Regulators to Banks: New Policy Raises Leadership, Bias Concerns

In a significant policy shift, officials at the top levels of Bangladesh Bank (BB) and other financial regulatory bodies will now be eligible to serve as the Managing Directors (MD) or Chief Executive Officers (CEOs) of commercial banks in Bangladesh. This includes officials from key regulatory agencies overseeing the banking, financial, and insurance sectors.

To qualify for the MD or CEO position at a bank, these officials must have at least 25 years of experience in a regulatory agency, must have held a position at the first class or equivalent level, and must be included in the second grade of the national pay scale. This new provision, introduced by Bangladesh Bank, aims to leverage the experience of top regulators in banking leadership roles.

The central bank issued an order on Wednesday, 29 November, revising its policy on the appointment of MDs and CEOs of banks, allowing senior officials from Bangladesh Bank, the Bangladesh Securities and Exchange Commission (BSEC), and the Insurance Development and Regulatory Authority (IDRA) to assume leadership positions at commercial banks.

Under the new guidelines, senior officials currently serving in these regulatory bodies, as well as former officials, will be eligible to become MDs and CEOs of banks, provided they meet the criteria. The retirement age for regulatory body officials is 59, whereas the retirement age for MDs and CEOs in banks is 65, meaning that former officials can still be eligible to serve as MDs or CEOs for up to five years after their retirement from regulatory positions. However, appointments will still be subject to the standard recruitment process.

Eligibility and Requirements:
According to the new policy, individuals who have worked for at least 25 years in top roles at Bangladesh Bank or BSEC, and have held positions equivalent to the first class in the national pay scale, are now eligible for MD or CEO positions at commercial banks. However, officials below the rank of Executive Director (ED) in these regulatory bodies will not be eligible, as only EDs and higher-ranking officials are included in the second grade of the national pay scale.

Syed Mahbubur Rahman, the MD of Mutual Trust Bank (MTB), commented on the new policy, noting that the roles of regulatory body officials and commercial bank executives are fundamentally different, with varying responsibilities and challenges. Despite this, he acknowledged that the new rule could help address the shortage of experienced leadership in the banking sector.

Potential Conflicts of Interest:
Some industry experts have raised concerns about potential conflicts of interest. They fear that the new policy could lead to situations where appointments for MD or CEO positions may be influenced by personal relationships between regulatory officials and the boards of banks. For example, in a scenario where a candidate from Bangladesh Bank is up for the MD role at a bank, they might receive preferential treatment due to past professional ties with the regulatory body, leading to potential bias in appointments.

Syed Mahbubur Rahman of MTB pointed out that the pool of eligible candidates for MD and CEO positions would now be expanded, making the leadership selection process more diverse. However, he cautioned that careful consideration must be given to avoid any conflicts of interest arising from the close ties between regulatory bodies and commercial banks.

Past Precedents and New Guidelines:
There have been instances in the past where senior officials from Bangladesh Bank have moved on to become MDs of commercial banks. However, the new regulation formalises the process and ensures transparency in the appointment of senior bank executives.

Earlier, in February 2024, Bangladesh Bank had issued guidelines for MD and CEO appointments, specifying requirements such as at least 20 years of active banking experience and at least 2 years of experience in the position immediately preceding the MD role. Under the new revision, this has now been expanded to include a provision for at least 3 years of experience as a Deputy MD or Additional MD at a commercial bank.

Summary of Key Provisions:

This revised policy aims to improve the leadership pool for Bangladesh’s banking sector by utilising the expertise of seasoned financial regulators. However, stakeholders in the banking industry are closely watching how the implementation of these new guidelines will unfold, especially regarding potential conflicts of interest and the broader impact on the sector’s governance.