Better corporate governance necessary in banking sector

In order to have a smoothly functioning economy, efficient allocation of resources, equal distribution of authority and good governance practices need to be ensured.

Historically, corporate governance practices of Bangladeshi corporations have been found to be very poor as most companies are run by a single family and lack stringent regulations. A study conducted by International Finance Corporation, a member of the World Bank group, had revealed that poor corporate governance practice is the biggest barrier to foreign direct investment (FDI) in Bangladesh.

Poor corporate governance practices hinder efficient management of any firm or organisation leading to lower profitability and higher default risk. By plugging in good governance practices, business operations are likely to become more efficient.

The large number of non-performing loans (NPLs) in the banking sector of the country is an indirect consequence of the lack of proper governance practices in the sector. The private and public banks need to have more methods and operations that will ensure accountability. Maybe the government can look at the measures applied by banks in the West to ensure accountability in the banking sector.

Md Parvez Alam

Department of Finance

University of Chittagong

[email protected]