Corporate Governance Status in the Banking Sector of Bangladesh : A Comparative Study

Good corporate governance is instrumental to effective functioning of any organization, which aligns the corporate practices with the long-term objectives of the organization. Recent studies on corporate governance in the banking sector of Bangladesh have identified transparency, accountability, risk management, political influence, and direct influence of the directors and owners to be the core issues to analyze the corporate governance. This study attempts to critically examine the corporate governance status in the banking sector of Bangladesh, making a comparison of profitability and asset quality among three banking groups: state owned commercial banks (SOCBs), private commercial banks (PCBs) and foreign commercial banks (FCBs). The findings of the research depict that the FCBs demonstrate higher average return on equity (ROE) and lower level of average Non-Performing Loan (NPL) ratio whereas the SOCBs face the lowest average ROE and the highest NPL ratio on an average. However, the PCBs show lowest average NPL ratio along with the higher ROE than SOCBs. The study concludes that FCBs demonstrates better policy formulation and execution of standard corporate practices to protect the wealth of the shareholders than PCBs and SOCBs do. In light of the findings, the study suggests that proper documentation, effective auditing and stricter borrower selection criteria, training of the personnel and capacity enhancement are must for the SOCBs to keep its corporate governance practice up to the marks. The same applies to PCBs to regain the public trust