New Bangladesh Bank Policy
High performance benchmark set at 75 for bank MDs
File Photo
Commercial bank MDs will have to follow some new policy guidelines while operating their respective banks and, know what, profit will not drive them much.
Non-performing loan (NPL) reduction and loan recovery have been made the primary benchmarks for evaluating the performance of bank managing directors (MDs) and chief executive officers (CEOs). From now on, an MD or CEO's success will no longer depend solely on driving bank profits or business growth. They must achieve specific targets across multiple indicators, including NPL reduction, top-borrower risk, recovery of classified and written-off loans, capital, liquidity, governance, and customer service. Failing to meet these targets will result in points being deducted from their overall performance score. Meanwhile, the benchmark for high performance has been set at 75 marks.
Bangladesh Bank issued a circular in this regard today, Sunday.
According to the circular, the total performance evaluation of an MD or CEO will be marked out of 100. This includes 25 percent for solvency and liquidity, 25 percent for asset quality, 10 percent for profitability, 25 percent for governance and internal control, and 15 percent for financial inclusion, customer service, and market behavior.
Within the 25 percent allocated to asset quality, key considerations will include the NPL ratio, net NPLs, risk-weighted assets, provision maintenance, loan concentration among top 20 borrowers and large loans, and the recovery of classified and written-off loans. MDs are expected to consistently lower the total NPL ratio below the industry average for peer banks. Additionally, cash recovery from classified and written-off loans over the preceding six months will form a core part of the MD's performance evaluation, with the objective of pushing recovery amounts above the industry average.
Under the new policy, failing to achieve at least 50 percent of the target for any specific Key Performance Indicator (KPI) will result in zero marks for that indicator. Scores above 50 percent will be awarded proportionally based on target achievement. Furthermore, if an MD achieves less than 50 percent of the target or scores zero across six critical indicators, an additional penalty of 25 percent of the points will be deducted from their overall score.
In the final performance evaluation, a score of 75 or above will be classified as "above average," scores between 65 and below 75 will be rated as "average," and scores below 65 will be evaluated as "below average." A performance score below 65 will be treated as requiring immediate improvement.
