CG Praactices in Banking Secotor of Bangladesh

Corporate
Governance
Corporate Governance Practices of
Commercial Banks in Bangladesh
Acknowledgement
At the very beginning, we would like to express my deep gratitude to almighty Allah
for giving us the strength to finish the report within the schedule time. We required
enormous time and attention in every step of it. However, it gives us a true feeling of
creation and helps me to understand my ability of work. For fear of sounding like a
vote of thanks speech, we would like to take the opportunity, to thank all of those
marvelous people who have contributed to this report. Of course, some very special
people cannot go without mentioning. At first, we express thank my heartiest
gratitude to our Course Teacher Mr. Md. Miraj Hossen, Assistant Professor, Dept. of
Management Studies, Jagannath University for his kind cooperation in preparing this
report. We are also indebted to all of respondents and for giving time and advice to
know and learn all activities of the bank and prepare this report. During the
preparation of the report. We have come to the very supportive touch of different
individuals (respondents &seniors) and friends, who lend their ideas, time and caring
guidance to amplify the reports contents. We must say that without their help it
would be very hard for us to prepare such report. We are thankful to them with all of
our feelings.
ii
Synopsis
Corporate Governance ensures to bring transparency, accountability and
professionalism in the management system of a corporate body that enhances the
credibility and acceptability to the shareholders, employees, potential investors,
customers, lenders, governments and all other stakeholders. Corporate governance
(CG) is a set of principles, which should be incorporated into every part of the
organization. Financial institutions like banks have a significant role to play in the
economy of any country. Banking sector should follow the Corporate Governance
codes for Bangladesh. Since Banks deal in public money, public confidence is of
outmost importance in this Industry. So, this paper has tried to evaluate the present
scenario of Corporate Governance practices by the commercial banks in Bangladesh.
The study has been conducted to attain some objectives. The primary objective of the
study is to evaluate the practices of Corporate Governance codes by the Commercial
Banks in Bangladesh. In this study, both the primary and secondary data were used.
The primary data relating to problems involved in Corporate Governance practice and
suggestions to remove the same were collected from 50 randomly selected
respondents of banks on the basis of a questionnaire and scheduling method. Among
them we selected Directors of the Board, executive officers etc as the internal part of
management and the stakeholders (like customers) as the external group. The
secondary data were collected through an extensive literature survey on the subject. In
order to do the study, we focus the major issues like shareholders rights and
disclosure of information, disclosure and transparency, effectiveness of Board of
directors etc. Four (4) hypotheses have been developed in order to identify whether
the commercial banks are complying corporate governance issues or not. And making
the study convenient an assumption was made using subjective probability technique
that 70% or more of commercial banks of Bangladesh are maintaining 90% or more
CG codes for Bangladesh (Alam, K, 2011). Only 33% of the major issue like
disclosure and transparency has met the assumption. In contrast the major issues of
CG codes namely shareholders rights and disclosure of information, board of
directors effectiveness are not properly exercised by the commercial banks. In this
survey, we have also found some embezzlement of commercial banks (Sonali Bank,
Agrani Bank, Bank Asia etc) in recent years. We found that this embezzlement
occurred only for not practicing good corporate governance. We have also identified
some major problems in Corporate Governance practices in the Banking Industry of
the country. The prospect of Corporate Governance practice is bright in Banking
Industry in the country as reported by the respondents if problems are removed by the
concerned management of the Banks as well as Bangladesh Bank management as the
guardian of commercial Banks. Consequently the study recommends some
approaches that are well thought out for the practice of corporate governance codes by
the private commercial banks of Bangladesh.
Table of Content
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Title page
Acknowledgement
Letter of Transmittal
Group List
Synopsis
CHAPTER ONE- INTRODUCTION
1.1 Background of the Study
1.2 Objectives of the study
1.2.1 Primary Objective
1.2.2 Secondary Objectives
1.3 Methodology
1.3.1 Sources of Data
1.3.2 Target Population
1.3.3 Sampling Method
1.3.4 Questionnaire Development
1.3.5 Research Method
1.3.6 Measuring Instruments
1.3.7 Data Analysis Method
1.4 Limitation
1.5 Hypothesis Development
1.5.1 Hypothesis
1.5.2 Assumption
1.6 Literature Review
CHAPTER TWO- HISTORY OF BANKING
2.1 Short History of Banking
2.2 Lists of commercial banks
2.2.1 State-owned commercial banks
2.2.2 Private commercial banks
2.2.3 Islamic Commercial Banks
2.2.4 Foreign commercial banks
2.3 Brief description of some commercial banks:
2.3.1 Pubali Bank
2.3.2 National Bank Ltd.
2.3.3 Dutch-Bangla Bank Ltd.
2.3.4 IBBL
CHAPTER THREE- HISTORY OF BANKING
3.1 Definition of Corporate Governance
3.2 Principles
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3.3 Pre-Requisites of Effective Corporate Governance

3.4 Corporate Governance Guidelines for Banking Sector
3.5 Present State of CB in BD
3.5.1 Embezzlement in Banks
3.6 Limitations
3.7 Result and Analysis
3.8 Testing Hypothesis
3.8.1 Hypothesis Test 1
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CHAPTER FOUR- FINDINGS & DISCLOSURE OF INFORMATION 41 - 45
4.1 Findings
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4.2 Problems
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4.3 Conclusion
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4.4 Recommendation
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Closing Part
Reference
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Appendix
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Questionnaire
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List of Respondent
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List of Table
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ACRONYMS
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ACRONYMS
ARCG
AGM
BEI
BIS
BOD
CEO
ABBREVIATION
Asian Roundtable on Corporate Governance
Annual General Meeting
Bangladesh Enterprise Institute
Bank Of International Settlement
Board Of Directors
Chief Executive Officer
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CG
CSR
CSE
DSE
MIS
RAFT
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RJSC
SEC
Corporate Governance
Corporate Social Responsibility
Chittagong Stock Exchange
Dhaka Stock Exchange
Management Information System
Responsibility, Accountability, Fairness,
Transparency
Registrar of Joint Stock Company
Securities Exchange Commission
List of Tables
Index
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Particulars
Table 3.8 (i): Shareholders rights and Disclosure of information
Table 3.8 (ii): Disclosure and transparency
Table 3.8 (iii): Effectiveness of the Board of directors
Table a: Position of the Respondents in the Bank
Table b: Age distribution of the Respondents
Table c: Gender of the Respondents
Table d: Ownership type of the Bank
Table e: Ownership and control structure of the company
Table f: Relation between CEO and the founder or the largest
shareholders
Table g: Shareholders participation in voting at the shareholders
meeting
Table h: Adequate information on the agenda items of the
shareholders meeting
Table i: Adequate time for asking questions and lacing issues at
the shareholders meeting
Table j: Director Candidates disclose before the shareholders
meeting
Table k: Minority shareholders nominate candidate at the
shareholders meeting or prior to the meeting
Table l: Director Candidates proposed by the management fail to
be elected at the shareholders meeting
Table m: Information Discloser of the Company
Table n: Discloser of the information
Table o: Timely and informative disclosures
Table p: CEO as Board Chairman
Table q: Review of CEOs compensation
Table r: Stock option for the CEO
Table s: prevalence of the practices
Table t: Board have the following committee
Table u: Miscellaneous I (Queries table 2)
Table v: Miscellaneous II (Queries table 1)
Table w: Responsible for resent scenario of Banking Sector
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List of Charts
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Particulars
Figure: 3.7 (a): Position of the Respondent
Figure: 3.7 (b): Age Distribution of the Respondent
Figure: 3.7 (c): Gender of the Respondent
Figure: 3.7 (d): Ownership type of the Bank
Figure: 3.7 (e): Ownership and Control Structure
Figure: 3.7 (f): Relation between CEO and the founder or the
largest shareholder
Figure: 3.7 (g): Shareholders participation on Voting at
Figure: 3.7 (h): Adequate information on agenda items of the
shareholders
Figure: 3.7 (i): Adequate time for asking question at the
Figure: 3.7 (j): Role of shareholders in nominating candidates and
electing outside directors of the Bank
Figure: 3.7 (k): Failed to elect director candidates at shareholders
meeting
Figure: 3.7 (l): Disclosure if information regarding Directors
selling and buying shares in Bank
Figure: 3.7 (m): Disclosure if information regarding Audit report
of the company
Figure: 3.7 (n): Disclosure if information regarding background of
the directors
Figure: 3.7 (o): Disclosure if information regarding remuneration
of the directors
Figure: 3.7 (p): Disclosure if information regarding policies of
Risk Management
Figure: 3.7 (q): Disclosure if information regarding significant
changes in ownership
Figure: 3.7 (r): Timely and informative Disclosure
Figure: 3.7 (s): CEO serves as Board Chairman
Figure: 3.7 (t): Review of CEOs compensation
Figure: 3.7 (u): Stock option for the CEO
Figure: 3.7 (v): Prevalence of the practices
Figure: 3.7 (w): Board committees.
Figure: 3.7 (x): Miscellaneous I
Figure: 3.7 (y): Miscellaneous II
Figure: 3.7 (z): Responsible for current scenario of Banking Sector
Figure 3.8 (a): Shareholders rights and Disclosure of information
Figure 3.8 (b): Disclosure and transparency
Figure 3.8 (c): Effectiveness of the Board of directors
Figure 3.8 (d): Summary of the Hypothesis
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Chapter: One
Introductory Issues
Background of the study
Objectives
Methodology
Limitations
Hypothesis Development
Literature Review
1.1
Background of the Study
Corporate governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administered or controlled. It can be defined
as a combination of fairness, precision, accountability and sustainability of corporate
behavior. It is a key factor to achieve the improved performance of an organization. It
is a fundamental element to safeguard the interests of shareholders and stakeholders.
For continuous and sustainable growth of an organization, there is no alternative to
effective Corporate Governance.
The positive effect of corporate governance on commercial banking sectors ultimately
is a strengthened economy, and hence good corporate governance is a tool for socioeconomic development.
Commercial Banks are critically important for industrial expansion, the Corporate
Governance (CG) of firms, and capital allocation. When banks efficiently mobilize and
allocate funds, this lowers the cost of capital to firms, boosts capital formation, and
stimulates productivity growth. Thus, the functioning of banks has ramifications for the
operations of firms and the prosperity of nations.
Effective Corporate Governance practices are essential to achieving and maintaining
public trust and confidence in the banking system, which are critical to the proper
functioning of the banking sector and economy as a whole.
As we know banking sector has been performing an essential role in strengthening any
economy. Poor Corporate Governance may contribute to bank failures, which can pose
significant public costs and consequences due to their potential impact on any
applicable deposit insurance systems and the possibility of broader macroeconomic
implications, such as contagion risk and impact on payment systems. In addition, poor
Corporate Governance can lead markets to lose confidence in the ability of a bank to
properly manage its assets and liabilities, including deposits, which could in turn trigger
a bank run or liquidity crisis.
1.2
Objectives of the study
1.2.1 Primary Objective

