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The banking sector influences a nation’s economy more directly and
profoundly than most other institutions. Banks are not just financial
intermediaries; they are custodians of public trust, channeling
savings into investments, enabling entrepreneurship, and fueling
national growth. Yet, in many developing economies—including
Bangladesh—this vital sector has increasingly come under scrutiny for
governance lapses and, more disturbingly, for systemic corruption. The
issue is no longer about isolated scandals but about a pattern that
questions the very credibility of banking governance.

The Anatomy of Corruption in Banking

Corruption in the banking sector does not always wear the obvious mask
of fraud. It is often present in more hidden forms, such as loan
irregularities, politically motivated lending, weak internal audits,
manipulation of financial statements, or favoritism in recruitment and
procurement. Non-performing loans (NPLs) provide possibly the
strongest sign of corruption’s effect. When loans are disbursed
without proper due diligence—often under pressure from influential
quarters—they tend to default, not because of business risks but
because of deliberate negligence or collusion.

Bangladesh has witnessed a steady rise in defaulted loans over the
past decade. While global economic shocks and business uncertainties
play a role, governance failures and outright corruption account for a
significant share. Joint corruption between borrowers, bank insiders,
and sometimes regulators ensures that defaulters escape
accountability, leaving the burden on depositors and taxpayers.

Governance Under the Microscope

Bank governance rests on three pillars—regulatory oversight,
institutional transparency, and internal accountability.
Unfortunately, in many cases, all three are compromised. Regulatory
bodies often struggle with limited autonomy, allowing political and
vested interests to sway decisions. Institutional transparency remains
weak, with annual reports and disclosures often failing to provide a
true picture of financial health. Internal accountability, meanwhile,
is undermined by conflicts of interest at the board and management
levels. In the absence of strong governance, corruption thrives in the
shadows. Take the example of bank boards: in several instances, these
boards are dominated not by professionals but by politically appointed
directors. This diminishes their capacity to act as independent
overseers. When regulators hesitate to enforce strict action against
wrongdoing, governance is reduced to a ritual rather than a robust
safeguard.

The Broader Costs of Corruption

The immediate financial cost of corruption is alarming. Every year,
billions of taka are locked in unrecovered loans, eroding banks’
capital base. But the hidden costs are far more insidious. When banks
prioritize the interests of a few influential clients over genuine
entrepreneurs, capital allocation becomes distorted. Promising small
and medium enterprises—often described as the backbone of the
economy—are denied credit, while well-connected defaulters continue to
secure loans.

This imbalance not only discourages honest business practices but also
weakens public trust in the financial system. Depositors begin to
doubt the safety of their savings. Foreign investors question the
integrity of the banking sector. Over time, this erosion of confidence
risks triggering systemic instability, which can spill over into the
broader economy.

Global Lessons on Governance

The challenge of corruption in banking is not unique to Bangladesh.
Across Asia, Africa, and even parts of Europe, weak governance
structures have led to banking crises. The 2008 global financial
meltdown was itself a governance failure, where reckless lending, lack
of transparency, and regulatory complacency combined to devastate
economies. Some countries, however, have shown that reforms are
possible. For example, in Singapore and Malaysia, strict enforcement
of governance standards, coupled with technology-driven transparency,
has reduced space for corruption. Digital banking tools—such as
real-time loan monitoring, biometric customer identification, and
AI-based fraud detection—have significantly minimized opportunities
for manipulation. Bangladesh, too, can draw lessons from such
experiences.

Pathways to Reform

If governance is under the scanner, it is not merely to identify gaps
but to pave the way for solutions. Several steps are essential:1.
Strengthening Regulatory Autonomy: Regulators must be shielded from
political pressure and empowered to act independently. Their mandate
should include proactive investigations and swift punitive measures
against malpractice. 2. Board Professionalization: Bank boards should
be restructured to include independent professionals with expertise in
finance, law, and risk management, rather than politically motivated
appointees. 3. Transparency and Disclosure: Banks should adopt
international standards of financial reporting, making real-time
information available to stakeholders. Public disclosure of large loan
defaulters could deter willful defaults. 4. Technology Integration:
Digital monitoring systems should be made mandatory, with AI-driven
oversight reducing the scope for human manipulation in loan
disbursements and risk assessment. 5. Whistleblower Protection:
Employees who report irregularities must be safeguarded by strong
legal frameworks, encouraging an internal culture of accountability.

A Call for Political Will

Ultimately, governance reforms cannot succeed without political will.
When corruption in banking is connected with politics, reform efforts
risk being cosmetic. Policymakers must recognize that banking
corruption is not just a financial issue—it is a threat to national
stability. A weakening banking system undermines economic growth,
jeopardizes investor confidence, and burdens future generations.

Conclusion

Corruption in banking is like a silent cancer—it weakens institutions
gradually until the collapse becomes sudden and devastating.
Governance is the first line of defense, but only if it is strong,
transparent, and uncompromising. The scanner is now on, and it is time
for Bangladesh to decide whether it will confront corruption head-on
or allow its banking sector to be diminished by vested interests. If
trust is the currency of banking, then governance is its guarantor.
Without clean governance, banks may continue to exist on paper, but
they will lose their soul—the trust of the people they are meant to
serve.

Anwar Hossain Sheikh Muhammad

The writer holds an M.Phil. degree from the University of Dhaka on
“Challenges of Digital Governance in the Financial Sector in
Bangladesh” and is currently a Ph.D. researcher. He is serving as an
Evaluation and Documentation Officer at the Faculty Relationship Wing,
Director General’s Secretariat, Bangladesh Institute of Bank
Management (BIBM), Mirpur-2, Dhaka.