Bangladesh Bank introduces KPI for bank CEOs

Bangladesh Bank has introduced a uniform Key Performance Indicator (KPI) framework for managing directors and chief executive officers of scheduled banks, linking their performance assessment to asset quality, capital strength, profitability, governance and financial inclusion.

The framework, issued through a circular today, aims to strengthen accountability among bank CEOs and safeguard the interests of depositors while improving discipline, good governance and financial stability in the banking sector.

Tap here to add The Daily Star as a trusted source

Under the framework, the performance of an MD or CEO will be assessed on five broad areas: bank solvency and liquidity, asset quality, profitability, governance and internal control, and inclusion, customer and market conduct.

Bank solvency and liquidity and asset quality will each carry 25 percent of the total score, while governance and internal control will also account for 25 percent. Inclusion, customer and market conduct will carry 15 percent and profitability 10 percent.

The central bank said the KPIs will be used not only to evaluate the performance of MDs and CEOs but also in determining their remuneration, incentives and benefits, as well as decisions on appointment, reappointment, extension of tenure and succession planning.

A CEO will receive a score for an individual KPI only if at least 50 percent of the predetermined target is achieved. If performance falls below 50 percent of the target, the score for that KPI will be zero. Performance at 50 percent or above will receive a proportionate score, according to the circular.

The framework also introduces an additional penalty for poor performance in six critical areas. If an MD or CEO achieves less than 50 percent of the target, or scores zero, in any of these KPIs, 25 percent of the maximum weighted score of the relevant KPI will be deducted from the overall score.

The six areas are advance-to-deposit ratio (ADR), gross non-performing loan (NPL) ratio, net NPL ratio, large-loan and top-borrower concentration, recovery of classified and written-off loans, and outreach in CMSME, agriculture, green finance and financial inclusion.

The central bank has set three broad performance categories. An overall score of 75 or above will be considered "Above Average", a score of 65 to below 75 will be rated "Average", while a score below 65 will be considered "Below Average".

The board of directors of each bank will have to set targets for every KPI based on the bank's performance in the immediately preceding quarter, while also considering regulatory expectations, its risk profile, business strategy and international best practices.

For newly appointed or reappointed MDs and CEOs, the targets must be set at the beginning of their tenure. For existing MDs and CEOs, the targets must be set within one month of the issuance of the circular. The targets will cover three years or the remaining tenure of the CEO, with performance targets set on a rolling six-month basis.

For the current MDs and CEOs, the first assessment period under the new framework will run from October 1, 2026 to March 31, 2027.

After setting the targets, the board will have to approve the KPI framework and submit it to Bangladesh Bank's Banking Regulation and Policy Department-2 within seven working days. The central bank will review and approve the framework, with changes, if necessary.

The board will then assess the MD or CEO after every designated assessment period, generally every six months, and submit the review report to Bangladesh Bank within 15 days of the end of the assessment period. Bangladesh Bank may issue further directives or determine the next course of action after reviewing the performance.