To evaluate the practices of Corporate Governance codes by the Commercial Banks of
Bangladesh.
1.2.2 Secondary Objectives
i.
To see the corporate governance guidelines in Bangladesh.
ii. Assessing the accountability of commercial banks in Bangladesh to the
stakeholders.
iii. Evaluating how far the current practice of corporate governance passes the
test of fairness in case of banks.
iv.
To know whether corporate governance system in Bangladesh is transparent
for all stakeholders of commercial banks.
v.
To find out challenges and recommends some measures to improve the
quality of present issues of corporate governance of commercial banks in
Bangladesh.
1|Page
1.3
Methodology
The following are the bases that have been followed to conduct the study:
1.3.1
Sources of Data
i.
Primary Source
Primary data have been collected through conducting questionnaire and
scheduling method.
ii.
Secondary Source
Secondary data have been collected from different journals, books,
banks websites and banks annual report.
1.3.2 Target Population

The target populations of this study are the shareholders, stakeholders (customers,
investors, employees Etc.), managers and executives of different commercial banks in
Bangladesh.
1.3.3 Sampling Method
Random sampling method is used as a sampling method. Under which convenient
technique has been used to gather primary data. And sample size has been determined
50 respondents of commercial banks in Bangladesh.
1.3.4 Questionnaire Development
The questionnaire consists of both open and close ended questions. The questionnaire
has been developed based on the corporate governance codes for Bangladesh.
1.3.5 Research Method
To do this study a questionnaire has been developed to collect information about
corporate governance practiced by the commercial banks in Bangladesh. The
questionnaire has been divided into different sections such as company profile,
shareholders rights and disclosure, public disclosure and transparency, effectiveness
of the board, function of the board, and effectiveness of the independent directors. The
questionnaire was made semi-structured to allow for in depth interviews with key
individuals of the companies.
1.3.6 Measuring Instruments
Scales Include5 point Likert scales. Where 5= strongly agree, 4=Agree, 3=No opinion,
2=Disagree, 1= strongly disagree.
1.3.7 Data Analysis Method
In this step, each element of the major issues of corporate governance has been
tabulated and analyzed. For some analysis here, percentage system has been used. It
has been presented in terms of tables, figures, and graphs as well as written scripts. For
the processing and analyzing numerical data, means, standard deviations and z tests
have been used in the study.
2|Page
1.4
Limitation
There were some limitations of the study among which non availability of data was the
most, especially for the non-listed companies. Another limitation was least amount of
disclosure regarding Corporate Governance. Corporate Social Responsibility (CSR)
activities of the banks were very limited, as well as the disclosure regarding CSR.
Non availability of data
Least amount of disclosure regarding Corporate Governance
The sample size was relatively small as compared to the total population.
Absence of credible data and relevant information on the real CG concerns in
Bangladesh.
Comprehensive access to information was a difficult task because of time
limitation.
Unwillingness to provide confidential information especially by state owned
commercial bank.
Unawareness of customers about the CG practice in their respective banks.
1.5 Hypothesis Development

1.5.1 Hypothesis
i. Hypothesis- 1
H0 = The state of affairs of Shareholder Rights and Disclosure of Information
is meeting the CG codes in the commercial banks.
H1 = The state of affairs of Shareholder Rights and Disclosure of Information
is not meeting the CG codes in the commercial banks.
ii. Hypothesis- 2
H0 = The state of affairs for Disclosure and Transparency is being met the CG
codes by the commercial banks.
H1 = The state of affairs for Disclosure and Transparency is not being met the
CG codes by the commercial banks.
iii. Hypothesis- 3
H0 = The state of affairs of Effectiveness of the Board of directors is meeting
the CG codes in the commercial banks.
H1 = The state of affairs of Effectiveness of the Board of directors is not meeting
iv. Hypothesis- 4
H0 = The CG codes are practiced by the commercial banks in Bangladesh as
per the assumption.
H1 = The CG codes are not practiced by the commercial banks in Bangladesh
as per the assumption.
3|Page
1.5.2 Assumption
An assumption has been taken to conduct the survey that 70% or more
of the commercial banks in Bangladesh are satisfying with 90% or more issues
of the corporate governance codes. Conformity of corporate governance codes
for each issue is determined when 70% or more banks have satisfied with that
assumption. The probability has been taken based on subjective probability
technique.
1.6 Literature Review

In the area of corporate governance practices of banks, three strands of literature are
found. First strand focuses on how the corporate governance practices in banks differ
from those in non-banking firms (Prowse, 1997; Furfine, 2001; Morgan, 2002; Macey
and OHara, 2003). Banks have two related characteristics that inspire a separate
analysis of the corporate governance of banks (Furfine, 2001). First, banks are generally
more obscure than non-financial firms. Although information asymmetries plague all
sectors, evidence suggests that these informational asymmetries are larger with banks
(Furfine, 2001).
From the perspective of banking, loan quality is not readily observable and can be
hidden for long periods. Therefore, Morgan (2002) found that bond analysts disagree
more over the bonds issued by banks than by non-financial firms. The comparatively
severe difficulties in acquiring information about bank behavior and monitoring
ongoing bank activities hinder traditional corporate governance mechanisms (Levine,
2004).
The second strand of literature looks at how better governance practices in banks can
help their financial development and growth (Levine, 1997; Bushman and Smith,
2003). Bushman and Smith discussed economics-based research focused primarily on
the governance role of financial accounting information and propose future research
ideas. As presented in their study, a framework that isolates three channels through
which financial accounting information can affect the investments, productivity, and
value-added of firms namely the use of financial accounting information by managers
and investors, the use of financial accounting information in corporate control
mechanisms and the use of financial accounting information to reduce information
asymmetries among investors. The third strand looks at corporate governance practices
in banks from the perspective of its impact on performance and efficiency of the banks
themselves (Jensen and Meckling, 1976; Hovey et al, 2003).
Andres and Vallelado (2008) have examined the corporate governance in banking: the
role of the board of directors. They pointed out that bank board composition and size
are related to directors ability to monitor and advice management, and that larger and
not excessively independent board might prove more efficient in monitoring and
advising functions, and create more value. Kutubi (2011) has examined board of
directors size, independence and performance: an analysis of private commercial
banks in Bangladesh. This study has examined the impact of board size and the
independent directors on the performance of the local private commercial banks in
Bangladesh. The study has found that statistically significance positive relationship
existed between the proportions of the independent directors and the performance of
the banks.
4|Page
Hossain (2011) highlighted the corporate governance practices in Bangladesh. The

