্ষ অপরাধজনিত কারণে বাতিল করা হয়েছে।

(৬) তিনি অর্থ আত্মসাৎ, দুর্নীতি, জাল-জালিয়াতি ও নৈতিক স্খলনজনিত কারণে কোনো কোম্পানী বা প্রতিষ্ঠানের চেয়ারম্যান বা পরিচালক বা কর্মকর্তা বা কর্মচারী থাকাকালীন স্বীয় পদ হতে অপসারণ/বরখাস্ত/অবনমিত হননি বা অব্যাহতি প্রাপ্ত হননি;

(৭) কোনো ব্যাংক-কোম্পানী বা অন্য কোনো আর্থিক প্রতিষ্ঠানের প্রধান নির্বাহী বা চেয়ারম্যান বা পরিচালক বা কর্মকর্তা বা অন্য কোনো পদে আসীন থাকা অবস্থায় তাঁকে স্বীয় পদ হতে অপসারণ/বরখাস্ত/অবনমিত করা হয়নি বা অব্যাহতি দেয়া হয়নি;

(৮) বাংলাদেশ ব্যাংকের অফসাইট বা অনসাইট পরিদর্শনে তাঁর বিরুদ্ধে কোনো বিরূপ পর্যবেক্ষণ নেই।

(খ) আর্থিক স্বচ্ছতা/সততা:

(১) তিনি কোনো ব্যাংক বা আর্থিক প্রতিষ্ঠান হতে গৃহীত ঋণের জন্য খেলাপী নন;

(২) তিনি পাওনাদারের প্রাপ্য পরিশোধ বন্ধ করেননি কিংবা পাওনাদারের সাথে আপস রফার মাধ্যমে পাওনা আদায় হতে অব্যাহতি লাভ করেননি;

(৩) তিনি কর খেলাপী নন;

(8) তিনি কোনো সময় আদালত কর্তৃক দেউলিয়া ঘোষিত হননি;

(৫) তিনি ব্যাংক কিংবা আর্থিক প্রতিষ্ঠানে স্বীয় পেশায় দায়িত্ব পালনকালে কোনোরূপ অবৈধ কর্মকান্ডে জড়িত ছিলেন না।

(গ) শিক্ষাগত যোগ্যতা, উপযুক্ততা ও অভিজ্ঞতা:

(১)  তাঁকে কোনো স্বীকৃত বিশ্ববিদ্যালয় হতে ন্যূনতম সড়বাতকোত্তর ডিগ্রীধারী হতে হবে। অর্থনীতি, হিসাববিজ্ঞান, ফাইন্যান্স, ব্যাংকিং, ব্যবস্থাপনা কিংবা ব্যবসায় প্রশাসন বিষয়ে উচ্চতর প্রাতিষ্ঠানিক বা পেশাগত শিক্ষা সংশ্লিষ্ট ব্যক্তির অতিরিক্ত যোগ্যতা হিসেবে বিবেচিত হবে। ডিজিটাল ব্যাংকের প্রধান নির্বাহী নিয়োগের ক্ষেত্রে তথ্যপ্রযুক্তি বিষয়ে উচ্চতর শিক্ষাকে অধিক গুরুত্ব দিতে হবে;

(২) তাঁর শিক্ষাজীবনের কোনো পর্যায়ে তৃতীয় বিভাগ বা শ্রেণি থাকতে পারবে না। গ্রেডিং পদ্ধতিতে প্রকাশিত ফলাফলের ক্ষেত্রে এসএসসি বা সমমান ও এইচএসসি বা সমমান পরীক্ষার ক্ষেত্রে জিপিএ ৩.০০ এর কম এবং অনুমোদিত কম হলে তা গ্রহণযোগ্য হবে না। বিদেশ থেকে ডিগ্রী অর্জনের ক্ষেত্রে প্রকাশিত ফলাফল (শ্রেণি/বিভাগ/জিপিএ) যথাযথ কর্তৃপক্ষ কর্তৃক অনুমোদিত ও সমতায়িত হতে হবে।

(৩)  প্রস্তাবিত পদের অব্যবহিত পূর্ববর্তী পদগুলোতে সংশ্লিষ্ট প্রার্থীর উপর অর্পিত কার্য সম্পাদনের প্রমাণ ও সুনাম থাকতে

হবে:

 (8) সংশ্লিষ্ট প্রার্থীর নেতৃত্ব প্রদানের গুণাবলী থাকতে হবে;

(৫) তিনি কোনো ব্যাংক-কোম্পানী বা ফাইন্যান্স কোম্পানী আইন, ২০২৩ এর অধীন প্রতিষ্ঠিত আর্থিক প্রতিষ্ঠান বা বীমা কোম্পানী অথবা উক্তরূপ কোম্পানীসমূহের নিয়ন্ত্রিত কোনো প্রতিষ্ঠানের পরিচালক থাকতে পারবেন না বা উক্ত প্রতিষ্ঠানসমূহের কোনো লাভজনক পদে নিযুক্ত থাকতে পারবেন না:

(৬)তিনি অন্য কোনো ব্যবসায়ে বা পেশায় নিয়োজিত থাকতে পারবেন না;

(৭) সংশ্লিষ্ট ব্যাংকে তাঁর কোনো ব্যবসায়িক স্বার্থ জড়িত থাকতে পারবে না;

(৮)ব্যাংকের কোনো পরিচালকের মালিকানাধীন বা স্বার্থ সংশ্লিষ্ট বা নিয়ন্ত্রণাধীন প্রতিষ্ঠানের সাথে তাঁর কোনো সংশ্লিষ্টতা থাকতে পারবে না;

(৯) সংশ্লিষ্ট ব্যাংকের পরিচালনা পর্ষদে তাঁর পরিবারের কোনো সদস্য অন্তর্ভুক্ত থাকতে পারবে না;

 (১০)বিশ্ববিদ্যালয় কর্তৃক প্রদত্ত সিজিপিএ এর ক্ষেত্রে ৪.০০ পয়েন্ট স্কেলে ২.৫০ এর কম ও ৫.০০ পয়েন্ট ছেলে ৩.০০ এর

প্রধান নির্বাহী কর্মকর্তা পদে নিয়োগের ক্ষেত্রে সংশ্লিষ্ট ব্যক্তির ব্যাংকিং পেশায় সক্রিয় কর্মকর্তা হিসেবে কমপক্ষে ২০ (বিশ) বছরের অভিজ্ঞতাসহ ব্যাংকের প্রধান নির্বাহী কর্মকর্তার অব্যবহিত পূর্ববর্তী পদে কমপক্ষে ০২ (দুই) বছরের অভিজ্ঞতা থাকতে হবে।

৩। বয়স সীমা: সংশ্লিষ্ট ব্যক্তির ন্যূনতম বয়স হবে ৪৫ (পঁয়তাল্লিশ) বছর এবং কোনো ব্যক্তির বয়স ৬৫ (পঁয়ষট্টি) বছর অতিμান্ত হলে তিনি কোনো ব্যাংক-কোম্পানীর প্রধান নির্বাহী কর্মকর্তা পদে অধিষ্ঠিত থাকতে পারবেন না।

৪। ব্যবস্থাপনা পরিচালক নিযুক্তি বা পুনঃনিযুক্তির জন্য দাখিলকৃত প্রস্তাবের সাথে নিড়েবাক্ত কাগজপত্রাদি ও তথ্যাবলী সংযুক্ত করতে হবে:

(১) পরিচালনা পর্ষদের চেয়ারম্যান কর্তৃক স্বাক্ষরিত প্রস্তাব;

(২) সংশ্লিষ্ট ব্যক্তির জাতীয় পরিচয়পত্রের (NID) কপি, ছবি ও যোগাযোগের বর্তমান ও স্থায়ী ঠিকানা, পূর্ব অভিজ্ঞতার বিবরণসহ পূর্ণ জীবনবৃত্তান্ত;

(৩) নিয়োগ চুক্তির সত্যায়িত কপি (প্রত্যক্ষ ও পরোক্ষ বেতন-ভাতাদি ও অন্যান্য সুবিধাদির উল্লেখসহ);

(8) পরিচালনা পর্ষদের নিয়োগ সংµান্ত অনুমোদনের সত্যায়িত কপি;

