Corporate Governance in the Financial Institutions (FIs):

17/03/2013 21:10

The need for a competent financial sector is important to stimulate and support economic growth through efficient resource allocation. Good CG practices are essential to the effectiveness, competitiveness and safety and soundness of financial institutions. Streamlining the Guidelines with the Code of Corporate Governance: A Code of CG has been published by BEI can be streamlined to reduce duplication and resources to comply with CG requirements for the FIs. Protection of depositors: Given the special nature of banking institutions, a broad view of CG where regulation of banking activities is required to protect depositors. In developed economies, protection of depositors in a deregulated environment is typically provided by a system of prudential regulation, but in developing economies such protection is undermined by the lack of well-trained supervisors, inadequate disclosure requirements, the cost of raising bank capital and the presence of distributional cartels. Improvements in prudential regulation: Liberalization policies need to be gradual, and should be dependent upon improvements in prudential regulation. Bangladesh needs to expend resources enhancing the quality of their financial reporting systems, as well as the quantity and quality of bank supervisors. Given that bank capital plays such an important role in prudential regulatory systems, it is necessary to improve investor protection laws, increase financial disclosure and impose fiduciary duties upon bank directors so that banks can raise the equity capital required for regulator y purposes. A further reason as to why this policy needs implemented is the growing recognition that the CG of banks has an important role to play in assisting supervisory institutions to perform their tasks, allowing supervisors to have a working relationship with bank management, rather than adversarial one. Political determinants of Corporate Governance: CG of financial institutions, particularly banking sector, in Bangladesh is severely affected by political considerations. Given the trend towards privatization of government-owned banks in Bangladesh, there is a need for the managers of such banks to be granted autonomy and be gradually introduced to the CG practices of the private sector prior to divestment. Role of the shareholders: Where there has only been partial divestment and governments have not relinquished any control to other shareholders, it may prove very difficult to divest further ownership stakes unless CG is strengthened.