Strengthening governance in banking sector is essential to restoring public trust, improving financial stability, and reducing the risk of fraud and financial misconduct. Although regulatory standards have been introduced over the years, many banks remain reluctant to fully comply with rigorous accounting, disclosure, and governance requirements. Weak enforcement, political influence, and inadequate oversight have undermined the effectiveness of existing regulations. To address these challenges, the government and the central bank should create a stronger regulatory environment that both encourages and enforces adherence to internationally accepted accounting and governance standards.
One important reform would be to introduce governance measures similar to those embodied in the Sarbanes-Oxley Act, which was enacted in the United States to strengthen corporate accountability following major accounting scandals. Bangladesh Bank could reinforce oversight by making comprehensive internal audits mandatory for all commercial banks and establishing a standardized audit framework based on international best practices. In addition, periodic rotation of audit committee members and key internal audit personnel would help preserve independence, reduce familiarity risks, and enhance accountability.
The independence and integrity of external auditors should also be strengthened. Audit firms should be prohibited from providing consultancy or other non-audit services to clients whose financial statements they audit, thereby minimizing conflicts of interest. Furthermore, banks should be required to disclose all non-audit fees paid to audit firms to ensure greater transparency. Senior executives and board members should receive regular training on corporate governance, financial reporting standards, and regulatory compliance. They should also be held legally accountable for knowingly certifying false or misleading financial statements, thereby reinforcing executive responsibility.
Greater financial transparency is equally critical. Banks should be required to disclose all material accounting adjustments, loan classification changes, and provisioning decisions through comprehensive annual and quarterly reports prepared in accordance with international financial reporting standards. Particular attention should be given to off-balance-sheet exposures, related-party transactions, and contingent liabilities, which have frequently been associated with financial irregularities. Audit reports should explicitly identify unlawful credit extensions, connected lending, loan evergreening, and other questionable lending practices to improve regulatory oversight and market discipline.
The adoption of enterprise resource planning (ERP) systems would further strengthen governance by integrating financial, operational, and risk management functions, improving data accuracy, and enhancing internal controls. Simultaneously, the government should establish minimum cybersecurity, information technology governance, and data protection standards for all banks to safeguard increasingly digital financial operations. Finally, incentives such as tax benefits, regulatory recognition, or reduced supervisory fees could be offered to banks that successfully implement robust governance frameworks, maintain high compliance standards, and demonstrate sustained improvements in transparency and accountability. Collectively, these measures would strengthen institutional governance, enhance financial resilience, and restore confidence in Bangladesh's banking sector.
Muntasir Mahmud
Student, North South University