(৫) ব্যাংক কর্তৃক সুনির্দিষ্টকৃত আর্থিক ও ব্যবস্থাপনাগত বিধানের শর্তাদি তথা কর্মসম্পাদন সূচক/নির্দেশক (Performance indicators) এর বিবরণ;

(৬) মনোনীত ব্যক্তির ঘোষণাপত্র

(৭) মনোনীত ব্যক্তির গোপনীয়তা রক্ষার ঘোষণাপত্র

(৮) মনোনীত ব্যক্তির শিক্ষাগত যোগ্যতার সনদপত্রের সত্যায়িত কপি;

(৯) মনোনীত ব্যক্তি কর্তৃক প্রাপ্ত সর্বশেষ বেতন-ভাতা বা পুনঃনিযুক্তির ক্ষেত্রে প্রধান নির্বাহী কর্মকর্তা কর্তৃক প্রাপ্ত সর্বশেষ বেতন-ভাতাদির বিবরণ ও তার সমর্থনে প্রয়োজনীয় কাগজপত্রাদি;

(১০) মনোনীত ব্যক্তির সর্বশেষ আয়কর সনদের কপি;

(১১) মনোনীত ব্যক্তির সিআইবি প্রতিবেদন এবং Enquiry Form-1, Enquiry Form-2 Undertaking Form

( ১২) তিনি নিজে বা পরিবারের কোনো সদস্য সংশ্লিষ্ট ব্যাংকের শেয়ারধারণ করে থাকলে তার নিজের স্বাক্ষরিত ও ব্যাংকের কোম্পানী সচিব কর্তৃক প্রতিস্বাক্ষরিত বিবরণ;

(১৩) তাঁর পারিবারিক ব্যবসায়িক স্বার্থ সংশ্লিষ্টতার বিবরণ (যদি থাকে) যথা- ব্যবসার নাম, ঠিকানা ও অন্যান্য প্রয়োজনীয় বিবরণ;

১৪) মনোনীত ব্যক্তি প্রধান নির্বাহী পদে নিযুক্ত হলে ব্যাংকের ঋণ শৃঙ্খলা, উৎকর্ষতা, প্রযুক্তি, উদ্ভাবন সর্বোপরি আমানতকারীদের আস্থা এবং গ্রাহক সেবা বৃদ্ধিতে তিনি কিভাবে অবদান রাখবেন সে সম্পর্কে তাঁর নিজের স্বাক্ষরিত কর্মপরিকল্পনার বিবরণ।

Q5. Bangladesh Bans has fixed the maximum number of statutory audits in a financial year for the enlisted Statutory auditors. What are the benefits and challenges of this initiative?

Answer: As per DBI-3 Circular Letter No. 01 dated 05 February 2024, Bangladesh Bans has fixed the maximum 06 (Six) number of statutory audits in Banks and Finance Companies in a financial year for the enlisted Statutory auditors.

The auditor or audit firm shall not also be eligible for performing the auditing of financial statements of the company for a consecutive period exceeding three years. (Notification of Bangladesh Securities and Exchange Commission dated 20 June 2018).

Benefits-

i. Ensure better compliance

ii. Organizations benefit from an improved reputation as their financial reports are validated, free from errors, fraud, misrepresentation and inaccuracies by further checking by other firms.

iii. Reduces risk of companies

iv. Credibility of financial reports by ensuring verification of statements.

v. Identifying strengths and weaknesses and advising on areas needing improvement.

Challenges-

i. The biggest challenges are limitation of the audit firms.

ii. Conflicts of interest among audit personnel by the quality of the audit.

iii. Various aspects of an audit depend on the auditor's judgment, introducing potential variability from one auditor to another.

06. Interest rate corridor is better than fixing lending/deposit rate cap for the banks. Explain.

Answer: An interest rate corridor (IRC) is a system for guiding short-term market interest rates towards the central bank (CB) policy rate. It consists of a rate at which the CB lends to banks (typically an overnight lending rate) and a rate at which it takes deposits from them (deposit rate). The interest rate corridor is one of the important monetary policy tools used by the central banks to stabilize money supply and demand. It helps maintain a balance between supply and demand in the money market, and thus promotes stability in the banking and financial sector. In this regard. Adjusting the money supply is often essential to achieve targeted rates of output and inflation.

Once the corridor is applied, the short-term interest rates will not go above or below a certain limit, and so there will be no detrimental impact on the depositor and investor. In Bangladesh, the reverse repo (SDF) rate (the rate at which the central bank borrows money from the commercial banks) is 7.00% and the repo rate/policy rate (the rate at which the central bank loans to the scheduled commercials banks) is 8.50%. The difference among the rates is 1.50 basis points in Bangladesh. While inflation is high, output growth is not at an expected level either. So the central bank may raise the upper bound of the interest rate corridor to increase interest rates to control the money supply and tighten credit conditions in the economy.

On the other hand, because of the cap on the interest rate, flexibility in the hands of the financial market is limited; they would need to do their business and manage their clients within this fixed rate. The margin rate has also been increased, the practical scenario is that businesses are not in a position to open L/Cs as per the required level, thus business and output have not been growing.

The effectiveness of an interest rate corridor in addressing inflation depends on various factors such as the state of the economy, the level of inflation expectations, the credibility and independence of the central bank and the confidence of businesses about a business-enabling environment.

One of the main benefits of an interest rate corridor is that it allows central banks to signal their policy intentions to financial markets more effectively. By setting a target rate within the corridor, the central bank can communicate its desired level of interest rates to investors and borrowers, which can help to shape expectations and influence market behavior.

The spread should be based on the Bangladesh Bank’s assessment of the level of risk in the banking system and the amount of interest rate differential that it is willing to tolerate. The interest rate corridor is to influence short-term interest rates and achieve its policy objectives. Bangladesh Bank needs to promote economic stability and growth in Bangladesh.

07. What do you mean by Bancassurance? What are the eligibility criteria for a bank to offer Bancasurance services in Bangladesh?

Answer: Bancassurance means selling insurance product through banks. “Bancassurance” is an arrangement between a bank and an insurance company which allows the bank to sell insurance company’s products to the customers of the bank. Bancassurance business holds immense potential for banks as there is a huge untapped growth opportunity in the insurance. The primary role that the bank plays in the Bancassurance arrangement is to act as an intermediary for selling the insurance product of the insurance company and helping the company to achieve a large customer base and improve its reach in the market.

Eligibility Criteria for Bancassurance Business-

In granting an approval for Bancassurance, the bank shall comply the following criteria:

a) The capital to risk-weighted asset ratio (CRAR) with capital conservation buffer (CCB) shall not be less than 12.50 percent provided that the percentage to be fixed by BB from time to time;

b) Shall meet the credit rating not less than Bangladesh Bank (BB) rating grade 2 defined at the Guidelines on Risk Based Capital Adequacy;

c) Shall meet the minimum CAMELS rating of 2 of Bangladesh Bank;

d) The level of net non-performing loans (NPL) shall not be more than 5 percent;

e) Shall have positive net profit for the last three consecutive years;

f) Shall have a viable Bancassurance business plan and review mechanism which must be approved by the Board of Directors (BoD);

g) Shall have a competent and suitable manpower to operate a dedicated Bancassurance unit/wing and a declaration signed by the Managing Director of the concerned bank in this regard;

h) Common beneficial owners of bank and insurance company or related parties as defined under section 26(ga) of the Bank Companies Act, 1991 shall not be eligible for engaging with Bancassurance;

i) Any other document warranted/sought by BB shall have to be submitted.

8. Brief overview of the Bank Company (Amendment) Act 2023-

Answer: The Bank Company (Amendment) Act 2023 was passed on 21 June 2023, with certain significant changes.

The amendment has a provision extending tenure of bank directors to 12 years (per section 15AA). The Bank Company Act 1991 had provided that a director could hold the directorship for six years in a row. In 2013, the Act was amended, allowing a director to hold the bank directorship for six years, and the tenure was subsequently extended to nine years in 2018. Finally, this time around, the tenure has been extended to 12 years. The tenure of 12 years of a director in a bank is quite substantial and it may potentially jeopardise corporate governance in this sector.