study has pointed out that good corporate governance has implication for company
behavior towards employees, shareholders, customers & banks. He has suggested that
improving corporate governance can provide significant rewards to both individual
companies and countries.
Rashid et al (2010) have examined board composition and firm performance from
Bangladesh perspective. The study has also examined the influence of corporate board
composition in the form of representation of outside independent directors on firms
economic performance in Bangladesh. The finding of the study has provided an insight
to the regulators in this quest for harmonization of internal corporate governance
practices. Rashid et al (2009) have made an overview on corporate governance in banks
in Bangladesh. The study has identified six specific corporate governance
characteristics in relation to current corporate governance practices in Bangladesh
namely legal and regulatory frame work, weak institutional control, pre-dominant of
individual investors, limited transparence & weak disclosure practices etc.
5|Page
Chapter: Two
Commercial Banking Sector

in Bangladesh at a glance
History
List of commercial Banks
Brief description of some Banks
2.1
Short History of Banking
The banking system at independence (1971) consisted of two branch offices of the
former State Bank of Pakistan and 17 large commercial banks, two of which were
controlled by Bangladeshi interests and three by foreigners other than west Pakistanis.
There were 14 smaller commercial banks. Virtually all banking services were
concentrated in urban areas. The newly independent government immediately
designated the Dhaka branch of the State Bank of Pakistan as the central bank and
renamed it Bangladesh Bank. The bank was responsible for regulating currency,
controlling credit and monetary policy, and administering exchange control and the
foreign exchange reserves. The Bangladesh government initially nationalized the entire
domestic banking system and proceeded to reorganize and rename the various banks.
Foreign-owned banks were permitted to continue doing business in Bangladesh.
2.2
Lists of commercial banks
2.2.1
State-owned commercial banks

State-owned are functioning as nationalist. Here is the list Sonali Bank
Janata Bank
Agrani Bank
Rupali Bank
2.2.2
Private commercial banks

Private Banks are the highest growth sector due to the dismal performances
of government banks (above). They tend to offer better service and products.
Here is the list AB Bank Limited
Bangladesh Commerce Bank Limited
Bank Asia Limited
BRAC Bank Limited
Dhaka Bank Limited
Dutch Bangla Bank Limited
Eastern Bank Limited
Farmers Bank Limited
IFIC Bank Limited
Jamuna Bank Limited
Meghna Bank Limited
Mercantile Bank Limited
Midland Bank Limited
Modhumoti Bank Limited
Mutual Trust Bank Limited
National Bank Limited
NCC Bank Limited
NRB Commercial Bank Limited
NRB Global Bank Ltd
One Bank Limited
Prime Bank Limited
Pubali Bank Limited
6|Page
South Bangla Agriculture and Commerce Bank Ltd

Southeast Bank Limited
Standard Bank Limited
The City Bank Limited
The Premier Bank Limited
Trust Bank Limited
United Commercial Bank Ltd
Uttara Bank Limited
2.2.3
Islamic Commercial Banks

There are 8 Islamic Commercial Banks:
Al-Arafah Islami Bank Limited
Export Import Bank of Bangladesh Limited
First Security Islami Bank Limited
ICB Islamic Bank
Islami Bank Bangladesh Limited
Shahjalal islami bank Limited
Social Islami Bank Limited
Union Bank Limited
2.2.4
Foreign commercial banks

10 foreign commercial banks are operating in Bangladesh. These are:
Bank Alfalah
Citibank NA
Commercial Bank of Ceylon
Habib Bank Limited
HSBC (The Hong Kong & Shanghai Banking Corporation Ltd.)
National Bank of Pakistan
Standard Chartered Bank
State Bank of India
Woori Bank
ICICI Bank
2.3 Brief description of some commercial banks:

There are brief discretion of some commercial banks in Bangladesh.
2.3.1 Pubali Bank
PUBALI BANK LIMITED is the largest Commercial Bank in Private Sector in
Bangladesh. It provides mass banking services to the customers through its branch
network all over the country. This Bank has been playing a vital role in socio-economic,
industrial and agricultural development as well as in the overall economic development
of the country since its inception through savings mobilization and investment of funds.
During the last 5 years the growth rate of banks earnings is more than 25% on average.
The Bank was initially emerged in the Banking scenario of the then East Pakistan as
Eastern Mercantile Bank Limited at the initiative of some Bangalee entrepreneurs in
the year 1959 under Bank Companies Act 1913. After independence of Bangladesh in
7|Page
1972 this Bank was nationalized as per policy of the Government and renamed as Pubali
Bank. Subsequently due to changed circumstances this Bank was denationalized in the
year 1983 as a private bank and renamed as Pubali Bank Limited. The Government of
the Peoples Republic of Bangladesh handed over all assets and liabilities of the then
Pubali Bank to the Pubali Bank Limited. Since then Pubali Bank Limited has been
rendering all sorts of Commercial Banking services as the largest bank in private sector
through its branch network all over the country.
2.3.2 National Bank Ltd.
National Bank Limited has been licensed by the Government of Bangladesh as a
Scheduled commercial bank in the private sector in pursuance of the policy of
liberalization of banking and financial services and facilities in Bangladesh. In view of
the above, the Bank within a period of 25 years of its operation achieved a remarkable
success and met up capital adequacy requirement of Bangladesh Bank.
National Bank Limited established as the first private sector Bank fully owned by
Bangladeshi entrepreneurs. NBL was the first domestic bank to establish agency
arrangement with the world famous Western Union in order to facilitate quick and safe
remittance of the valuable foreign exchanges earned by the expatriate Bangladeshi
nationals. NBL was also the first among domestic banks to introduce international
Master Card in Bangladesh.
2.3.3 Dutch-Bangla Bank Ltd.
Dutch-Bangla Bank Limited (DBBL) is Bangladeshs most innovative and
technologically advanced bank. DBBL stands to give the most innovative and
affordable banking products to Bangladesh. Amongst banks, DBBL is the largest donor
in to social causes in Bangladesh. It stands as one of the largest private donors involved
in improving the country. DBBL is proud to be associated with helping Bangladesh as
well as being a leader in the countrys banking sector
Dutch-Bangla Bank believes in its uncompromising commitment to fulfill its customer
needs and satisfaction and to become their first choice in banking. Taking cue from its
pool esteemed clientele, Dutch-Bangla Bank intends to pave the way for a new era in
banking that upholds and epitomizes its vaunted marques Your Trusted Partner
DBBL was the first bank in Bangladesh to be fully automated. The Electronic-Banking
Division was established in 2002 to undertake rapid automation and bring modern
banking services into this field. Full automation was completed in 2003 and hereby
introduced plastic money to the Bangladeshi masses. DBBL had pursued the mass
automation in Banking as a CSR activity and never intended profitability from this
sector.
2.3.4 IBBL
Islami Bank Bangladesh Limited is a Joint Venture Public Limited Company engaged
in commercial banking business based on Islamic Shari'ah with 63.09% foreign
shareholding having largest branch network ( total 293 Branches) among the private
sector Banks in Bangladesh. It was established on the 13th March 1983 as the first
Islamic Bank in the South East Asia.
It is listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd.
Authorized Capital of the Bank is Tk. 20,000.00 Million and Paid-up Capital is Tk.
16,099.90 million having 33,686 shareholders as on 30th September 2014.
8|Page
Chapter: Three
Theoretical Issues
Definition of CG
Principles of CG
Pre-requisites for CG practice
CG Guidelines for Banking Sector
Present states of CG in BD
Limitations
Result/ Findings
Hypothesis testing
3.1
Definition of Corporate Governance
Corporate Governance (CG) is probably the widest control mechanism used for
efficient utilization of corporate resources. It can be defined as an organizational
control devise, which is a hybrid of internal and external control mechanisms
with a view to achieving efficient utilization of corporate resources. It is a network
among various corporate players such as shareholders, managers, employees,
leaders, governments, suppliers and consumers for increasing the value of the
firm. Different authors view the meaning of corporate governance differently. For
example:
One school of thoughts describes corporate governance as a system by which
companies are directed and controlled (Cadbury and Greenbury Report, 1992).
That the fundamental concern of corporate governance is to ensure the
conditions whereby a firms directors and mangers are held accountable,
ensure better and effective protection to all stakeholders.
The World Bank define that the framework of corporate governance should be
based on four pillars such as Responsibility, Accountability, Fairness and
Transparency (RAFT).
There are some variables on which the corporate governance framework
established. Those are Responsibility, Accountability, Fairness and Transparency.
Corporate governance from the view point of commercial banks:
Effective corporate governance practices are essential to achieving and maintaining the
public trust and confidence in the banking system, as a result they are critical to the
proper functioning of the banking sector and economy as a whole. However, little
attention has being given to corporate governance of banking sector especially in
developing economies.
According to Hambrick et al. (2008), not only do the constituents of banking
sector stand to gain or lose due the quality and nature of corporate governance
therein, but the entire national systems can be propelled or stymied as well. The
health of the economy is closely related to the soundness of its banking sector
(Katrodia, 2012).
Handley-Schachler et al. (2007) posited that banks require different and more
extensive corporate governance arrangements.
Arun and Turner (2004) also argued that the unique nature of the bank both in
the developed or developing world requires a broad view of corporate
governance to be adopted for banks.
According to Bank for International Settlements (2010) effective corporate
governance practices are essential to achieving and maintaining the public trust
and confidence in the banking system, hence critical to the proper functioning
of the banking sector and economy as a whole.
9|Page
However, Arun and Turner (2004) stated that:

The corporate governance of banks in developing economies is important for several
reasons.
First, banks have an overwhelmingly dominant position in developing-economy
financial systems, and are extremely important engines of economic growth....
Second, as financial markets are usually underdeveloped, banks in developing
economies are typically the most important source of finance for the majority
of firms.
Third, as well as providing a generally accepted means of payment, banks in
developing countries are usually the main depository for the economys savings.
Fourth, many developing economies have recently liberalized their banking
systems through privatization/disinvestments and reducing the role of economic
regulation. Consequently, managers of banks in these economies have obtained
greater freedom in how they run their banks.
3.2
Principles
Key elements of good corporate governance principles include honesty, trust and
integrity, openness, performance orientation, responsibility and accountability, mutual
respect, and commitment to the organization.
Of importance is how directors and management develop a model of governance that
aligns the values of the corporate participants and then evaluate this model periodically
for its effectiveness. In particular, senior executives should conduct themselves
honestly and ethically, especially concerning actual or apparent conflicts of interest,
and disclosure in financial reports.
Commonly accepted principles of corporate governance include:
i.
Rights and equitable treatment of shareholders: Organizations should
respect the rights of shareholders and help shareholders to exercise those
rights. They can help shareholders exercise their rights by effectively
communicating information that is understandable and accessible and
encouraging shareholders to participate in general meetings.
ii.
Interests of other stakeholders: Organizations should recognize that they

have legal and other obligations to all legitimate stakeholders.
iii.
Role and responsibilities of the board: The board needs a range of skills
and understanding to be able to deal with various business issues and have
the ability to review and challenge management performance. It needs to be
of sufficient size and have an appropriate level of commitment to fulfill its
responsibilities and duties. There are issues about the appropriate mix of
executive and non-executive directors.
iv.
Integrity and ethical behavior: Ethical and responsible decision making is

not only important for public relations, but it is also a necessary element in
risk management and avoiding lawsuits. Organizations should develop a
10 | P a g e
code of conduct for their directors and executives that promotes ethical and
responsible decision making. It is important to understand, though, that
reliance by a company on the integrity and ethics of individuals is bound to
eventual failure. Because of this, many organizations establish Compliance
and Ethics Programs to minimize the risk that the firm steps outside of
ethical and legal boundaries.
v.
Disclosure and transparency: Organizations should clarify and make

publicly known the roles and responsibilities of board and management to
provide shareholders with a level of accountability. They should also
implement procedures to independently verify and safeguard the integrity
of the companys financial reporting. Disclosure of material matters
concerning the organization should be timely and balanced to ensure that all
investors have access to clear, factual information.
Issues involving corporate governance principles include:

Internal controls and internal auditors.
The independence of the entitys external auditors and the quality of their
audits.
Oversight and management of risk.
Oversight of the preparation of the entitys financial statements.
Review of the compensation arrangements for the chief executive officer
and other senior executives.
The resources made available to directors in carrying out their duties.
The way in which individuals are nominated for positions on the board.
3.3
Pre-Requisites of Effective Corporate Governance:
The effectiveness of Corporate Governance in Bangladesh depends on the major Key

Corporate Performances which are nothing but the pre-requisites. These are as follows:
Effective corporate governance requires a clear understanding of the

respective roles of the board
The selection, compensation and evaluation of a well-qualified and ethical
CEO is the single most important function of the board
A corporation should have a code of conduct with effective reporting and
enforcement mechanisms.
A substantial majority of directors of the board of publicly owned
corporation should be independent of management.
Every publicly owned corporation should have an audit committee
Audit committee meetings should be held frequently
An effective internal control system should be in existence at all
corporations
Ensure corporate ethical behavior;
The some special nature of banks makes their corporate governance more complex
because:
11 | P a g e
3.4
Depositors are protected by the deposit insurance fund. Because

depositor losses after bank failure are made good by the insurance
fund, depositors are insensitive to the riskiness of the bank. As a
result, banks have an incentive to take excessive risks to boost their
profits.
Many banks are too important to be allowed to fail, and hence
shareholders may believe that they have a tacit government guarantee.
As a result, shareholders may tolerate excessive risk.
Bank assets are hard to evaluate. Even when shareholder rights are
protected, investors may struggle to understand precisely how their
capital is deployed and the bank may be taking on more risk than they
realize.
The objective is what distinguishes bank corporate governance from
other areas of corporate governance because of the potential social
costs that banking can have on the broader economy". It may not be
practical or desirable to expose bank directors to the full costs of their
mistakes, but, in general, good governance should, like good
regulations oblige bankers to consider the wider, external, costs that
their risk-taking could inflict upon third parties.
Corporate Governance Guidelines for Banking Sector
Banks in developing countries are faced with high risk of sharking as a result of heavy
government ownership, lack of prudential regulation, weak legal protection and
presence of special interest groups (Arun, T.G. and J. Turner (2003), However, there is
an argument that active role by regulators may cause problems as well, as regulators
may not have a convincing or sufficient motivation to monitor the banks as they do not
have much at stake in case of bank failures. Recently, the financial markets of
developing economies have experienced rapid changes due to the growth of wider range
of financial products. As a result of this, banks have been involved with high risk
activities such as trading in financial markets and different off balance sheet activities
more than ever before (Greuning, H. and S. Bratanovic (2003),) which necessitate an
added emphasis on quality of corporate governance of banks in developing economies.
Asian Roundtable on Corporate Governance (ARCG) Task force developed the Policy
Brief on Corporate Governance of Banks in Asia (June 2006). The main issues and
priorities for reforms in CG of banks in Asia that were identified are:
The responsibility of individual board members fiduciary duties of bank board

members need of skill, personal abilities, training programs on integrity and
professionalism.
The roles or functions of the board guiding, approving and overseeing
strategies or policies rather than being immersed in day-to-day operations.
Creating clear accountability line and internal control system. Sufficient flows
of information and managerial support.
The composition of the boardbanks is more encouraged to have independent
directors than other firms. Separation between Chairman and CEO.
12 | P a g e
The committees of the boardaudit committee, the Risk Management

