Bangladesh Bank Softens Family-Control Rules for Banks, Unveils 18-Month Plan to Cut Bad Loans

Two reforms, one argument about who runs a bank

Bangladesh's banking regulators spent the final days of September and the first days of October pushing two separate but related reforms into public view, and together they tell a single story about how hard it still is to separate family ownership from bank management in Bangladesh and how slowly bad loans are being cleaned off bank balance sheets even when the will to fix them exists. The first is a finance ministry decision to water down Bangladesh Bank's proposed amendments to the Bank Company Act, the law that governs how much control one family can exert over a private bank's board. The second is an 18 month plan Bangladesh Bank unveiled on September 30 to accelerate recovery of non-performing loans through bullet payment settlements and one time exit facilities. Read side by side, they show a regulator trying to fix the banking sector's two biggest structural problems, concentrated family control and a mountain of bad debt, while a finance ministry worried about political and business pushback pulls back on how far the first fix can go.

What Bangladesh Bank wanted, and what it is getting

The proposed amendments began with Bangladesh Bank pushing to cut the number of directors a single family could place on a private bank's board from three to two, part of a broader push to curb the kind of dynastic control that regulators blame for some of the worst governance failures in the sector over the past decade. The finance ministry's review, following three inter-ministerial meetings held through April and July and a final review on September 20, decided to retain the existing cap of three family directors rather than tightening it. It did make other changes. The maximum tenure a family director can serve was cut from Bangladesh Bank's proposed six years down to nine years rather than the sharper cut the central bank wanted, and a provision that would have stripped a director of their board seat over a company default was dropped in favor of a softer six month waiting period before a defaulting director's associate could return to a board.

Seventeen bodies took part in the review process, including the Securities and Exchange Commission, the National Board of Revenue, and trade groups such as the Federation of Bangladesh Chambers of Commerce and Industry, the Bangladesh Garment Manufacturers and Exporters Association and the Bangladesh Knitwear Manufacturers and Exporters Association, alongside the Bangladesh Association of Banks and individual institutions including Sonali Bank and Bangladesh Krishi Bank. Former Bangladesh Bank governor Ahsan H Mansur, who has pushed hard for governance reform since taking on advisory roles after the 2024 political transition, warned plainly that failing to make these amendments would hinder the broader project of fixing bank governance. Not every proposed change was softened. The ministry's revised draft does broaden the legal definition of family to close relative based loopholes, aims to raise independent directors to half of every board, and would remove the current 10 percent cap on how much a single strategic investor can hold, changes that if enacted would mark a genuine shift even without the stricter family director cap Bangladesh Bank originally sought.

The other half of the problem, debt that will not clear

While the family control debate played out in ministry meetings, Bangladesh Bank Deputy Governor Habibur Rahman used the release of the central bank's first ever quarterly monetary policy statement on September 30 to announce the 18 month plan targeting non-performing loans directly. The scale of the problem explains the urgency. Bangladesh Bank data published in September showed classified loans standing at Tk606,555 crore as of June, a ratio of 32.78 percent of total outstanding loans, a figure that remains among the highest anywhere in the world even after a 2.95 percentage point improvement from the 35.73 percent recorded in September 2025. Separate reporting earlier this year found roughly Tk3 lakh crore of that total concentrated among just 5,775 borrowers, underscoring that Bangladesh's bad loan problem is less a broad based failure of ordinary borrowers than a persistent pattern of large, connected defaulters who have avoided serious consequences for years.

The plan Rahman described leans on bullet payment structures, lump sum settlements that let a struggling borrower clear a loan in one go, typically at a negotiated discount, rather than through the drawn out installment schedules that have let many non-performing accounts linger for years without resolution. It pairs this with one time exit facilities designed to let long overdue defaulters settle and leave the system rather than remain on the books indefinitely as a source of provisioning strain for the lending bank. Rahman was careful to frame the plan as one piece of a larger puzzle rather than a complete fix on its own, telling reporters that managing credit and liquidity has to go alongside improving supply chains, building infrastructure capacity and ensuring market stability, a reminder that the bad loan problem is tangled up with the same broader economic pressures showing up in the government's own widening borrowing needs this quarter.

Why governance and bad loans are really one story

The connection between the two reforms is not incidental. Much of the Tk3 lakh crore concentrated among a small group of large borrowers traces back to exactly the kind of related party lending that weak family control rules make possible, a bank director's own company, or a company tied to the director's associates, receiving credit on terms an arm's length borrower never would. Tightening who can sit on a board and for how long is, in that sense, a preventive measure against the next decade's bad loans, while the bullet payment and exit facility plan is triage for the loans already on the books. A finance ministry that softens the preventive measure while the central bank accelerates triage on the existing stock risks treating the symptom more aggressively than the cause, a tension several of the seventeen reviewing bodies are understood to have raised during the review process even as the ministry settled on its final draft.

The amended Bank Company Act provisions are expected to go before parliament in its next session, giving lawmakers a chance to revisit the family director cap that the ministry chose to leave unchanged. Whether the 18 month NPL plan actually moves the 32.78 percent ratio down meaningfully will likely depend on how aggressively Bangladesh Bank pursues the large, concentrated defaulters identified in recent data rather than smaller borrowers who are easier to collect from on paper but represent a fraction of the total bad debt.

Metric	Figure
Classified (non-performing) loans, June 2026	Tk606,555 crore
NPL ratio, June 2026	32.78 percent
NPL ratio, September 2025 (for comparison)	35.73 percent
Nine-month improvement	2.95 percentage points
NPLs concentrated among largest defaulters	~Tk3 lakh crore among 5,775 borrowers
Family directors allowed per bank board (unchanged)	3
Director tenure cap, as revised (BB had proposed 6 years)	9 years

What comes next

Bangladesh Bank has said full operational details of the NPL reduction plan, including bank by bank targets and recovery timelines, will be published soon, which will be the first real test of whether the 18 months translates into a specific, trackable reduction target or remains a set of tools without a deadline attached. On the governance side, the real test comes once the amended Bank Company Act reaches parliament, where business lobbies that pushed for a softer family director cap during the ministry review will have another opportunity to shape the final language before it becomes law.