Through the Bank Company (Amendment) Act 2018, the number of members of the same family in a private bank’s board was increased from two to four. Now it has been reduced to 3 by the 2023 amendment.

As per the amendment, the banks must send list of willful loan defaulters to Bangladesh Bank (BB) and the BB will publish it. The loan defaulters can file an appeal with the BB within 30 days. If a bank fails to send the list of loan defaulters to the central bank in time, the bank can be fined Tk 50 lac to Tk. 1 crore. According to the amendment, if a person or institution willfully fails to repay a loan, they will be considered willful defaulter. A willful defaulter cannot be eligible to be a director of a bank or financial institution until five years pass after their exclusion from the list of willful loan defaulters. The willful defaulters will encounter restrictions in travelling abroad, purchasing shares, exercising his/her directorship and so forth. Nonetheless, this amendment is in a way friendlier to loan defaulters on one count. According to the amendment of section 27AA, the sister concern of a company can get loan from the bank even though its sister concern is a defaulter. Before this amendment, all enterprises of a group were considered defaulters if a sister concern were a defaulter.

According to Bangladesh Corporate Governance Code, listed companies including banks, non-bank financial institutions, insurance companies and statutory bodies shall not have less than five and more than 20 directors at a time and among them at least one-fifth must be independent or non-executive directors. However, as per the 2023 amendment, there is scope for only 2 independent directors within a bank company.

9. Define Digital Bank. What are major requirements for obtaining license of a digital bank in Bangladesh?

Answer: Digital Banking is the automation of traditional banking services. The Digital Banking is banking done through the digital platform, doing away with all the paperwork like cheques, pay-in slips. Demand Drafts, and so on. It means availability of all banking activities online. All transactions, from opening an account to transferring money, paying bills, and more are done online or in the mobile app. It lets customers perform banking transactions and access banking services remotely, without having to visit a physical branch.

Benefits of Digital Bank

Following are some of the most important benefits of using digital banking payments:

Transactions performed through digital payments systems are faster, easier and more convenient than traditional banking transactions performed physically by visiting the branch.

+ Digital transactions are cheaper than the traditional payment system.

+ The convenience of banking from the comforts of home.

+24*7 availability of access to banking functions.

+ Paperless banking.

+Enables set up of automatic payments for regular utility bills.

+ Facilitates online payments for online shopping etc.

+ Extends banking services to remote areas.

+ Reduces the risk of counterfeit currency with digital fund transfers.

+Strengthens privacy and security for customers.

+Allows misplaced credit cards to be reported and blocked instantly.

+ Restricts the circulation of black money.

+ Lowers the minting demands of currency.

 

BB is intending to issue license for Digital Banks (DB) in pursuant to section 31 of the Bank Company Act, 1991. The terms and conditions for establishment of DB include (but not limited to ):

1. Must be a public limited company licensed under section 31 of the Bank Company Act, 1991;

2. Initial minimum Paid-up capital BDT 125.00 (One hundred twenty-five) crores shall be provided by the sponsors;

3. DB must go for Initial Public Offering (IPO) within 5 (five) years from the date of license issued by BB; the amount of IPO should not be less than the sponsor's initial paid-up capital.

4. The minimum shareholding stake of each sponsor shall be BDT 50.00(Fifty) Lac;

5. The maximum shareholding stake of each sponsor stipulated in BCA, 1991, in consultation with the government, may be relaxed in case of a digital bank, if necessary.

6. Sponsors' contribution to the share capital of the proposed DB will be required to be out of net worth declared to the Tax authorities. Sponsors' contribution out of borrowings from bank or financial institutions or from anywhere else, even from family members, shall not be acceptable;

7. Any enterprises, companies, individuals or any members of his/her family who is a current loan defaulter with any Banks or Financial Institutions shall not be eligible to apply as a sponsor.

8. The sponsors/directors must qualify the Fit and Proper Test (FPT) criteria applicable for the proposed directors of DB;

9.Bangladesh Bank now invites applications for establishing DB through the License Application Portal, web link of the portal is https://license.bb.org.bd

10. The amount of BDT 5.00 (Five) Lacs should be paid as a non-refundable application processing fee through the same web portal;

11. Sponsors" share shall not be transferred within a period of 5 (five) years from the commencement of the business, without prior permission from BB. But Bangladesh Bank will not give permission to transfer the shares of the sponsors within 3 (three) years from the commencement of the business.

12. The License Application Portal will remain open for accepting applications from 21 June 2023 to 1 August 2023.

10. Distinguish between Digitization & Digitalization.

Answer: i) Digitization refers to the process of converting physical objects into digital format. An example of this would be document scanning, where text from physical paper is converted into PDF or other digital formats, which are then stored in the computer. The process of digitization is the backbone for data recording, making it an important aspect of digital technologies.

In digitization, physical objects or information are stored in computers, but the process where this data is used may not be changed. This is the key difference between digitization and digitalization. Through digitalization, digital technologies and digitized data are utilized to enable or improve processes.

ii) While digitization focuses on converting and recording data, digitalization is all about developing processes and changing workflows to improve manual systems. An example of this would be using digitized customer data from different sources to automatically generate insights from their behavior.

iii) Digitization’s purpose is to encode information in computers by converting from analog to digital format. The process mainly deals with recording data that can eventually be used in digital technologies. Digitalization deals with information processing, or how digitized data can be used to improve workflows through automating existing processes.

11. What are the fit & proper test criteria for the CFO (chief financial officer) & chief information technology officer (CTTO) of a Bank?

Answer: The Bangladesh Bank has set criteria for requirement of chief financial officer and chief information technology officer in banks with the aim of managing the risks related to business and technology.

According to the circular, before appointing a CFO and a CITO, the banks should ensure that the candidates were not convicted by any criminal court and were not suspended from job for corruption. It also said that the banks would have to ensure the candidates were not defaulters or bankrupt.

For the CFO position, the candidates should have minimum 12 years of working experience in banks or financial institutions (FIs), including three years in banking accounting and taxation, will be required for a person's appointment of or posting to the post of CFO. His education qualification should be CA/CFA/CMA/Related professional degree or MBA/MBM or Post graduation degree from the subject of Economics, Finance, Accounting from any reputed universities.

For the position of CITO, the candidates should have at least 12 years' job experience in information technology sector with five (05) years' experience in banking IT, including IT policy and planning, financial network and application, financial information systems and cyber securities technology. the circular said. CITO candidates should have a degree on computer science, physics, mathematics or electrical engineering. Membership of any registered computer society is mandatory for the position, the circular added..

12. Mr. Rahim is a Director of a private commercial Bank and wants to avail loan facilities from his bank. Write the legal conditions to avail such loan.

পরিচালকের ঋণ সম্পর্কিত সাধারণ বিধান:

ব্যাংক-কোম্পানীর পরিচালক, তাঁর আত্মীয়-স্বজন এবং স্বার্থসংশ্লিষ্ট প্রতিষ্ঠানের অনুকূলে ঋণ ও অগ্রীম, এবং অন্যান্য আর্থিক সুবিধা প্রদানের ক্ষেত্রে ব্যাংক-কোম্পানী আইন, ১৯৯১ এর সংশ্লিষ্ট বিধানাবলী পরিপালনের পাশাপাশি নিড়েবাক্ত নির্দেশনাসমূহ অনুসরণ করতে হবেঃ

ক) ঋণ প্রাপ্যতার সীমাঃ

(১) পরিচালক, তাঁর একক মালিকানাধীন প্রতিষ্ঠান, তাঁর অংশীদারীত্বে পরিচালিত ফার্ম, এবং তিনি পরিচালক হিসেবে অধিষ্ঠিত আছেন এরূপ প্রাইভেট কোম্পানী ও পাবলিক কোম্পানী-এর অনুকূলে প্রদত্ত ঋণ ও অগ্রিম, গ্যারান্টি এবং অন্যান্য ঋণসুবিধার মোট পরিমাণ ঐ পরিচালকের নিজ নামে ধারণকৃত সংশ্লিষ্ট ব্যাংকের শেয়ারের পরিশোধিত মূল্যের ৫০% এর অধিক হবে না। এক্ষেত্রে, কোনো পাবলিক কোম্পানীতে ব্যাংকের পরিচালক যে পরিমাণ (শতাংশ) শেয়ার ধারণ করেন সেই অনুপাতে ব্যাংক ঋণ পরিচালকের ঋণ হিসেবে গণ্য হবে।