Committee, The Governance Committee with combined responsibilities of
Nomination, remuneration, succession planning, training, performance
evaluation, etc.
Preventing abusive related party transactions inspection of the existing
firewall. Creation of specialized committee to monitor and approve related part
transaction. Publicly disclose such transaction.
Bank holding companies and groups of companies holding banksa banks
parent company should not impede the full exercise of the CG of the bank within
the banking group.
Disclosureeffort on convergence into international standards on accounting,
etc. should be encouraged.
Banks autonomy in relation to the statestate as owner should respect the legal
corporate structures of State Owned Commercial Banks
Banks monitoring of the CG structure of its corporate borrowersExtent to
which banks should assess or monitor CG of their corporate borrowers or seek
to improve it.
Actually the principle legal instrument for enforcing governance in Bangladesh is the
Companies Act 1994 which is administered by Registrar of Joint Stock Company
(RJSC) and the Ministry of Commerce. SEC is concerned with publicly limited
companies only, the number of which is very insignificant. Close monitoring of leading
companies is a disincentive for going public as there is a perception that this will create
and raise unnecessary difficulties for companies to supply information as and when
requested.
i.
Corporate Governance in the Financial Institutions (FIs) as bank
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.
ii.
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.
iii. 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.
iv.
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. 50 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
13 | P a g e
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.
v.
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.
vi.
Role of the shareholders
Where there has only been partial divestment and government have not relinquished
any control to other shareholders, it may prove very difficult to divest further ownership
stakes unless CG is strengthened
3.5
Present State of CB in BD
As in many developing countries, banks play a vital role in Bangladesh economy, as

the dominant financier for the industrial and commercial activities. The sector
witnessed decreasing profitability, increasing non-performing assets, provision and
capital shortfalls, eroded credit discipline, rampant corruption patronized by political
quarters, low recovery rate, inferior asset quality, managerial weaknesses, excessive
interference from government and owners, weak regulatory and supervisory role etc.
(Hassan, 1994; USAID, 1995).Internal control system along with accounting and audit
qualities are believed to have been substandard (World Bank, 1998; Raquib, 1999;
CPD, 2001). Many of the problems have been attributed to lack of sound corporate
governance among the banks. The reports by the Banking Reform Commission (1999)
and BEI (2003) raises serious concerns on the banking sector and criticize the quality
of governance that prevails in the banking sector in Bangladesh.
Corporate governance practices in Bangladesh are quite absent in most companies and
organizations as well as in commercial banks. In fact, Bangladesh has lagged behind its
neighbors and the global economy in corporate governance because of following
reasons:
Motivation to disclose information and improve governance practices by banks

is felt negatively. There is neither any value judgment nor any consequences for
corporate governance practices.
The current system in Bangladesh does not provide sufficient legal, institutional
and economic motivation for stakeholders to encourage and enforce corporate
governance practices.
Failure in most of the constituents of corporate governance is witness in
Bangladesh.
Poor bankruptcy laws
No push from the international investor community
Limited or no disclosure regarding related party Transactions
14 | P a g e
3.5.1
Weak regulatory system

General meeting scenario
Lack of shareholder active participations
Embezzlement in Banks:
Agrani Bank, a state-owned commercial bank, was found involved in showing inflated
profit through window-dressed accounting during the year 2012. According to the
inspection report, Agrani Bank showed an operating profit of Tk 1314.61 crore for the
year 2012, ended December 31, producing fictitious accounts. The bank has incurred a
net loss of Tk 1185.06 crore instead of the profit.
The bank did not abide by the central banks set provisioning guidelines and
keep the required provisioning amount of Tk 1719.66 crore against its all
account during the year 2012.
The profit was calculated without keeping required provisioning against its
classified loan, investment and provisioning against the central banks
prescribed rate, added the report.
That means, the bank has a net shortfall of Tk 1672.11 crore provisioning
against its classified loan during the year.
According to Bangladesh Bank, loans of Tk 31,500 crore have so far been written off
as of March 2014.
The banks are taking opportunity of writing off bad loans as a ploy to cover up their
corruptions and mismanagements. The state-owned four commercial banks are ahead
in writing off bad loans. According to Bangladesh Bank data, four state-owned banks
have written off loans of Tk 15,228 crore until March 2014 since 2002.Of the amount,
the share of Sonali Bank stood at Tk 5,850 crore, Agrani Bank Tk 5,011 crore, Janata
Bank Tk 3,348 crore and Ruplai Bank Tk 1,019 crore. Twenty-seven of the 39 private
banks waived bad loans of Tk 12,517 crore and four state-owned specialised banks
waived Tk 3, 261 crore.
The failure of Sonali Bank, Ruposhi Bangla Branch to prevent the fraudulent
misappropriation of Tk. 3,607 crores by Hallmark Group (Tk. 2,668 crores) and others
is the biggest scandal in the banking industry.
In recent times, several such frauds
i.
ii.
Misappropriation of Tk. 622 coroes by one Nurunnabi in Chittagong in 2007

through a false local letter of credit.
Embezzlement of Tk. 596 crores withdrawn without cheque from Oriental
Bank in 2006.
Several other related incidents need to be recalled as rude reminders of indifference to

serious matters. The writing off of bank loans and interest charges of the defaulters
against hundred percent provisioning makes the default rate lower but definitely gives
raise to moral hazard in addition to encouraging further default by the mighty.
15 | P a g e
3.6
Limitations
Why any of these corporate governance mechanisms could not prevent or detect the
massive amount of fund embezzlement?
The prospect of political influence and collusion between top management and
branch level employees cannot be completely ruled out.
The current board, albeit constituted in conformity with the corporate
governance guidelines issued by the Bangladesh Bank, is largely dominated by
political appointees.
Political appointments to boards of state-owned commercial banks are not
uncommon in Bangladesh, and given the socio-political context of the country,
the incorporation of politically linked directors are perhaps understandable.
These directors, although in charge of a very substantial amount of public fund,
would not possibly devote the amount of time they otherwise would have, had
there been personal stakes involved.
The absence of protection for whistleblowers appears to be a fundamental
problem for the smooth functioning of the audit committees in Bangladesh. A
corruption of this extent is likely to involve a large number of persons, and it is
likely that at least one person (if not more) in the chain would be worried and
disgusted about this. If the bank could ensure protection and anonymity of this
person, he or she could have approached the audit committee and reported the
matter to it. However, with no whistleblower protection in place, it is unlikely
that this would happen.
The role of the auditors in this entire scam remains mysterious.
The central bank should also investigate why the external and internal auditors
who regularly audited the bank failed to perform their responsibilities.
Overall, the Sonali Bank case demonstrates that despite having all the corporate
governance mechanisms as suggested by the corporate governance guidelines issued by
the Bangladesh Bank, it was possible to misappropriate a significant amount of public
money.
16 | P a g e
3.7
Result and Analysis
On the basis of sample size of 50 respondents, here is our graphical analysis.
Position
25
20
15
22
10
15
10
Figure: 3.7 (a): Position of the Respondent
Among the 50 respondent 2% are BOD, 4% are Managing Director, 0% are

Director,20% are Manager,44% are Executive and 30% are others.
Age
55-65
Age
45-55
35-45
25-35
0
10
15
20
25
30
35
Figure: 3.7 (b): Age Distribution of the Respondent
Here the numbers of respondent are 47. Among 47 respondent 66% age lies in
25-35, 17% in 35-45, 15% in 45-55, and 2% in 55-65.
17 | P a g e
Gender
12
Male
Female
38
Figure: 3.7 (c): Gender of the Respondent
Among the 50 respondents 76% are male 24% are female.
Ownership type
0
12
Pubilc/ State- Owned
38
Private
Others
Figure: 3.7 (d): Ownership type of the Bank
Among the 50 respondents 24% are form public/state-owned bank and 76% are
private banks.
18 | P a g e
Ownership and Control Structure

D
22
16
A
0
10
15
20
25
Figure: 3.7 (e): Ownership and Control Structure
Here respondent are 49.Among 49 respondent A (the largest shareholders has a

substantial voting right and effectively controls the company) is 33%, B (Two
or more large shareholders collectively control the company) is 8%, C
(Ownership is fairly disseminate with no controlling shareholder, and
shareholder doesnt directly control the management) is 45% and D (Others) is
14%.
RELATION BETWEEN CEO AND

SHAREHOLDER
45
40
35
30
25
20
15
10
5
0
42
5
Found Himself
2
Founder's
Family Member
1
Professional
Manager
Others
Figure: 3.7 (f): Relation between CEO and the founder or the largest shareholder
Among 50 respondents Founder Himself is 10%, Founders family member is

4%, Professional Manager is 84% and others are 2%.
19 | P a g e
Participation on Voting
50
45
40
35
30
25
20
15
10
5
0 1
Voting by mail
44
2
Anybody can proxy
1
Others
Presence Requires
Figure: 3.7 (g): Shareholders participation on Voting at shareholders meeting
Here the respondents are 48. Among 48 respondents 2% said that Voting by
mail is allowed, 4% said anyone can serve as a proxy, 92% told Presence
requires for voting and Other option is ticked by 2%.
ADEQUATE INFORMATION ON
AGENDA ITEMS OF THE
SHAREHOLD ERS
35
30
25
20
15
10
5
0
33
16
0
Strongly
Agree
Agree
No Opinion
0
Disagree
1
Strongly
Disagree
Figure: 3.7 (h): Adequate information on agenda items of the shareholders

