Strengthening banking governance

Many banks in Bangladesh are reluctant to comply fully with stringent accounting and governance standards. To address this, the government should create a regulatory environment that encourages and enforces adherence to sound accounting practices, thereby helping restore public confidence in the banking sector.

One approach would be to introduce measures similar to those embodied in the US Sarbanes-Oxley Act. The central bank could strengthen oversight by making internal audits mandatory and establishing a robust audit framework for all banks. A periodic rotation system for audit committees could further enhance independence and accountability.

The independence of external auditors is equally important. Audit firms should be prohibited from providing consultancy services to the same clients they audit, while all non-audit fees should be disclosed to prevent conflicts of interest. In addition, bank executives should receive regular training on compliance responsibilities, and legal liability should be imposed for false certification of financial statements.

Greater financial transparency is also essential. Banks should be required to disclose material accounting adjustments and provide comprehensive annual and quarterly reports. Particular attention should be given to off-balance-sheet exposures, which have often been associated with financial irregularities. Any unlawful extension of credit or questionable lending practices should get clearly reflected in audit reports.

The adoption of enterprise resource planning (ERP) systems could further strengthen governance by integrating operations across departments and improving internal controls. At the same time, the government should establish minimum cybersecurity and IT compliance standards for banks. To encourage compliance, incentives such as tax benefits may be considered for institutions that adopt these measures and demonstrate strong governance practices.

Muntasir Mahmud

Student

North South University