(২) পরিচালক ও তাঁর উক্তরূপ স্বার্থসংশ্লিষ্ট প্রতিষ্ঠানের অনুকূলে প্রদত্ত ঋণ ও অগ্রিম, গ্যারান্টি এবং অন্যান্য ঋণসুবিধার মোট পরিমাণ এই সার্কুলার কার্যকর হওয়ার তারিখে উক্ত পরিচালকের ধারণকৃত ব্যাংকের শেয়ারের পরিশোধিত মূল্যের ৫০% এর অধিক হলে তাৎক্ষণিকভাবে তা পর্ষদে উপস্থাপন করতে হবে এবং বাংলাদেশ ব্যাংককে অবহিত করতে হবে। বাংলাদেশ ব্যাংক কর্তৃক নির্ধারিত মেয়াদকালের মধ্যে পরিচালকের প্রাপ্যতার অতিরিক্ত সুবিধা পরিশোধ করতে হবে। কোনো অবস্থাতেই উক্ত ৫০% সীমার অধিক ঋণ ও অগ্রিম, গ্যারান্টি এবং অন্যান্য আর্থিক সুবিধার নবায়ন বা এর মেয়াদ বৃদ্ধি করা যাবে না।

খ) ঋণ অনুমোদনঃ

(১) পরিচালক, তাঁর একক মালিকানাধীন প্রতিষ্ঠান, তাঁর অংশীদারীত্বে পরিচালিত ফার্ম, তিনি পরিচালক হিসেবে অধিষ্ঠিত আছেন এরূপ প্রাইভেট কোম্পানী ও পাবলিক কোম্পানী, জামিনদাতা হিসেবে তাঁর সংশ্লিষ্টতা রয়েছে এমন ব্যক্তি বা প্রতিষ্ঠান, এবং পরিচালকের স্ত্রী, স্বামী, পিতা, মাতা, পুত্র, কন্যা, ভাই, বোন এবং পরিচালকের উপর নির্ভরশীল ব্যক্তি-র অনুকূলে সকল প্রকার ঋণসুবিধা, গ্যারান্টি এবং অন্য কোন আর্থিক সুবিধা প্রদানের ক্ষেত্রে ব্যাংকের পরিচালনা পর্ষদের সংখ্যাগরিষ্ঠের পূর্বানুমোদন গ্রহণ করতে হবে।

(২) ব্যাংক পরিচালক, তাঁদের উক্তরূপ আত্মীয়-স্বজন ও নির্ভরশীল এবং স্বার্থসংশ্লিষ্ট প্রতিষ্ঠান এর অনুকূলে প্রদত্ত ঋণ ও অগ্রিম, গ্যারান্টি এবং অন্যান্য আর্থিক লেনদেন বার্ষিক সাধারণ সভা কর্তৃক অনুমোদিত হতে হবে এবং ব্যাংকের নিরীক্ষিত আর্থিক প্রতিবেদনে উল্লেখ করতে হবে।

 

গ) ঋণের শর্তাবলী:

(১) পরিচালক, তাঁর একক মালিকানাধীন প্রতিষ্ঠান, তাঁর অংশীদারীত্বে পরিচালিত ফার্ম, তিনি পরিচালক হিসেবে অধিষ্ঠিত আছেন এরূপ প্রাইভেট কোম্পানী, এবং পরিচালকের স্ত্রী, স্বামী, পিতা, মাতা, পুত্র, কন্যা, ভাই, বোন এবং পরিচালকের উপর নির্ভরশীল ব্যক্তির অনুকূলে ঋণ ও অগ্রিম প্রদানের ক্ষেত্রে পরিচালকের ব্যক্তিগত গ্যারান্টি গ্রহণ করতে হবে। এরূপ ঋণের বিপরীতে প্রদত্ত জামানত ব্যাংকের অনুকূলে বন্ধকীকৃত হতে হবে।

(২) মুদারাবা বা মুশারাকাসহ অন্য যে কোন ঋণ/বিনিয়োগ পদ্ধতি, যাতে ঋণ গ্রহীতাকে লোকসান বহন থেকে সম্পূর্ণ বা আংশিক অব্যাহতি প্রদান করা হয়, এমন ঋণ/বিনিয়োগ পরিচালক বা পরিচালকের উক্তরূপ আত্মীয়-স্বজন ও নির্ভরশীল এবং স্বার্থসংশ্লিষ্ট প্রতিষ্ঠানের অনুকূলে প্রদান করা যাবে না।

ঘ) বাংলাদেশ ব্যাংকের পূর্বানুমোদনঃ

(১) পরিচালক, তাঁর একক মালিকানাধীন প্রতিষ্ঠান, তাঁর অংশীদারীত্বে পরিচালিত ফার্ম, তিনি পরিচালক হিসেবে অধিষ্ঠিত আছেন এরূপ প্রাইভেট কোম্পানী ও পাবলিক কোম্পানী, এবং পরিচালকের স্ত্রী, স্বামী, পিতা, মাতা, পুত্র, কন্যা, ভাই, বোন এবং পরিচালকের উপর নির্ভরশীল ব্যক্তির অনুকূলে প্রত্যক্ষ ঋণ ৫০ লক্ষ টাকা বা ততোধিক এবং প্রত্যক্ষ, পরোক্ষ ঋণ ও অন্যান্য আর্থিক সুবিধার সমন্বয়ে মোট ১০০ লক্ষ টাকা বা ততোধিক প্রদানের ক্ষেত্রে বাংলাদেশ ব্যাংকের পূর্বানুমোদন গ্রহণ করতে হবে। পূর্বানুমোদনের জন্য এতদসংগে সংযোজিত ছক অনুযায়ী ব্যবস্থাপনা পরিচালকের স্বাক্ষরে আবেদন করতে হবে। আবেদনের সাথে পর্ষদের সংশ্লিষ্ট সিদ্ধান্ত এবং ঋণের প্রস্তাবনার সত্যায়িত অনুলিপি প্রেরণ করতে হবে।

(২) ব্যাংকের কোনো পরিচালক/প্রাক্তন পরিচালক, তাঁর উক্তরূপ আত্মীয়-স্বজন ও নির্ভরশীল এবং স্বার্থসংশ্লিষ্ট প্রতিষ্ঠানের অনুকূলে প্রদত্ত ঋণ ও অগ্রিম এবং গ্যারান্টির বিপরীতে প্রদত্ত জামানত, সহ-জামানত, ব্যক্তিগত গ্যারান্টি, ইত্যাদি পরিবর্তন/রহিতকরণ/প্রত্যর্পণ করতে হলে বা ঋণ ও অগ্রিম, গ্যারান্টি প্রদান এবং অন্য কোনো আর্থিক সুবিধার কোনো শর্ত পরিবর্তন করতে হলে বাংলাদেশ ব্যাংকের পূর্বানুমোদন গ্রহণ করতে হবে। এ ধরণের ক্ষেত্রে মূল মঞ্জুরীপত্রের (ঋণের শর্ত সম্বলিত) অনুলিপি আবেদনপত্রের সাথে সংযুক্ত করতে হবে।

৬) ঋণ/সুদ মওকুফ:

(১) ব্যাংক-কোম্পানীর পরিচালক/প্রাক্তন পরিচালক, তাঁর একক মালিকানাধীন প্রতিষ্ঠান, তাঁর অংশীদারীত্বে পরিচালিত ফার্ম, তিনি পরিচালক হিসেবে অধিষ্ঠিত আছেন এরূপ প্রাইভেট কোম্পানী ও পাবলিক কোম্পানী, জামিনদাতা হিসেবে তাঁর সংশ্লিষ্টতা রয়েছে এমন ব্যক্তি বা প্রতিষ্ঠান, এবং তাঁর স্ত্রী, স্বামী, পিতা, মাতা, পুত্র, কন্যা, ভাই, বোন এবং নির্ভরশীল ব্যক্তির অনুকূলে প্রদত্ত ঋণ বা ঋণের অংশ এবং আয়খাতে নীত সুদ মওকুফ করা যাবে না।

