Bangladesh Banks Need Stronger Risk Governance, Independent CROs To Ensure Stability: BIBM Experts

🏛 Bangladesh''s banking sector needs stronger board-level oversight, independent chief risk officers (CROs) and credible asset-quality management to ensure financial stability, experts said at a seminar organised by the Bangladesh Institute of Bank Management (BIBM). The call for stronger risk governance comes at a moment when the country''s banking sector is grappling with non-performing loans at around 33% of total loans — well above international norms and the IMF''s previous target of 10%.

📊 The seminar, titled "Risk Governance in Banks: Assessing Its Impact on Financial Stability", was organised by BIBM at its office auditorium in Mirpur, Dhaka, according to a press release. Addressing the session as the chief guest, Md Sarwar Hossain, deputy governor of Bangladesh Bank, underlined the critical role of robust risk governance in sustaining overall financial stability across the banking system. Chairing the event, Md Ezazul Islam, director general of BIBM, urged stakeholders to move beyond diagnostic assessments towards actionable reforms with defined implementation timelines for both commercial banks and the central bank.

👥 Sound risk governance is not merely compliance

"Sound risk governance is not merely a compliance exercise — it is a strategic imperative that defines a bank''s resilience, reputation and long-term viability," the speakers emphasised. The observation cuts to the heart of Bangladesh''s banking sector challenges: for too long, risk governance has been treated as a regulatory box-ticking exercise rather than a strategic function that protects the bank''s long-term sustainability.

The consequences of weak risk governance are visible across the Bangladeshi banking sector. Banks with weak risk management frameworks have accumulated massive non-performing loans, exposed themselves to related-party transactions, and failed to detect emerging risks before they became systemic problems. The National Bank case — where the bank required a Tk 700 billion bailout with 11 strict conditions attached — is just the latest example of the cost of weak risk governance.

🏛 Key recommendations from the seminar

The BIBM seminar made several key recommendations for strengthening risk governance in Bangladesh''s banking sector:

• ✅ Independent chief risk officers (CROs): Banks should appoint independent CROs with the authority and seniority to flag emerging risks without fear of reprisal from senior management or board members. CROs should report directly to the board''s risk committee rather than to the CEO, ensuring independence from operational pressures.
• ✅ Stronger board-level oversight: Bank boards should take more active responsibility for risk governance, with dedicated risk committees that include independent directors with risk management expertise. Boards should set clear risk appetite statements and ensure that management operates within them.
• ✅ Credible asset-quality management: Banks need to adopt credible asset-quality classification and provisioning practices, rather than using regulatory forbearance and restructuring to mask underlying asset quality problems. Accurate recognition of non-performing loans is the foundation of effective risk management.
• ✅ Actionable reform timelines: Both commercial banks and Bangladesh Bank need to commit to specific, time-bound reform implementation rather than diagnostic assessments. The sector has been studied extensively — the focus now needs to shift to action.

💰 The cost of weak risk governance

The cost of weak risk governance in Bangladesh''s banking sector has been substantial. The sector''s non-performing loan ratio of around 33% means that roughly one-third of all bank loans are not being serviced — a staggering figure that constrains credit growth, erodes bank profitability, and forces the government to provide bailouts to distressed institutions. The Tk 700 billion bailout of National Bank is just the latest in a series of expensive interventions that have been needed to prevent systemic banking crises.

The broader macroeconomic impact of weak risk governance includes constrained private sector credit growth (stuck below 5% for six straight months), elevated lending rates as banks try to compensate for NPL losses, reduced depositor confidence, and the misallocation of capital to unproductive borrowers. The IMF has identified banking sector weakness as one of the key constraints on Bangladesh''s economic growth, and has made banking sector reform a central condition of the proposed $4.5 billion loan programme.

🤝 Bangladesh Bank''s role

Bangladesh Bank has been taking a more proactive approach to banking sector supervision in recent months. The central bank''s intervention in National Bank — with the imposition of 11 strict conditions on the Tk 700 billion bailout — represents a more rigorous approach to bank resolution than has historically been the case. The central bank has also been working to strengthen its supervisory capacity, including through the Tk 1,276 crore World Bank-funded Financial Sector Support Project-II that will upgrade Bangladesh Bank''s information technology infrastructure and supervisory capabilities.

However, the central bank''s supervisory effectiveness has historically been constrained by political interference, limited institutional capacity, and the complexity of supervising a banking sector that includes both private commercial banks, state-owned banks, Islamic banks, and non-bank financial institutions. Strengthening Bangladesh Bank''s supervisory independence and capacity is a critical component of broader banking sector reform.

🌏 International best practice

Bangladesh''s banking sector can draw on international best practice in risk governance. The Basel Committee on Banking Supervision has established comprehensive guidelines for risk governance, including principles for board oversight, risk management functions, and supervisory expectations. Countries that have implemented these principles effectively — including Singapore, Hong Kong, and several European countries — have banking sectors with much lower NPL ratios and stronger financial stability records.

The key lesson from international experience is that risk governance cannot be imposed purely through regulation — it requires a cultural shift within banks, supported by strong supervisory pressure and accountability for failures. Bangladesh''s banking sector will need to make this cultural shift if it is to address the structural weaknesses that have held back its performance over the past decade.

💰 Looking ahead

The BIBM seminar''s recommendations provide a clear roadmap for strengthening risk governance in Bangladesh''s banking sector. The challenge now is implementation. Both commercial banks and Bangladesh Bank will need to commit to the reforms, with clear timelines and accountability mechanisms. The IMF''s engagement on the proposed $4.5 billion loan programme — which prioritises banking sector reform — provides additional momentum for change.

The coming months will show whether the recommendations from the BIBM seminar translate into concrete reforms. If they do, Bangladesh''s banking sector could begin a meaningful recovery that would support broader economic growth. If they do not, the sector''s structural weaknesses will continue to constrain credit growth, erode depositor confidence, and require expensive bailouts that drain public resources. The stakes are high — and the time for action is now.