Here respondents are 50 among them 32% strongly agree that shareholders provide
adequate information, 66% agree about the terms, and 2% strongly disagreed about the
term.
20 | P a g e
Adequate time for asking question at the

STRONGLY DISAGREE 0
DISAGREE 0
NO OPINION
AGREE
35
STRONGLY AGREE
10
Figure: 3.7 (i): Adequate time for asking question at the shareholders meeting
Here respondent s are 46, among them 22% strongly agree that adequate time is given
for asking question, 76% agree, and 2% gave no opinion about this term.
Role of Shareholders
26
19
30
25
20
15
10
5
0
23
22
Yes
Director candidates discloser
No
Candites nomination by minority shareholders
Figure: 3.7 (j): Role of shareholders in nominating candidates and electing outside
directors of the Bank
Here respondents are 45, from them 49% respondents said yes about the director
candidates discloser before the shareholders meeting, and 51% said no about
the fact.
Here respondents are 45, form them 57% said positivity about the minority
shareholders role, and 43% said that minority shareholder cant play their role.
21 | P a g e
Failed to elect director candidates at

35
12
2
SOMETIMES
RARELY
UNTHINKABLE
Figure: 3.7 (k): Failed to elect director candidates at shareholders meeting

Here respondant are 49, among them 72% of them select rarely option for failed to elect
director candidates at shareholders meeting, 24% of them select sometimes and 4%
unthinkable.
Director's selling and buying shares in

Bank
15
12
10
10
10
0
WEBPAGE
ANNUAL REPORT
REPORT TO
REGULATORY
AGENCY
NO
Figure: 3.7 (l): Disclosure if information regarding Directors selling and buying
shares in Bank
Respondents response on discloser of information about Director selling and

buying shares on web page is 30%, Annual Report is 25%, report to regulatory
agency is 25%, and no is 20%.
22 | P a g e
Audit Report of the company

No
13
Report to Regulatory Agency
15
Annual Report
25
Webpage
0
10
15
20
25
Figure: 3.7 (m): Disclosure if information regarding Audit report of the comany
Respondents response on discloser of information about Audit Report of the

company web page is 47%, Annual Report is28%, report to regulatory agency
is25% and no is 0%.
Backgroud of the Directors
19%
0%
Webpage
45%
Annual Report
No
36%
Figure: 3.7 (n): Disclosure if information regarding background of the directors
Respondents response on discloser of information about Background of the

Directors on web page is 45%, Annual Report is 36%, report to regulatory
agency is% 10, and no is 0%.
23 | P a g e
Remuneration of the Directors

16
14
12
10
8
6
4
2
0
WEBPAGE
ANNUAL REPORT
REPORT TO
REGULATORY
AGENCY
NO
Figure: 3.7 (o): Disclosure if information regarding remuneration of the directors
Respondents response on discloser of information about Remuneration of the

Director on web page is 25%, Annual Report is 22%, report to regulatory agency
is 40%, and no is 13%.
Policies of Risk Management

0, 0%
7, 15%
Webpage
13, 28%
26, 57%
Annual Report
No
Figure: 3.7 (p): Disclosure if information regarding policies of Risk Management
Respondents response on discloser of information about Significant Changes in

Ownership on web page is 56%, Annual Report is 29%, report to regulatory
24 | P a g e
S I G N I F I C A N T C H A N G E S I N O W N E RSH IP
No
13
Annual Report
13
11
Webpage
0
10
12
14
Figure: 3.7 9 (q): Disclosure if information regarding significant changes in

ownership
Respondents response on discloser of information about Significant Changes

in Ownership on web page is 26%, Annual Report is 32%, report to regulatory
35
Timely
and
informative
disclosure
30
25
20
15
10
5
0
Yes
No
Semi-Annual Reports
28
16
Quarterly Financial
Statement
33
10
Figure: 3.7 (r): Timely and informative Disclosure
In the disclosure of semi-annual reports 44 respondents have respond. Among

them 64 % respondents disclose and 36% does not disclose semi-annual reports.
In the disclosure of quarterly financial statements 43 respondents have respond.
Among them 77 % respondents disclose and 23% does not disclose quarterly
financial statements.
25 | P a g e
CEO as Board Chairman
9, 20%
Yes
No
36, 80%
Figure: 3.7 (s): CEO serves as Board Chairman
Among 45 respondents, 9 respondents which is 20% of total said that CEO

serves as board chairman and rest 80% in number 38 respondents said that CEO
does not serves as Board Chairman.
Review of CEOs' Compensation

30
25
20
15
26
10
5
Rarely
Never
0
Yes
Sometines
Figure: 3.7 (t): Review of CEOs compensation
Among 43 respondents, 60% routinely review CEO compensation, 12%

sometimes review CEO compensation, 16% rarely review CEO compensation,
and 12% never review CEO compensation.
26 | P a g e
Stock Option of CEO

24
None
17
Some
Substantially
0
10
15
20
25
Figure: 3.7 (u): Stock option for the CEO
Among 45 respondents, 9% says that Banks Provide substantial Stock option

for CEO, 38% says that banks provide some or little stock option for CEO, and
53% says that banks provide no stock option for CEO.
Prevalence of the practices

25
21
20
21
20
15
15
10
a
11
11
9
5
0
0
Often
Sometimes
Rarely
Never
Figure: 3.7 (v): Prevalence of the practices
Among 44 respondents, response on a (independent directors altering or adding

the board meeting agenda) often 18%, sometimes 48%, rarely 20%, never 14%.
Among 43 respondents, response on b (independent directors participation
actively in board discussion) often 47%, sometimes 34%, rarely 19% and never
0%.
Among44 respondents, response on c (agenda items disapproved at the board
meeting by independent directors) often 25%, sometimes 48%, rarely 25% and
never 2%.
27 | P a g e
Board Committee
3
35
d
4
19
20
9
Others
No
27
Yes
14
29
3
3
a
0
39
10
20
30
40
Figure: 3.7 (w): Board committees.
Among 45 respondents regarding a (having audit committee in board), 86% says

yes, 7% no and 7% chose others.
Regarding b (Nomination Committee in the board) form 45 respondents 64%
are with yes, 31% with no and 5% referred others.
68% says yes, 22% says no, and 10% with others regarding c (having someone
with accounting/ finance expertise in Audit Committee).
Among 45 respondents regarding d (a genuine independent director have chair
in the committee), 44% says yes, 42% says no, and 17% chose others.
Regarding e (written rules governing overall audit function in the bank), 78%
mark yes, 15% no, and 7% with others among 45 respondents.
28 | P a g e
Miscellaneous I
50
34
32
34
29
24
19
20
10
40
37
40
30
44
43
40
15
32
5
0
01
66
Yes
65
1
No
Others
Figure: 3.7 (x): Miscellaneous I

a. Here respondents are 45, among them 89% said that they have system for
punishment, 7% said that they do not have and 4% said that they have other
system.
b. Respondents are 44, 55% save that they got award for CG practice, 43% said
that they do not get award, and 2% said they got other award.
c. Respondents are 45, among them 82% followed MIS system for evaluating CG
practice, 7% do not follow it, 11% follow other system.
d. Respondent are 45. Here 96% said that they perform CSR activities,0% said that
they do not, 4% said they do other activities.
e. Here total respondent is 45 among them 98% said that environmental
management concern are effective, 0% said not effective, and 2% said others.
f. Here the respondents are 43. Among them 93% said CG is must for banking
sector, 0% said no and 7% said other.
g. Respondents are 44, and among them 77% said that they have provide
counseling, training, and other programs for CG, 9% said that they do not
provide, and 14% said others.
h. Respondents are 44, form them 72% said that credit condition of borrowers is
deteriorating in our country for bad CG practices, 14% said no and 14% said
others.
i. Respondent are 45, form them 76% said that they have system to readdress
stakeholders complaints, 30% said they have not, and 11% said others.
j. Respondents are 45, form them 34% said that selection of the member of audit
committee to be chairman by BoD is responsible for bad CG practice in BD,
64% said no, and 2% said others.
29 | P a g e
Miscellaneous II
NEVER
0
3
3
RARELY
Education or training
opportunities
17
SOMETIMES
Select/ Recommend the

external auditor
15
21
ALWAYS
27
0
10
15
20
25
30
Figure: 3.7 (y): Miscellaneous II
Here the respondents are also 45. Among them 46% said that they always
provide education and training opportunities for directors beyond that is
mandatory, 38% said that they provide it sometimes, 7% said that they provide
it rarely, and 9% said that they never provide it.
Here the respondents are 45. Among them 60% respondent said that the external
auditor conducts a proper review of work always, 33% said that they do
sometimes, 7% said they do rarely, and 0% said they do never.
Responsible for Banking Sectors

