Faculty of Arts and Humanities

Abstract

Good governance in the banking sector is universally recognized as a fundamental prerequisite for ensuring financial stability, safeguarding depositor interests, promoting sustainable economic growth, and enhancing a country’s credibility in the global financial system. A sound governance framework enables banks to operate in a transparent, accountable, and prudent manner, thereby reducing systemic risks and strengthening public confidence in the financial sector. In the context of Bangladesh, where banks constitute the backbone of the financial system, effective governance assumes even greater significance due to the sector’s central role in mobilizing domestic savings, channeling credit to productive sectors, facilitating domestic and international trade, and supporting industrialization and inclusive socio-economic development. Despite its critical importance, the banking sector in Bangladesh has historically faced persistent and multifaceted governance challenges. These include weak and ineffective board oversight, excessive political and familial influence in bank management, related-party and connected lending, inadequate risk management and internal control systems, frequent regulatory non- compliance, and limited transparency in disclosure and reporting practices. Such governance deficiencies have contributed significantly to the alarming growth of non-performing loans (NPLs), deterioration of asset quality, erosion of public and depositor trust, and the emergence of systemic vulnerabilities that threaten overall financial stability. Against this backdrop, this thesis critically examines the concept, legal framework, and practical implementation of good governance in the banking sector of Bangladesh. It provides a comprehensive analysis of the existing regulatory architecture and institutional mechanisms governing banks, with particular emphasis on the roles and responsibilities of the Board of Directors, independent directors, audit committees, nomination and remuneration committees, corporate governance auditors, and the application of Bangladesh Secretarial Standards (BSS). The study evaluates how these governance instruments function in practice and whether they effectively promote accountability, transparency, and ethical conduct within banking institutions. Employing a mixed-method research approach, this study draws upon both primary and secondary sources of data to ensure a comprehensive and balanced assessment of governance practices in the banking sector of Bangladesh. Primary sources include relevant statutes, banking and financial regulations, Bangladesh Bank circulars and guidelines, judicial decisions, and policy directives, while secondary sources comprise annual reports of banks, regulatory disclosures, audit and governance reports, academic literature, empirical research studies, policy papers, and publications of national and international financial institutions. Through a systematic analysis of these sources, the research critically evaluates the existing governance framework and its practical application within banking institutions. It identifies and analyzes significant gaps between regulatory intent and actual implementation, with particular focus on weaknesses in enforcement, monitoring, and compliance mechanisms. Furthermore, the study explores underlying structural, institutional, and cultural factors—such as board composition and independence, ownership concentration, political influence, organizational culture, and ethical standards—that impede the effective realization of good governance principles. This integrated analysis enables the research to present a nuanced understanding of governance failures and to formulate context-specific, legally sound, and policy-relevant recommendations for strengthening governance effectiveness in the banking sector. The findings of the study reveal that although Bangladesh has undertaken notable regulatory reforms and supervisory initiatives to strengthen corporate governance in banks, the implementation of these measures remains inconsistent and uneven across the sector. Weak enforcement, limited board independence, capacity constraints, and an underdeveloped ethical culture continue to undermine governance effectiveness. The study concludes that achieving meaningful and sustainable improvements in banking governance requires sustained regulatory vigilance, professionalization and independence of boards, enhanced accountability mechanisms, stronger enforcement of compliance, and the cultivation of a robust ethical and risk-aware culture within banking institutions.