(২) ব্যাংকের পরিচালক/প্রাক্তন পরিচালক, তাঁর উক্তরূপ আত্মীয়-স্বজন ও নির্ভরশীল এবং স্বার্থসংশ্লিষ্ট প্রতিষ্ঠানের অনুকূলে প্রদত্ত ঋণের উপর অর্জিত সুদ বা সুদের অংশ মওকুফ করার পূর্বে বাংলাদেশ ব্যাংকের অনুমোদন গ্রহণ করতে হবে। তবে, বর্তমানে ব্যাংকের কোনো শেয়ার ধারণ করছেন না এমন প্রাক্তন পরিচালকদের ক্ষেত্রে তাঁদের পরিচালক পদে থাকার পূর্বে বা পরবর্তীতে গৃহীত ঋণের ক্ষেত্রে বাংলাদেশ ব্যাংকের পূর্বানুমোদন ব্যতিরেকেই পরিচালনা পর্ষদের অনুমোদন।মে সুদ মওকুফ করা যাবে।

13. Have any policy and limits on Single Borrower Exposure? How much?

Answer: As per BRPD Circular No. 01 dated 16 January 2022,

Exposure Limits – The following limits shall apply:

A. Single Person/Counterparty or Group:

i) Aggregate Principal Exposure:

(a) The aggregate principal amount of funded and non-funded exposure to a single person/counterparty or a group shall not exceed 25% of the capital at any point of time.

(b) The aggregate principal amount of funded exposure to a single person/counterparty or a group shall not exceed 15% of the capital at any point of time.

14. Please describe large loan limit exposure.

Answer: As per BRPD Circular No. 01 dated 16 January 2022,

"Large Loan" - refers to any exposure to a single person/counterparty or a group which is equal to or greater than 10% of the capital

Large Loan:

i) Aggregate Exposure: The banks shall sanction large loans as per the following limits set against their respective classified loans:

 

Percentage of Classified Loan to Total Outstanding	Large Loan Portfolio Ceiling against Bank's Total Loans & Advances
Less than or equal to 3%	50%
Greater than 3% but less than or equal to 5%	46%
Greater than 5% but less than or equal to 10%	42%
Greater than 10% but less than or equal to 15%	38%
Greater than 15% but less than or equal to 20%	34%
Greater than 20%	30%

However, the aggregate amount of large loan exposure shall not exceed 400% of bank's capital at any point of time.

15. Define Non-performing loan. Causes of NPL & Mention how it reduce. What are the impact of non-performing loan on the solvency of a commercial bank?

A Non-Performing Loan (NPL) is a loan on which the borrower has stopped making scheduled repayments of principal or interest for a specified period.

A loan is classified as Non-Performing when: Interest or principal remains overdue for 3 months or more.

Categories of NPL

All NPLs fall within these three classes:

1. Substandard (SS)

2. Doubtful (DF)

3. Bad/Loss (BL)

Main Causes of NPL

Poor credit appraisal and monitoring

Willful default

Economic downturn/business failure

Political influence

Inadequate collateral

Inefficient recovery process

Reduce NPL

Strengthening credit risk management

Early warning system (EWS)

Rescheduling/restructuring policies

Settlement & write-off policies

Recovery drive & legal actions (Artha Rin Adalat)

Credit guarantee schemes

Automated monitoring systems

 

16. Impact of Non-Performing Loans (NPLs) on the Solvency of a Commercial Bank-

Answer: Non-Performing Loans significantly weaken the solvency of a commercial bank by reducing its ability to meet long-term obligations. High NPLs directly affect the bank’s capital, profitability, and liquidity, ultimately threatening its financial stability.

The major impacts include:

1.      Reduction in Profitability

Banks cannot earn interest from NPLs, causing a fall in net interest income.

Profit declines decrease retained earnings, which are a core part of Tier-1 capital, weakening solvency.

2. Increase in Loan Loss Provisioning

Bangladesh Bank requires banks to maintain higher provisions against NPLs.

These provisions are created from profits, reducing capital adequacy, weakening the bank’s solvency buffer.

3. Erosion of Capital (Capital Adequacy Ratio – CAR)

High NPLs increase risk-weighted assets (RWA).

Falling profits + increased provisioning = decline in CAR, a key measure of solvency.

If CAR falls below BB’s minimum requirement, the bank becomes undercapitalized.

4. Liquidity Pressure

NPLs lock in funds that cannot be recovered when needed.

This creates a shortage of cash to meet deposit withdrawals and other obligations.

Weak liquidity ultimately threatens solvency and going-concern capability.

5. Increase in Funding Cost

Stakeholders (depositors, lenders, investors) lose confidence.

Banks with high NPLs must offer higher interest rates to attract deposits or borrow, raising cost of funds and further weakening solvency.

6. Decline in Asset Quality

High NPLs reduce overall asset quality, a core solvency determinant.

Poor-quality assets mean higher expected losses, affecting long-term stability.

 

7. Lower Earning Capacity

Banks must divert management resources to recovery instead of new lending.

Reduced ability to grow business weakens long-term profitability and solvency prospects.

8. Reputational Damage

*          Loss of public and investor confidence may result in withdrawal of deposits, reduced interbank borrowing lines, and regulatory scrutiny all harmful to solvency.

9. Regulatory Intervention

If solvency deteriorates severely, Bangladesh Bank may impose restrictions:

Restrictions on lending

Mandatory capital injection

Special monitoring or prompt corrective action (PCA)

o. Merger/amalgamation

16. Explain minimum capital requirement to be maintained by a bank on a solo as well as consolidated basis against Risk weighted asset for credit, market and operational risks.

Answer: Required Minimum Capital Ratios- (Applicable to Both Solo & Consolidated)

Minimum CRAR: 10% of Total Risk-Weighted Assets (RWA):

-calculated after combining credit, market and operational RWA.

Capital Conservation Buffer (CCB): 2.50% of RWA (to protect against losses). So, the effective minimum capital requirement becomes 12.50% of RWA (i.e., 10% + 2.5% buffer).

a) Solo Basis- This means capital requirement computed for the individual bank (standalone).

b) Consolidated Basis- This means capital requirement computed for the bank + its subsidiaries & consolidated entities as a group.

This ensures risks from all related entities are captured in the capital calculation.

To work out the total RWA, capital charges for credit, market and operational risks are calculated as follows:

A. Credit Risk

Risk-weighted assets for loans and advances to customers and other exposures using standardized risk weights (0%, 20%, 50%, 100%, etc.) depending on counterparty type and riskiness.

-These RWAs cover on-balance sheet and off-balance sheet exposures.

B. Market Risk

Capital charge for market risk (from positions in trading book, FX, interest rate risk, equities, commodities etc.) is calculated using standardized market risk approaches.

-That capital charge is converted into RWA by dividing by the minimum capital ratio and multiplying by 100.

C. Operational Risk

Capital charge for operational risk (risks from internal failures, fraud, systems, legal risks etc.) is computed using one of the approved approaches (e.g., Basic Indicator Approach).

Similarly, it is converted into RWA for inclusion.

Finally, the Total RWA RWA for credit + RWA equivalent for market risk + RWA equivalent for operational risk.

17. Dividend related circular.

Key Points of the 7 Feb 2021 Circular

The central bank limited maximum dividend payout at 30% of a bank's paid-up capital.

The dividend ceiling was tied to capital adequacy levels: banks with better capital strength could declare higher dividends:

·         Banks with ≥15% CAR (including 2.5% Capital Conservation Buffer) could declare up to 30% dividend (with up to 15% cash).

·         Banks with 13.5%-15% CAR could declare up to 25% dividend (up to 12.5% cash).

·         Banks maintaining 11.875% CAR could declare up to 15% dividend (up to 7.5% cash).

·         Banks with lower CAR but above minimum could issue up to 5% stock dividend if they took deferral facility for provisioning.

Bangladesh Bank Dividend Declaration Circular - Latest (March 13, 2025)-

Bangladesh Bank issued new guidelines restricting dividend payments by banks to strengthen the financial health of the banking sector and protect depositors. These rules will apply to dividend declarations for the calendar year/financial year ending December 31, 2025.

