'We are sued, interrogated and removed when an allegation of scams surfaces. But, we are not solely responsible for such misdeeds; rather, boards coerce us into doing things'
Not so long ago, being a managing director of a bank was a sought-after job and one to which most bankers aspired. But the once prestigious position is increasingly losing its lustre among bankers due to the undue interference of banks’ board of directors in day-to-day activities of the management.
Bank officials said an MD can grant a loan of up to Tk4-5 crore, and a proposal has to be tabled at board meetings for approval to disburse amounts bigger than this.
Seeking anonymity, the MD of a private bank told the Dhaka Tribune: “In the name of monitoring and supervision, board wants the management to place proposals for big amounts of loans at board meetings. But their motive behind this is to interfere in managerial activities.”
A former vice chairman of a leading private bank admitted that the interference was one of the main sources of tension between the board and the bank executives.
“We, the directors and shareholders, invest huge amounts of money in launching and running a banking business. For this reason, we sometimes have to intervene in loan disbursement issues,” he said, asking to be anonymous.
He, however, denied the allegations of gross interference.
The MD of one of the nine newly launched banks said MDs are often made scapegoats for the shady actions of boards.
Boards coerce MDs into sanctioning dubious loans, but in the end, they deny their wrongdoings when the loans go bad, he alleged.
“We are sued, interrogated and removed when an allegation of scams surfaces. But, we are not solely responsible for such misdeeds; rather, boards coerce us into doing things,” he claimed.
Describing the interference as a malpractice in corporate governance, Dr Toufic Ahmad Choudhury, director general of the Bangladesh Institute of Bank Management, said that ensuring transparency and accountability in the sector has become a challenging task due to such interference by boards.
Causes and effects
Unauthorised interference of boards in regular managerial activities is severely disrupting the smooth running of banks, insiders say.
A former MD of a private bank said: “Along with the recruitment process, boards interfere in a wide range of issues ranging from disbursement of bad loans to illicit financial flows, preventing MDs from properly discharging their duties.”
Experts said the central bank’s deviation from its rules and failure to effectively monitor commercial banks’ activities, the ever increasing number of banks, manipulation of corporate governance, lack of measures to increase the retirement age of MDs, and bankers’ involvement in anomalies are among the factors that allow boards to get in the way of MDs’ responsibilities.
The situation may take a turn for the worse if the current malaise continues to prevail, they warned.
MDs being made scapegoats
Bangladesh Bank has recently removed Dewan Mujibur Rahman from the posts of managing director and chief executive officer at NRB Commercial Bank following loan scams involving around Tk701 crore.
A Bangladesh Bank investigation found that Mujibur was not the only person involved in the scams, but a number of directors of the bank and former Mercantile Bank chairman Md Shahidul Ahsan were also found responsible.
The central bank is yet to take action against board chairman Engr Farasath Ali, who is a leader of the ruling Awami League and has strong connections with the party’s top brass.
In response to yet another incident of gross violation of banking rules, the apex regulatory body for the country’s monetary and financial systems ordered removal of Farmers Bank MD AKM Shameem.
On December 13, while presenting his side of the story before a central bank body, the beleaguered MD blamed the bank’s board of directors for its current precarious financial situation, saying they used the management as pawns in executing their agenda of corruption.
Earlier, in 2014, Bangladesh Bank removed Kazi Faqurul Islam from the position of managing director at scam-hit BASIC Bank. The MD of Meghna Bank Mohammed Nurul Amin was allegedly forced to resign. At the National Bank, three MDs were replaced in a span of just three years. For the last eleven months, the bank has been running without a managing director.
Even after the scams were widely reported across different media outlets, none of the board members in the above cases was sued or fired, leaving a bad impression on bankers and thus discouraging them to apply for the post of managing director at private banks.
Source also said MDs are fired outright when they are found to be disagreeing with boards on disbursement of bad loans and other illegal issues.
Khondkar Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said: “Bank owners may find and recruit an MD with higher salaries, but they would not be able to find a skilled one to smoothly run their banks, if the current situation continues to prevail.
“And those who are in the position will be more like a servitor than a professional managing director.”
Are MDs innocent?
Some MDs and CEOs confessed to their limitations, saying some of them join the board and other vested quarters in carrying out illegal activities.
When an MD gets into an illicit activity, he or she is coerced into assisting the board in their scams and irregularities, said a former MD of a scam-hit bank.
A bleak, uncertain future ahead
Currently, 57 banks are in operation in the country. Whereas a majority of them are in turmoil and riddled with numerous crises and anomalies, the government has decided to give the nod to another three banks.
Raising questions over the necessity of new commercial banks, experts said the number of banks in the country is already higher than actually needed.
At least 10 MDs at private banks will go into retirement by next year, while many are being terminated as some of the banks are facing “hostile” takeovers.
In recent times, Islami Bank Bangladesh Ltd (IBBL) and Social Islami Bank Ltd (SIBL) faced such takeovers.
Regulator playing a dubious role
The central bank was supposed to play a strong role in addressing the anomalies, but its policy and initiatives in this regard have failed to address the situation, experts said.
According to Bangladesh Bank guidelines, an MD is required to submit a letter to the central bank a month before his or her resignation, detailing the reasons for resignation. But, the MDs of the IBBL and SIBL were apparently forced to resign in a day, and Bangladesh Bank, too, accepted their resignations.
“Whom will we raise our issues with, if the central bank, despite being a regulator, deviates from its policy,” the MD of a bank said, expressing deep concerns over the central bank’s apparently dubious role.
Asked, Bangladesh Bank Executive Director and Spokesman Subhankar Saha said: “The central bank has set specific guidelines that permit the management board to resist unauthorized interference and work independently.”
He, however, declined to make any comment on allegations that the central bank supported boards in removing MDs of some of the banks.
To address the prevailing mess, former Bangladesh Bank governor Dr Salehuddin Ahmed stressed ensuring good governance, transparency and accountability in the banking sector.
He also highlighted the need for a strong and independent central bank with focus on core banking issues as well as for a system of prompt corrective and administrative actions to deal with these irregularities.
Former SIBL MD and CEO Md Shafiqur Rahman said: “As per the current law, the retirement age for an MD is 65. The age limit should be increased so that those who are still physically and psychologically capable of discharging their duties can lead the banks. This may help address the prevailing crisis over MDs.”
He urged the Association of Bankers, Bangladesh to come forward to safeguard the interests of those employed in top managerial positions at the banks.