Practices of Corporate Governance in the Banking Sector of Bangladesh

Abstract

Corporate governance became an area of huge interest after the collapse of few giant firms, like Enron Corporation, MCI Inc. etc. Banking sector portraits the whole economy of a country. Bangladesh Bank, the central bank of Bangladesh, provides guidelines for the banking sector and all commercial banks have to follow those guidelines in order to operate their business in Bangladesh. If financial sector collapses, the whole economy will also collapse. Hallmark Group made a BDT 4000 crore scam. Six commercial banks were involved with BDT 200 crore loan scam of Bismillah Group. Basic Bank scam of BDT 4,500 crore loan approval without proper documentation and scrutiny has brought the issue to the fore again. Such fraudulent activities indicate lack of corporate governance practices in the banks. So, this study was initiated to critically observe the current Corporate Governance status and practices in the banking sector of Bangladesh. The study was descriptive in nature. Convenient sampling method was used to select the sample banks for the study. The study found that top management influence as well as political pressure exists in banking sector which affect the lending decisions. Corrupted bankers and dishonest officials of Bangladesh Bank were found associated with several scams. Proper documentation is mandatory but sometimes banks show flexibility in this regards and provide extra benefits to the clients. Selection of wrong borrower, unhealthy competition among the banks, fund diversion, inefficient auditing and insufficient collateral cause major harm to the banks. Sometimes banks do not follow the rules and guidelines provided by Bangladesh Bank properly which were actually designed to protect themselves and operate business smoothly.