Key Principles of the Dividend Circular

·         Cash dividends can only be paid from the current year's profits - not from prior accumulated profits.

·         Banks with outstanding penalties or fines (e.g., for CRR/SLR shortfalls) cannot declare dividends.

·         No dividend if provisioning shortfalls exist against loans, investments, or other assets.

·         Banks that have obtained deferral facilities from Bangladesh Bank (to meet provisioning or expense shortfalls) must clear those before dividend payout eligibility.

Dividend Eligibility Conditions

a) Asset Quality Condition

*          Banks with classified/ default loans (NPLs) exceeding 10% of total loans will not be allowed to declare dividends.

b) Capital Adequacy Requirements

*          Bangladesh Bank's dividend policy is also linked with capital ratios (CAR):

CAR Range	Dividend Cap
CAR 2 15% (including 2.5% capital conservation buffer)	Up to 50% dividend allowed (if post-dividend CAR stays above minimum)
CAR between 12.5% and 15%	Up to 40% dividend allowed (subject to regulatory compliance).
CAR between 10% and 12.5%	Only stock dividends permitted no cash dividend.
Below minimum CAR (10%) or if buffer not met	No dividend.

 

c) Other Dividend Restrictions-

*          Dividend payout ratio is capped typically up to 30% of paid-up capital for most compliant banks.

*          Stronger banks (with higher CAR) may be allowed higher payout ratios (up to 40-50%).

*          Dividend distributions are contingent on compliance with prudential norms - CRR/SLR, provisioning, NPL ratio, etc.

d) Objective of the Circular-

The circular aims to:

·         Promote strong capital buffers and discourage payouts that weaken capital. Protect depositor interests and systemic stability.

*          Ensure banks priorities asset quality improvement and provisioning before shareholder returns.

18. Penalty- Section 109 Penalty & amendment –

According to the Banking Companies (Amendment) Act, 2023:

Refusal to Produce Documents (Under Section 44)

·         Fine for refusal: between MinimumTK. 20,000 maximum TK. 500,000.

·         If the refusal continues, there's an additional TK. 1,000 per day after the first day.

Violation of "other provisions/Conditions/Orders / Directives / Rules":

·         Fine: minimum TK. 20,000, maximum TK. 200,000.

·         If the violation continues, an additional TK. 1,000 per day from the second day onwards.

False/Misleading Information or Documents (Section -109)

·         Fine up to TK. 5 lakh, or imprisonment up to 3 years, or both, under the amended Act.

"Willful Defaulter" Reporting Penalty

·         if a bank does not send the list of "willful defaulters" to BB, Bangladesh Bank can impose a fine: TK. 5 million (50 lakh) up to TK. 10 million (1 crore).

·         And if the violation (non-reporting) continues, a fine of TK. 100,000 (1 lakh) per day is possible.

Misuse of the Word “Bank” without Authority or Operating Without a Valid License(Violation of Section 8)

·         Using the word "Bank" without proper authority/license can attract up to 7 years imprisonment or a fine of TK. 50 lakh, or both. and for continued violation, "a fine not exceeding TK. 1 lakh per day".

Violation of section 13 (7), section 25 (3,4 & 5), section 26 (3), section 29 (3), section 33 (5)-

·         Fine minimum TK. 3 lac & maximum Tk.30 lac and for continued violation, "a fine minimum Tk.5,000 & maximum Tk.50,000 for every day after first day".

*          Section 39 of the Bank Company Act (1991) covers amalgamation and reconstruction.

19. Bank Merger Guideline-

*          According to Bank Merger Guideline, 2024 (issued by Bangladesh Bank):

The directors of the transferring bank must lose their directorship in the merged/acquiring bank for at least 5 years.

Likewise, senior management (up to deputy general manager level) of the merging bank should not be automatically absorbed into the merged bank.

·         This guideline helps avoid conflict of interest and ensures that weak governance in the weak bank is not carried into the stronger / acquiring bank.

·         BB will continue to monitor the merged entity’s financial indicators (like capital, non-performing loans, liquidity) to ensure stability after integration.

Why & When Amalgamation / Reconstruction Happens

·         Voluntary Amalgamation: Banks may mutually agree to merge (for example, to gain scale, reduce costs, or improve financial strength).

·         Compulsory / Forced Amalgamation: Under the 2023 amendment, BB can enforce merger when a bank is weak (capital shortfall, bad loans, poor governance) to protect depositors.

·         Reconstruction: Not just merging structure, converting certain liabilities, reassigning board / staff, or other major changes –reconstruction might involve redefining capital to revive a distressed bank. The legal scheme under Section 39 covers all this.

Risks, Challenges & Criticisms

·         Merged/reconstructed banks may carry over legacy non-performing loans (NPLs) or weak assets from the weaker bank, affecting the financial strength of the combined entity. (Mentioned in the merger guideline.)

·         If not handled well, depositors' interests might be at risk. But the law/ scheme requires consideration of depositors' claims.

·         Governance risk: If old directors or management carry over, the issues may not actually be resolved hence BB’s restriction on board / senior management in the guideline.

Importance & Purpose

·         Protect Deposit Interests: By allowing reconstruction / forced merger, the law helps protect depositors if a bank is failing.

·         Systemic Stability: Merging weak banks with stronger ones reduces the risk of bank failure.

·         Efficient Use of Resources: Merged banks may achieve economies of scale, reduce cost, and improve profitability.

·         Regulatory Control: Giving BB the authority to direct or approve mergers ensures that bank consolidation happens in an orderly, supervised way.

Current Bank Merger & Reconstruction Policy in Bangladesh (2024-2025)

1. First-Ever Merger Guideline Issued by Bangladesh Bank

*          In April 2024, BB issued a formal guideline for bank mergers/amalgamations, covering both voluntary and forced mergers.

*          The guideline applies to:

One or more banks merging with another bank.

Financial institutions (non-banks) merging with banks or with each other.

Foreign bank branch mergers through their parent companies.

2. Regulatory & Policy Support/Incentives for Mergers

*          To encourage "strong banks" to absorb weak ones, Bangladesh Bank is offering several regulatory relaxations:

Relaxation on Minimum Capital Requirement (MCR).

Lower/more flexible requirements for CRR (Cash Reserve Ratio),

SLR (Statutory Liquidity Ratio).

Liquidity coverage (LCR) and stable funding (NSFR) relaxations.

·         Liquidity support mechanisms:

BB may purchase long-term bonds/debentures from the acquiring (transferee) bank.

Issuance of shares, subordinated bonds is permitted to raise fresh capital.

Losses of weak banks may be converted into goodwill in the books of the acquiring bank.

3. Conditions on Board/Management / Employees

*          The directors of the transferor (weak) bank cannot join the board of the acquiring bank for 5 years.

*          Senior management (up to Deputy GM) from the merging bank will not necessarily be absorbed into the merged bank.

*          However, employees are protected: the acquiring bank must retain transferred employees for at least 3 years.

4. Protection of Depositors

*          Priority is given to individual depositors of the transferor bank: when planning payments or integrations, their deposits/accounts are prioritized.

*          For institutional depositors, a clear payment plan must be prepared and submitted to Bangladesh Bank.

*          BB states: "priority must be given to continuing the accounts of depositors" in the merged/acquiring bank.

5. Due Diligence / Valuation

*          Before approval, a due diligence (financial + legal) is required: the acquiring bank (bidder) must evaluate both its own books and those of the transferor.

*          BB will appoint external audit firms for due diligence costs borne by BB.

*          The valuation of assets and liabilities (for determining share-swap, price) is based on mutual agreement. But if there is disagreement, BB has a final say.

6. Process for Forced Mergers

*          BB uses a Prompt Corrective Action (PCA) framework: banks are categorized (sound, stable, distressed) based on financial health (NPLs, capital, etc.).

*          If a "distressed" bank (under PCA) does not recover in the prescribed period. BB may initiate a compulsory merger.

*          For forced mergers: BB will confidentially invite Expression of Interest (EOI) from eligible banks.

*          If no bidders / EOI, BB may explore reconstruction, acquisition, moratorium, or winding-up.

7. Legal/Structural Steps

*          Once BB approves a merger scheme, the merging banks need to get shareholder approval (e.g., extraordinary general meeting).

