How Risk-Based Supervision Changes Governance

In a recent opinion article in Business Standard, Dr. Shah Md Ahsan Habib, a professor at the Bangladesh Institute of Bank Management, argues that risk-based supervision has raised expectations of bank boards, ending the comfort once provided by compliance-based oversight.

Previously, boards could lean on management assurances and formal compliance, he writes. So long as policies were approved and capital and liquidity ratios were met, scrutiny was limited. This approach, he argues, “rewarded form over substance.” Risk-based supervision shifts attention to how boards actually engage with risk.

Supervisors now assess “understanding, challenge, independence, and decision quality,” Habib explains, rather than structures or meeting frequency. A board that approves documents without real debate “is no longer seen as neutral” and is treated as a source of risk. Silence in meetings is increasingly interpreted as disengagement rather than harmony, he writes.

Habib identifies risk appetite as a critical test of governance. Supervisors examine whether it genuinely guides decisions during rapid growth, increased concentration, or expansion into new business areas. When boards rely on “reassuring language, positive trends, and consultant presentations,” governance weaknesses become evident, he argues.

In Bangladesh, these expectations expose structural challenges such as ownership influence, limited board independence, and weak information flow, Habib explains. Risk-based supervision therefore “pushes accountability upward because that is where it belongs,” making board responsibility unavoidable.

“For Bangladesh, the framework is now in place and expectations are rising,” Habib concludes. “Whether it leads to stronger banks or prolonged supervisory pressure will depend largely on boards. Boards that adapt will find the system strict but predictable. Boards that resist, or misuse their authority, will find that supervisory judgment, once formed, is difficult to reverse.”