Former BB governor Dr Salehuddin Ahmed said corporate governance had a very important role in carrying out daily banking operations smoothly.
Deterioration in corporate governance means banks are losing transparency and accountability, he added while asked to comment on the role of the corporate governance in banking sector . “It is not at all a good sign. Often, interference destroys efficiency of banks and creates conflict between the management and the board. Such practices must be stopped at any cost," he said. Politicization of the boards of state-owned commercial banks (SCBs) is proving to be damaging for corporate governance, officials of the Bangladesh Bank (BB) told The Independent recently.
Corporate governance means establishing strategic objectives and a set of corporate values that are communicated throughout the organisation, setting and enforcing clear lines of responsibility, transparency and accountability throughout the organisation, sources said.
Implementing corporate governance in a transparent manner means ensuring that the board members are qualified for their respective positions and have a clear understanding of their roles, and are not subject to undue influence to disrupt proper functioning of banking activities, BB sources said.
“But in many cases a lot of non-professional and inexperienced persons are appointed on the board of directors of SCBs. As a result, corporate governance is severely compromised at those banks,” said a top BB official preferring anonymity.
Global experts have identified a number of practices, including undue influence of management and/or concerns outside the banking sphere, which mar corporate governance and are mainly responsible for upsetting loan portfolio, poor auditing, and inconsistent financial reports of banks, the source said.
“Inconsistent financial reporting and poor auditing mislead GDP (gross domestic product) estimates while poor management of loan portfolio leads to liquidity crunch,” the official said.
On this issue Dr Salehuddin said, BB should identify the reasons that are relegating corporate governance to the back and seek the government help to improve the prevailing situation, he pointed out.
"Our economy is moving fast. So revisiting the banking sector is a must for the apex bank to ensure that banks are complying with the core principles of Basel II which comes with corporate governance guidelines,” he said.
Basel III is coming soon but Bangladesh's banking sector is yet to implement the Basel II, he added.  The renowned professional banker said market risks, credit risk and supervisory role of banks should be strengthened to comply with the Basel principles.
"It will not be possible for the apex bank to promote strong corporate governance in banks unless their management is kept free from politics," he said and noted that the central bank should strictly monitor banking appointments to ensure that real professionals are taken as board members.
“A regulatory intervention is needed to ensure that bank supervisors foster a collaborative working relationship with managements rather than having an adversarial one,” he added.

News: The Independent/ Bangladesh/ July-14-2011