*          Then apply to High Court for legal sanction (since company-law merger/amalgamation needs it).

*          The scheme must clearly define how assets, liabilities, rights are transferred, and how the new/merged company will be structured.

8. Regulatory Oversight After Merger

*          BB will monitor the merged entity's financial indicators (capital, NPL, liquidity) actively to ensure stability post-merger.

*          Regulatory compliance will be required for several periods, especially while the acquiring bank absorbs the weak bank's business. (Guideline implies this.)

9. Limit on New Mergers (for Now)

*          According to BB, no new bank-merger proposals will be accepted for the next 3 years, except for the 5 banks already in merger process.

*          This suggests BB wants to focus on ongoing mergers, learn from them, and not open the door for too many deals at once.

10. Future/Legal Reform: Bank Resolution Act

*          BB is working on a Bank Resolution Act, which will allow more direct power to force mergers, recapitalize, * liquidate, or restructure failing banks.

*          This would give a more robust legal framework (beyond just the Bank Company Act) to deal with systemic banking failures.

11. Compensation for Shareholders / Investors

*          In a 5-bank merger announced recently, BB says general shareholders may not be protected fully from losses.

*          However, small investors (minor shareholders) might be compensated, based on an independent valuation by BB-appointed valuers.

 

20. Inclusive Banking-

Inclusive banking refers to providing affordable financial services to underserved populations. including rural communities, low-income groups, women, the elderly, and people who traditionally lack access to formal finance. Its core objective is to ensure that no individual remains excluded from savings, credit, remittance, insurance, and digital payment services due to cost, distance, or documentation barriers.

In developing countries like Bangladesh, a large portion of the population was historically dependent on informal credit sources, which often charge high interest rates. The introduction of agent banking, microfinance institutions (MFIs), simplified KYC procedures, and digital platforms has significantly improved access. Through agent banking, customers in remote areas can open accounts using e-KYC, receive government allowances, and conduct transactions at low cost.

Inclusive banking reduces poverty by providing low-income households with access to financial tools that help build assets and manage risks. It also empowers women by enabling them to manage personal savings and start small businesses. From the national perspective, increased financial inclusion promotes economic growth, boosts savings mobilization, and strengthens the formal economy by reducing cash dependency.

Overall, inclusive banking is essential for building an equitable financial system where economic opportunities are accessible to all citizens.

21. Corporate Governance in Banking-

Corporate governance refers to the framework of rules, structures, and processes through which banks are managed and controlled. As custodians of public deposits, banks require strong governance mechanisms to ensure accountability, transparency, and financial discipline.

Effective corporate governance includes a competent and independent board of directors, separate roles for chairman and CEO, strong audit committees, rigorous internal controls, and compliance with regulatory guidelines issued by Bangladesh Bank. Weak governance such as undue influence in loan approval, related-party lending, and inadequate risk management-can lead to high non-performing loans (NPLs), liquidity shortages, and erosion of public trust.

Good governance promotes ethical behavior, protects depositors, and strengthens the stability of the banking sector. It ensures proper assessment of loan proposals, transparent reporting of financial results, and strict compliance with prudential regulations. Independent directors and internal auditors play a key role in monitoring management activities and preventing abuse of power.

Strengthening corporate governance helps improve credit discipline, enhances investor confidence, and supports sustainable economic growth. For Bangladesh, improving governance is essential to reducing NPLs and modernizing the financial system.

22. Ethics in Banking-

Ethics in banking refers to the moral principles and standards guiding the behavior of banks and their employees. Since banks manage public money and influence the economy, ethical conduct is essential for maintaining trust and ensuring long-term stability.

Key ethical principles include honesty, fairness, integrity, confidentiality, and avoidance of conflicts of interest. Ethical banking prohibits insider lending, manipulation of financial statements, mis-selling of products, bribery, and discrimination. Employees must follow codes of conduct and respect customer rights at all times.

Ethical lapses often lead to major financial scandals, loss of reputation, and regulatory penalties. For example, approving loans under political pressure or without due diligence can create non-performing assets and damage the bank's financial health. Ethical compliance also requires following KYC, AML, and CFT guidelines to prevent money laundering and terrorist financing.

Banks that practice strong ethics enjoy customer loyalty, reduced operational risks, and higher organizational performance. They attract competent employees and foster a positive culture of responsibility.

Ultimately, ethics in banking is a foundation for trust, integrity, and sustainable operations in the financial sector.

23. Green Banking-

Green banking refers to environmentally responsible banking practices that promote sustainability and reduce the ecological footprint of the banking sector. It includes financing eco-friendly projects, implementing green office practices, and encouraging customers to adopt environmentally sustainable behaviors.

Bangladesh Bank has introduced Green Banking Guidelines requiring banks to allocate funds for renewable energy, energy-efficient technology, waste management, and green industry development. By financing solar irrigation, biogas plants, effluent treatment plants (ETPs), and green factories, banks play a direct role in combating climate change.

Internally, green banking promotes reduced paper use, digital services, energy-efficient buildings, and proper waste disposal. These practices lower operational costs and improve institutional reputation. Green financing has also opened access to global climate funds and sustainable finance initiatives.

Green banking contributes to long-term environmental protection while supporting economic growth. It helps create a resilient economy that balances development with ecological conservation. As climate risks intensify, integrating environmental responsibility into banking becomes more crucial than ever.

24. Risk Management in Banking-

Risk management refers to the systematic process of identifying, assessing, and mitigating risks that may adversely impact a bank's financial performance or capital. Major risks include credit risk, market risk, operational risk, liquidity risk, interest rate risk, and cyber risk.

Effective risk management begins with risk identification and proper measurement tools, such as credit scoring models, stress testing, and early-warning systems. Credit risk is controlled through borrower analysis, collateral verification, sector diversification, and post-disbursement monitoring. Market risk requires appropriate asset-liability management to address interest rate and exchange rate fluctuations.

Operational risk is minimized through strong internal controls, employee training, fraud detection systems, and disaster recovery plans. Banks must comply with Basel III regulations, which include maintaining adequate capital, liquidity standards, and risk-weighted asset calculation.

Strong risk management enhances profitability, maintains financial stability, and protects depositors. In Bangladesh, rising NPLs highlight the need for better risk culture, governance, and accountability.

Overall, efficient risk management is essential for a resilient and sustainable banking system.

25. Alternative Delivery Channels-

Alternative Delivery Channels (ADCs) refer to non-branch channels that offer banking services to customers. ADCs include ATMs, internet banking, mobile banking, POS terminals, agent banking, call centers, and digital kiosks.

ADCs reduce the need for physical branches and offer customers convenience, operational efficiency, and lower transaction costs. In Bangladesh, the expansion of smartphones and mobile financial services has accelerated the use of digital channels. Agent banking has also played a major role in bringing financial services to rural populations.

ADCs support financial inclusion by enabling low-income groups to access savings, credit, and payment services without visiting a branch. Banks benefit through reduced workload, increased customer outreach, and improved service quality.

Challenges include cybersecurity risks, network disruption, system integration issues, and limited digital literacy in rural areas. To maximize benefits, banks must invest in robust IT infrastructure, customer education, and strong security protocols.

As digital transformation accelerates, ADCs represent the future of banking and play a central role in building a cashless and inclusive financial ecosystem.

26. Merger Banking-

Merger banking refers to the consolidation of two or more financial institutions to create a stronger and more efficient entity. Mergers help banks improve capital adequacy, increase market share, diversify risk, and reduce operational costs.

In Bangladesh, discussions on bank mergers have gained momentum due to rising NPLs, weak governance, and inefficiencies in some banks. Mergers can help stabilize financially distressed institutions by combining resources, technology, talent, and management expertise. They also allow banks to optimize branch networks and reduce duplication of services.

However, mergers bring challenges such as aligning corporate cultures, integrating IT systems, managing employee redundancies, and maintaining customer confidence. Proper regulatory oversight and transparent communication are essential to ensure a smooth transition.

Successful mergers strengthen the overall banking sector, enhance competitiveness, and promote long-term stability. They also help banks better comply with Basel III standards and adapt to global financial trends.