Scenario
11, 22%
3, 6%
Weak Selection of BoD
Influence of Govt and
Political Party
36, 72%
Non-Compliance of rules and

regulations
Figure: 3.7 (z): Responsible for current scenario of Banking Sector
Here respondents are 50, from them 6% said that weak selection of the BoD is
responsible for the present scenario of Banking sector, 72% said that influence
of the governmental body and political parties is responsible for the present
scenario of Banking sector, and 22% said that non-compliance of roles and
regulation is responsible for the present scenario of Banking sector.
30 | P a g e
3.8
Testing Hypothesis

i.
Shareholders Rights and Disclosure of Information
On the issue of shareholders rights and disclosure, the study investigated several key
issues: i) the practice of voting in the Annual General Meeting of the companies, ii)
disclosure of information in terms of knowing the agenda, iii) lead time to analyze
information, iv) information on equity of major shareholders, v) practice of nomination
and disclosure of director candidates in the meeting, vi) rights of the minority
shareholders in nominating candidates. To understand shareholders rights the study
used several proxy variables like a) length of the meeting, and b) attendance in the
meetings. Duration of the meetings indicates whether shareholders are given
opportunities to debate on issues related to their interest or not. Similarly, higher
attendance of the meeting indicates presence of a pluralistic environment in the decision
making process
Table 3.8 (i): Shareholders rights and Disclosure of information
a.
b.
c.
d.
e.
Adequate information on agenda

Adequate time for questions and placing issues
Disclosing candidates before meeting
Nomination of candidates by minority shareholders
Failed to elect director candidates at the shareholders meeting
Yes
33
35
22
26
35
No
16
10
23
19
12
Shareholders rights and Disclosure of information

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
32%
22%
24%
51%
66%
76%
72%
49%
a. Adequate
information on
agenda
43%
57%
b. Adequate time
c. Disclosing
d. Nomination of e. Failed to elect
for questions and candidates before
candidates by director candidates
placing issues
meeting
minority
at the shareholders
shareholders
meeting
Yes
No
Figure 3.8 (a): Shareholders rights and Disclosure of information
31 | P a g e
ii.
Mathematical Analysis
Step 1:
Null Hypothesis:
H0 = the state of affairs of Shareholder Rights and Disclosure of Information is
meeting the CG codes in the commercial banks.
Alternative Hypothesis:
H1 = the state of affairs of Shareholder Rights and Disclosure of Information is
not meeting the CG codes in the commercial banks.
Step 2:
Level of Significance,
= 5%
Step 3:
Here,
Z = Z test (as our sample size is 50 so we use Z test)
x = total conformed attributes
n = total attributes
p = conformance probability of population
= standard deviation
=
Step 4:
H0 is accepted if, H0 -1.96 <Z <1.96
H0 is rejected if, H0 Z< -1.96 or Z>1.96
Since the test is two tailed, critical region is divided into two sides, so for =0.05
we will get above region by observing normal table.
A Two tailed test
0.05
=
= 0.025
2
2
Table value of Z= 1.96. It is the corresponding value of 0.475 = (0.5-0.25)
Step 5:
Calculated value of,
=
2 4.5
0.67
2.5
0.67
= 3.73
= 3.73 < 1.96
32 | P a g e
Here,
Total Attributes, n = 5
Total conformed Attributes, x = 2
Conformance Provability in the population, p = 0.90
Nonconformance provability in the population, q = 0.10
Thus attributes population mean, () = np = np = 50.90 = 4.5
Standard Deviation, () = = 4.5 0.10 = 0.67
Since the calculated value of Z lies in the rejection region, so H0 is not accepted at 5%
level of significance.
Conclusion:
So, it can be concluded that the CG codes on shareholders rights and disclosure
information are not maintained properly by the 70% or more commercial banks of
Bangladesh.

i.
Disclosure and Transparency
The resulting data with conformity and non-conformity level on this issue is given in
the following table and graph
Table 3.8 (ii): Disclosure and transparency
a. Remuneration of the directors
b. Policies of risk management
c. Significant changes in ownership
d. Disclose semiannual reports
e. Disclose quartly financial statement
Yes
35
46
37
28
33
No
5
0
4
16
10
33 | P a g e
Disclosure and transparenacy

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
12.5%
10%
36%
87.5%
100%
90%
64%
a.
Remuneration
of the directors
b. Policies of
risk
management
c. Significant
changes in
ownership
Yes
d. Disclose
semiannual
reports
23%
77%
e. Disclose
quartly financial
statement
No
Figure 3.8 (b): Disclosure and transparency

ii.
Step 1:
Null Hypothesis:
H0 = the state of affairs for Disclosure and Transparency is being met the CG
H1 = the state of affairs for Disclosure and Transparency is not being met the CG
Step 2:
Level of Significance,
= 5%
Step 3:
Here,
Z = Z test
=
Step 4:
H0 is accepted if H0 if -1.96 <Z <1.96
H0 is rejected if H0 Z< -1.96 or Z>1.96
Since the test is two tailed, critical region is divided into two sides, so for =0.05
we will get above region by observing normal table.
34 | P a g e
A Two tailed test
0.05
=
= 0.025
2
2
Step 5:
4 4.5
=
0.67
0.5
=
0.67
= 0.75
= 1.96 < 0.75 < 1.96
Here,
Since the calculated value of Z lies in the acceptance region, so H0 is accepted at 5%

Conclusion:
So, it can be concluded that the CG codes on disclosure and transparency are maintained
properly by the 70% or more commercial banks of Bangladesh.
35 | P a g e

i.
Effectiveness of the Board of directors
The effectiveness of Board of Directors is summarized in the following graph.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
Table 3.8 (iii): Effectiveness of the Board of directors

Yes
CEO serves as Board Chairman
9
Review of CEOs Compensation
31
CEO given a stock option
21
Independent director alter board agenda set by CEO
29
Active participation by Independent director in Board 35
discussion
Agenda item disproved by independent director at board 32
meeting
Audit committee
39
Nomination Committee
29
Audit committee with Account and Finance Expertise
27
Independent director chair the committee
20
Written rules for governing audit function
35
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
No
36
12
24
15
8
12
3
14
9
19
7
Effectiveness of the Board of directors

19%
28%
34%
8%
27%
33%
17%
25%
49%
53%
80%
81%
72%
66%
92%
73%
67%
83%
75%
47%
51%
20%
Yes
No
Figure 3.8 (c): Effectiveness of the Board of directors
36 | P a g e
ii.
Step 1:
Null Hypothesis:
H0 = The state of affairs of Effectiveness of the Board of directors is meeting
H1 = The state of affairs of Effectiveness of the Board of directors is not meeting
Step 2:
Level of Significance, = 5% or 0.05.
Step 3:
=
Here,
Z = Z test
Step 4:
H0 is accepted if, -1.96 <Z <1.96
H0 is rejected if, Z< -1.96 or Z>1.96
Since the test is two tailed, critical region is divided into two sides. So for =0.05 we
will get above region by observing normal table.
A Two tailed test
0.05
=
= 0.025
2
2
Step 5:
6 9.9
=
0.99
3.9
=
0.99
= 3.94
= 3.94 < 1.96
37 | P a g e
Here,
Conclusion:
So, it can be concluded that the CG codes on Effectiveness of the Board of directors are
not maintained properly by the 70% or more commercial banks of Bangladesh.

i.
Summary of the Hypothesis
There are three broad issues in CG codes for banks covered by our hypothesis. And
those issues cover several important aspects which are the yardstick or guidelines for
the banks. This study has tried to reveal the actual scenario of CG practice by the
commercial banks based on an assumption. Only 33% of major CG codes have been
met by doing hypothesis test.
38 | P a g e
Hypothesis Result
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
a. Shareholders Rights and
disclosure of information
b. Disclosure and Transparency c. Effectiveness of the Board of

