Bangladesh Bank Tightens Nominee Director Rules and Widens Its Tk20,000 Crore Factory Revival Fund

Two Governance Orders in One Week

Bangladesh Bank issued two separate circulars this week that, taken together, say a great deal about what the central bank has decided is broken in the banking sector and how it intends to fix it. The first tightens who is allowed to sit on a bank's board as a nominee director. The second loosens who can borrow from a Tk20,000 crore fund built to revive factories that shut their doors. One rule closes a loophole, the other opens a door, and both arrived from the same Banking Regulation and Policy Department within days of each other.

Closing the Nominee Director Loophole

The nominee director rule addresses a problem that has quietly undermined bank governance in Bangladesh for years. Business groups have long used shareholder companies to place nominee directors on bank boards, and in many cases those nominees turned out to be ordinary employees of the sponsoring group rather than genuine stakeholders, raising an uncomfortable question, whom were these directors actually representing, the bank's depositors or their employer's business interests. Bangladesh Bank's new order answers that question by requiring nominee directors to put real money behind their seat on the board.

The New Ownership Thresholds

Under the revised rules, a nominee director at a listed bank must personally hold shares equal to at least 2 percent of the company's paid up capital. At an unlisted bank, where there is no public market to absorb losses or provide transparency, the bar is set ten times higher, at 20 percent. In both cases, those shares have to be genuinely free and clear, they cannot be pledged, mortgaged, or otherwise used as security for a separate loan, and the director has to keep holding them for as long as they sit on the board. Anyone appointed, reappointed or replaced now needs Bangladesh Bank's approval first, backed by documentation proving they actually own what they claim to own.

Bank Type	Minimum Personal Shareholding Required for a Nominee Director
Listed bank	2% of paid-up capital
Non-listed bank	20% of paid-up capital

The central bank has also capped how much of a bank's shares a corporate entity can hold relative to its own net worth, a rule aimed squarely at the kind of thinly capitalised shareholder companies that made the nominee director loophole possible in the first place. Companies that already exceed the new limit have been given six months to bring their holdings back in line, rather than being forced into an immediate, disruptive sell down.

Why the Central Bank Is Acting Now

The timing is not an accident. Bangladesh Financial Review reported last week that Bangladesh Bank introduced a uniform performance scorecard for bank managing directors and chief executives, grading them on roughly thirty indicators starting October 1, with pay, reappointment and even continued employment now directly tied to results. That scorecard arrived weeks after the country's non-performing loan ratio hit a record 32.78 percent and after a bribery scandal surfaced at Bangladesh Commerce Bank, two episodes that exposed just how much unchecked patronage had crept into bank leadership. Weak nominee directors, answerable to a sponsoring business group rather than to depositors or minority shareholders, are widely seen by banking analysts as one of the mechanisms that let related party lending and governance failures go unchecked for years. Fixing the CEO scorecard without also fixing who sits above the CEO on the board would have left an obvious gap, and this week's order appears designed to close it.

Widening the Tk20,000 Crore Lifeline

The second order moves in the opposite direction, expanding access rather than restricting it. Bangladesh Bank originally launched its Tk20,000 crore pre-financing scheme in June to help closed industrial and service sector businesses reopen, with the central bank lending to commercial banks at 4 percent and banks in turn lending to qualifying borrowers at no more than 7 percent, a spread designed to keep the financing genuinely cheap. The scheme explicitly barred money launderers and other blacklisted borrowers from applying. This week, the Banking Regulation and Policy Department amended the June and July circulars that had originally restricted eligibility to what the rules called large industry, striking that qualifier and replacing it simply with industry.

In practice, that single wording change matters more than it might sound. Removing the word large opens the scheme to a much broader tier of small and mid sized industrial and service businesses that had shut down but did not previously qualify for the fund because they fell below whatever threshold defined a large enterprise. Businesses can apply at any point during the scheme's three year window, subject to the fund still having money left to lend, and interest does not start accruing until six months after disbursement, including the first two quarters' worth of accrued interest, giving reopened businesses breathing room before repayment obligations kick in.

Who Actually Benefits

Smaller factory owners and service businesses that shut down amid the gas and electricity shortages and demand shocks of the past two years are the most direct beneficiaries, assuming their banks are willing to underwrite them despite already sitting on record levels of bad debt. That caveat matters. A pre-financing scheme is only as useful as the willingness of individual banks to lend against it, and several of the same banks now expected to extend this cheap credit are also the ones facing tighter KPI scrutiny over their own asset quality, giving loan officers a real incentive to be selective about which reopened businesses they actually back.

A Pattern of Tightening From the Top, Loosening From Below

Put side by side, the two orders reveal a consistent strategy at Bangladesh Bank under its current leadership, tighten accountability at the top of the banking system, where opaque ownership and weak governance have repeatedly enabled the very lending failures the central bank is now trying to clean up, while loosening access to credit lower down, for the real businesses and factory floors that a banking crisis was never meant to punish. Whether that balance holds will depend on execution neither circular can guarantee, banks that face real consequences for bad loans under the new CEO scorecard may simply become more conservative lenders even to legitimate applicants under the widened factory revival scheme, blunting the very relief the second order was designed to deliver.