22. Current Financial Crisis in Bangladesh-

Bangladesh is currently facing a complex financial crisis driven by multiple internal and external factors. Major issues include high inflation, declining foreign exchange reserves, multiple exchange rates, rising government debt, and severe pressure on the banking sector.

The banking system is burdened by high non-performing loans (NPLs), weak loan recovery mechanisms, and governance failures. Irregular loan rescheduling, political influence, and inadequate risk management have contributed to deteriorating asset quality. Some banks face liquidity shortages, increasing public concern about financial stability.

Externally, global geopolitical tensions, rising commodity prices, and supply chain disruptions have worsened the situation. Export growth has slowed, remittance inflows are inconsistent, and the taka has depreciated significantly. These challenges have strained the balance of payments and increased dollar shortages.

To overcome the crisis, Bangladesh needs structural reforms including improved governance, tighter monetary policy, export diversification, and better debt management. Strengthening regulatory oversight and enforcing credit discipline are essential for restoring confidence.

Although the situation is challenging, coordinated efforts between government, Bangladesh Bank. and financial institutions can stabilize the economy and ensure sustainable recovery.

28. Al-Driven Lending-

Al-Driven Lending refers to the use of artificial intelligence (AI), machine learning (ML), big data analytics, and automation to assess borrowers, underwrite loans, detect risks, and manage the entire lending lifecycle more efficiently than traditional manual methods.

Al-driven lending is a technology-enabled lending model where credit decisions are made using algorithms that analyze large volumes of data-including financial history, alternative data, behavioral patterns, and real-time transactions. Instead of depending only on manual judgment or traditional credit scores. Al provides faster, more accurate, and more predictive credit assessment.

Benefits of Al-Driven Lending

1. Faster Loan Processing

Loan decision within minutes

End-to-end automation reduces manual workload

2. Better Credit Assessment

Higher accuracy in predicting borrower default

Reduces NPL (Non-Performing Loans)

3. Financial Inclusion

Helps banks lend to thin-file or unbanked individuals using alternative data

4. Cost Reduction

Less manpower needed for verification and underwriting

Better resource allocation

5. Fraud Detection

Al identifies suspicious activity like:

Fake documents

Identity theft

Unusual transaction behavior

Al-Driven Lending in Bangladesh

Banks and NBFIs are adopting Al for:

Digital KYC (e-KYC)

Real-time credit scoring

SME and retail loan automation

Mobile banking and agent banking analytics

Bangladesh Bank also encourages fintech and digital lending innovations through:

Digital Banking Guidelines 2023

e-KYC & CIB automation

29. Bangladesh Government Treasury Bill (T-Bill) & Treasury Bond (T-Bond)-

Government Treasury Bills and Bonds are government securities issued by the Government of Bangladesh through Bangladesh Bank to meet budget deficits, manage liquidity, and develop the domestic debt market.

Treasury Bills (T-Bills)

Definition: Treasury Bills are short-term government securities issued at a discount and redeemed at face value.

They are used mainly for short-term funding and liquidity management.

Maturity Tenors:

91-day T-Bill

182-day T-Bill

364-day T-Bill

Key Features:

Short-term (less than 1 year)

No periodic interest (zero-coupon)

Sold at discount, redeemed at par

Auctioned weekly by Bangladesh Bank

Popular among banks for SLR maintenance

Example:

A bank buys a 91-day T-Bill at Tk. 96.50 for Tk. 100 face value.

After 91 days bank receives Tk. 100 earning Tk. 3.50 as interest.

Treasury Bonds (T-Bonds)

Definition: Treasury Bonds are long-term government securities with fixed coupon interest, payable semi-annually.

Maturity Tenors:

Bangladesh Government issues:2-years-20 Years T-Bond

Key Features:

Long-term (2-20 years)

Paying a fixed coupon interest rate every six months

Tradable in the secondary market

Used for SLR requirements of banks

Suitable for long-term investors (insurance, pension funds, banks)

 

30. Significant Number of Shareholding-

A significant number of shareholding means holding a certain percentage of shares in a company such that the shareholder can influence decisions, vote meaningfully, or affect the control of management. It does not necessarily mean full control, but it represents material influence.

Characteristics of a Significant Shareholder

A person or institution with significant shareholding typically has the ability to:

·         Influence board decisions

·         Vote on major corporate actions

·         Appoint directors (partially)

·         Block special resolutions (for certain thresholds)

·         Affect dividend policy

·         Participate in strategic decisions

Under Bangladesh Bank and BSEC regulations:

For Banks (Bank Company Act, 1991):

10% shareholding by any individual/group requires prior approval of Bangladesh Bank.

No person or institution can ordinarily hold more than 10% shares of a bank without permission.

This threshold is considered a significant influence level.

For Stock Market (BSEC Rules):

Holding 10% or more is treated as "Sponsor/Director Shareholding" level.

Holding 5% or more must be disclosed as a significant shareholder.

Insider trading rules apply to 10%+ holdings.

For Accounting (IAS 28 / BAS 28):

20% or more indicates significant influence over financial and operating decisions.

31. Blockchain-Based Trade Financing-

Blockchain-based trade financing refers to the use of distributed ledger technology (DLT) to conduct and manage trade financę operations such as Letters of Credit (LC), Documentary Collections, Guarantees, and Supply Chain Finance-in a secure, digital, and transparent manner.

It replaces traditional paper-based, manual, time-consuming processes with real-time digital transactions shared among all trade participants.

32. Foreign Exchange Reserves & Gross reserves-

Foreign exchange reserves are external assets held by the central bank or monetary authority in foreign currency, gold, SDRs, and IMF reserve positions, available for intervention in the foreign exchange market and to meet international payment obligations.

Whereas,

Gross reserves include all foreign assets of the central bank plus net claims on government and other assets, without deduction of any liabilities (like foreign currency liabilities).

Bangladesh Bank Reporting (BPM6-Balance of Payments Manual 6th edition)-

·         Foreign exchange reserves: Include gold, foreign currency deposits, bonds, IMF SDRS, and reserve position.

·         Gross reserves: Total of all foreign assets of Bangladesh Bank.

·         Reported in weekly/monthly reserves bulletin.

*          Calculated following BPM6 guidelines for international comparability.

33. Ultimate Beneficial Owner (UBO)-

The Ultimate Beneficial Owner (UBO) is the natural person(s) who ultimately owns or controls a legal entity or arrangement, such as a company, trust, or partnership, and who enjoys the benefits of ownership or control, even if the ownership is exercised indirectly through multiple layers of companies, trusts, or nominees.

Criteria for Identifying UBO

According to Bangladesh Bank, Financial Action Task Force (FATF), and global AML standards:

1. Ownership Threshold: Individuals owning ≥25% of shares or voting rights are usually considered UBO.

2. Control Criteria: Individuals exercising control through other means, such as:

*          Appointment of board members

*          Rights to approve strategic decisions

*          Trust agreements

3. Ultimate Beneficiary in Complex Structures

*          For layered corporate structures, the natural person at the top is considered the UBO.

*          Even if shares are held by another company or trust, trace back to the real owner.

34. CRM-(Cash Recycler Machine)-

A Cash Recycler Machine is an advanced device that allows both cash deposits and withdrawals. It verifies currency notes, detects counterfeit money, and instantly credits the deposited amount to the customer's account. The deposited cash is "recycled" and used for withdrawal by others, reducing the need for cash reloading. CRMs improve branch efficiency. reduce teller operations, and provide real-time deposit services even outside banking hours.

35. POS (Point of Sale Terminal)-

A POS terminal is an electronic device used by merchants to accept digital payments through debit cards, credit cards, or contactless NFC. It instantly processes transactions and transfers money from the customer's account to the merchant's account. POS machines reduce cash handling, support retail digital payments, and promote cashless transactions. They are widely used in retail shops, restaurants, supermarkets, and service centers.

36. QR Code (Quick Response Code)-

QR Codes are two-dimensional barcodes that store payment and merchant information. Customers scan the QR using mobile banking or MFS apps like bKash, Nagad, or bank apps to make instant digital payments. QR payments are simple, low-cost, and do not require POS machines. They are especially popular among small merchants, transport services, street vendors. and e-commerce platforms. QR codes support the growth of cashless and contactless payments.