Relative consequences due to absence of corporate governance in nationalized and private commercial banks in Bangladesh

Abstract

This study produces weak and ineffective corporate governance practices in both state owned and privately owned commercial banks in Bangladesh. The paper presents key aspects requiring reforms: the role, constitution and accountability of board, risk management, and transparency. To analyze the corporate governance practices of the private commercial banks (PCBs) and State owned commercial (SCBs), this study focused on four aspects of corporate governance namely; board size, board meeting frequency, audit committee composition, audit committee meeting frequency. Banking performance has been measured through Return on Equity (ROE) and Return on Assets (ROA). To find out the variability in corporate governance, coefficient of variation of the governance indicators of SCBs and PCBs was calculated. The descriptive statistics show that in case of board size greater variability in PCBs but for board meeting frequency and audit committee meeting frequency greater variability exists in SCBs. The trend in write-off of bad debt of PCBs during the period from 2009-2013 is not rising like SCB. On an average, SCBs induce write-off of Tk. 53.16 billion per year whereas PCB decelerates write–off of Tk. 5.52 billion per year. Taken together, our findings suggest that the inferior performance of SCBs in our analysis during the period of 2008–2012 can best be explained corporate governance theory on state ownership of firms and contestable markets perspectives of banking policy mistakes. This paper also brought out some recommendations that need to be improved. Enforcement and monitoring became the main hurdles in establishing the good corporate governance. The accountability of auditors was recommended to ease the corporate governance and financial reporting matter. Key words: Corporate governance, accountability, state owned commercial bank, private commercial bank, regulatory compliance, non performing loan, write-off.