New CEO KPI must not deter leadership

For years, the success of a bank CEO in Bangladesh has been judged by numbers such as loan growth, deposits, profit, market share and business expansion. The Bangladesh Bank’s new key performance indicator (KPI) framework for managing directors and CEOs of banks marks a change in banking sector governance. The framework links CEO assessments to solvency and liquidity, asset quality, profitability, governance, customer conduct and financial inclusion, and connects the results to remuneration, incentives, tenure, reappointment and succession.

The purpose is clear: CEOs must be accountable for the health of their banks, not merely for short-term business growth. A KPI framework can strengthen leadership, but it could also make the position so risky that experienced bankers stop aspiring to it. The timing matters because the banking sector is already under exceptional stress.

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For many CEOs, the biggest challenge will be that they inherit problems rather than create them. A bank chief may be held accountable for NPLs generated years ago, weak capital accumulated over time or concentrated exposures approved under previous management. A CEO taking charge of a weak bank may spend two or three years cleaning up old loans, strengthening provisions, rebuilding capital and recovering classified loans. During that period, NPLs may increase as previously concealed problems are recognised. Under a rigid numerical KPI system, the CEO could appear to be performing poorly for making the balance sheet more transparent. Ironically, the CEO actually fixing the bank could initially receive a worse KPI score than one who delays recognising problems. That is a dangerous incentive.

Another challenge is the structural pressure created by the number of banks. Bangladesh had 61 scheduled banks and 11,247 branches as of March 2025. The immediate past governor said the country had far more banks than necessary and suggested 10-15 could be sufficient, while discussing consolidation of state-owned banks. This raises a leadership question. If consolidation, restructuring and resolution become increasingly necessary and CEO accountability becomes more demanding, will experienced bankers still regard the MD position as an attractive career destination? This does not mean accountability should be weakened. It means it must be designed judiciously.

There is a thin line between responsible banking and excessively defensive banking. If an MD knows that NPLs, ADR, concentration, recovery and other indicators can trigger significant penalties, the safest strategy may become: “Do not take risk.” But a bank that does not take prudent risks cannot contribute to the economy. Bangladesh needs banks to lend to CMSMEs, agriculture, exporters, entrepreneurs, new industries and young businesses. These segments carry higher risks. We should not accidentally create a generation of CEOs whose primary objective is: “How do I avoid a bad KPI score?” Instead, it should be: “How do I take the right risks and generate sustainable risk-adjusted returns?” That distinction matters.

Basel does not recommend protecting senior executives from accountability. But global best practice tries to make accountability risk-adjusted and forward-looking. Basel explicitly places responsibility on the board to oversee senior management, risk appetite, executive performance and remuneration. We should therefore avoid creating a system where the CEO carries all the accountability while the board carries comparatively little. A balanced approach is preferable.

The best banking systems create leaders bold enough to take calculated risks and disciplined enough to understand the consequences. The real objective should not be to make the CEO afraid of failure, but to encourage them to take calculated risks and contribute to the economy. If our best and most experienced bankers eventually decide that becoming an MD is a high-risk career move with limited upside, who will be willing to lead the next generation of our banks?

The writer is a senior banker