Directors
Meet
Dont Meet
Figure 3.8 (d): Summary of the Hypothesis
ii.
Step 1:
Null Hypothesis:
H0 = The CG codes are practiced by the commercial banks in Bangladesh as
per the assumption.
H1 = The CG codes are not practiced by the commercial banks in Bangladesh
as per the assumption.
Step 2:
Level of Significance, = 5% or 0.05.
Step 3:
=
Here,
Z = Z test
x = Total conformed attributes
n = Total attributes
p = Conformance probability of population
= Standard deviation
39 | P a g e
Step 4:
H0 is accepted if, -1.96 <Z <1.96
H0 is rejected if, Z< -1.96 or Z>1.96
Since the test is two tailed, critical region is divided into two sides. So for =0.05 we
will get above region by observing normal table.
A Two tailed test
0.05
=
= 0.025
2
2
Step 5:
=
1 2.7
0.52
0.7
0.52
= 3.27
= 3.27 < 1.96
Here,
Conclusion:
So, it can be concluded that the CG codes are not practiced according to the expectation
by the commercial banks of Bangladesh.
40 | P a g e
Chapter: Four
Major Findings
Findings
Problems
Conclusion
Recomandation
4.1
Findings
We know that, commercial banking sector plays an important role for the economic
development in Bangladesh. We have done the survey of the respondents of commercial
banks on CG practices in Bangladesh. Using different types of questions, we have tried
to find out the practice of CG to their respective organizations.
In the survey we have given more emphasize of the question answers. Because these
answers are the main key points to find out whether the commercial banks in
Bangladesh do practice CG or not.
Shareholders Rights and Disclosure of information
The CG codes on Shareholders Rights and Disclosure of Information are not
practiced by the 70% or more commercial banks of Bangladesh. This is one of the
major issues to ensure good governance in banking sector.
We have found it on the basis of following information:
Most of the respondents provide adequate time for asking question and placing
issues at the shareholders meeting it meets the standard level 70%
Directors candidates are failed to be elected at the shareholders meetings and
it meets our standard level.
More than average numbers of respondents agree that minority shareholders can
nominate candidates at the shareholders meeting or prior to the meeting and
Shareholders are provided with adequate information on agenda items but does
not meet standard level.
In the case of disclosure of director candidates before the shareholders meeting,
both positive and negative reactions have come out from the respondents about
their respective banks.
Disclosure and Transparency
The hypothesis result shows that the CG codes of disclosure and transparency are
maintained by the 70% or more commercial banks of Bangladesh. In this issue it has
been found that the directors information is disclosed properly.
Company disclose the following information through web page
directors selling or buying shares in their bank

audit report
back ground of the directors
remuneration of the directors
policies of risk management
Significant changes in ownership through annual report, report to regulatory

agency.
Most of the banks disclose reports semiannually and quarterly and it shows timely and
informative disclosure.
Effectiveness of the Board of Directors
One of the important issues of the CG codes, is Board of directors effectiveness that
has not been practiced according to the assumption.
41 | P a g e
It has found based on these:

More than half of respondents said that CEOs compensation is reviewed and it
meets standard level.
Independent directors often participate actively in board discussions and agenda
items are disapproved at the board meetings by independent directors and it
meets standard level.
Most of the respondents have audit committee and they have accounting and
finance expertise in their audit committee and written rules for governing
overall audit function. It meets standard level.
Most of the response have come that Independent directors sometimes alter or
add the board meeting agenda set by the CEO, have nomination committee, a
genuine independent director to chair the committee but do not meet standard
level.
At a time most respondents said, CEO does not serve as board chairman and
given a stock option.
Miscellaneous
1. Most of respondents gave positive response in terms of activeness for
Punishment system,
Following MIS system,
Performing CSR activities,
Concerns for management,
Mandatory for practicing CG,
Providing training for CG,
Availability of the systems for maintaining stakeholders complaints. All these
meet our standard level
There is mixed response between positive and negative from the respondents in terms
of recognition for CG practices and the selection of audit committees member to be
chairman by BOD.
2. Although a small proportion of respondents oppose, most of the respondents said that
whether always, sometimes or rarely their banks provide education or training
opportunities for directors beyond that is mandatory.
3. In terms of selecting the external auditor and conduct a proper review of his work,
most of the respondents said that always, sometimes or rarely but they do.
Present scenario of banking sector
Most of the respondents thought that influence of governmental body and political
parties is liable for the present scenario of banking sector in Bangladesh.
42 | P a g e
4.1
Problems
Where shareholders have a substantial voting right and controlling power will
sometimes create autocratic decision. They do not set any specific procedures
for the appointment and ensure the appropriate responsibilities of the board
members.
In the interest of greater transparency and accountability, a board discloses the
committees it has established but their mandates and their composition
(including members who are considered to be independent) are not disclosed
properly.
Banks have board committees but some committees do not maintain appropriate
records (e. g meeting minutes or summary of matters reviewed and decisions
taken) of their deliberations and decisions.
Although every bank has an audit committee, some of the banks have lacking
of sufficient independent non-executive directors in the composition.
Some respondents said that their respective banks do not provide education or
training opportunities beyond mandatory.
Government and political parties pressure banks to do many works that may go
against the rules of the CG.
Sometimes the wrong member selection in the audit committee by BOD causes
bad CG practice.
Normally, state owned banks have lack of punishment system.
Some banks cannot comply with rules and regulations.
Other Problems:
Banks want to give loan but at a higher rate, it reduces their loan giving
opportunity. For that when they reduce their rate, depositors dont want to
deposit money in fear of embezzlement. For example: Sonali Bank, Bismillah
group etc.
Supervision has not been done on the basis of any formally binding rule.
Sometimes bank corrupted officers help to give loan falsifying representatives
data.
Most of the banks calculated profits without keeping required provisioning
against its classified loan, investment and provisioning against the central
banks prescribed rate.
4.2
Conclusion
Good corporate governance practices in commercial bank are perceived as a most

emerging issue in the present world. The competitive position of a bank can be ensured
and stakeholders interests can be protected by the practice of good corporate
governance. Its also true for commercial banking sector of Bangladesh. It plays a vital
role of economic development of Bangladesh if followed the principles of good CG.
Regardless of the regulatory changes, it is necessary to emphasize the importance of
accountability of all banks stakeholders. One must realize that there are no perfect
43 | P a g e
regulations, and even the best legal standards do not ensure success. This is because it
is the attitude and actions of human beings; honesty and sense of responsibility of all
stakeholders of the bank are necessary. Governance particularly in the banking sector
should ensure the care of the well-being of all its stakeholders. This corporate fairness
and accountability must be symmetric as disclosure and transparency. As it is nowadays
emphasized, there is also no doubt that the basic elements of the improved governance
of the financial market should be ethics and CG (EC, 2010).
The study was to evaluate the practices of Corporate Governance codes by the
Commercial Banks of Bangladesh. The broad issues like shareholders rights and
disclosure of information, disclosure and transparency, effectiveness of BOD are the
main yardstick to assess the practice of CG codes. But adoption of this code is far away
still now. Because of this stakeholders and shareholders are deprived from their real
benefits. It indicates poor corporate governance practice in Bangladesh.
The banking sector of Bangladesh is becoming stronger day by day and it is playing a
pivotal role in the volatile economy of this country to become Bangladesh one of the
growing economies of the world in near future. So to be more effective and to put more
contribution for the betterment of Bangladesh, the banking sector should follow the CG
codes properly to bring the authenticity in its operations and to bring the faith of the
stakeholders as well as the people of Bangladesh.
4.1
Recommendations
The scale irregularities found in banks and financial markets that led to the financial
crisis have brought up the need for in-depth analysis of all aspects of their operation, in
particular the efficiency of corporate governance. The result was an indication of a
number of shortcomings; sometimes they resulted from inadequacy or insufficiency of
the provisions, other times from human imperfections. The analysis of main failures of
corporate governance in banks suggests that in order to repair and strengthen the
system:
Banks ought to reduce their risk exposure significantly, build a stronger capital
base; banks should concentrate on typical banking activities and reduce the scale
of other operations (especially investment activities); the good standards of
balance-sheet adequacy (ALM) should be restored.
The current level of financialization is excessive and potentially dangerous for
the whole economy; special attention should be paid to systemic risk:
systemically important banks ought to have more strict capital requirements
(additional capital buffer);
The capital and contractual relationships between financial institutions should
be monitored and if the linkages would become too strong and/or concentrated,
supervisors should be allowed to interfere in these relationships.
Bank directors (both: executive and non-executive) should bear personal
responsibility for banks activities and risk.
Banks executives remuneration should be linked to performance and risk
exposure; there should be an obligation to use part of their salary deferred: a)
not to motivate to generate short-term profits and increase the risk and b)
make the bonuses contingent on long-term sustainable outcomes.
44 | P a g e
Non-executive directors engagement should be stronger they should devote

more time and commitment to perform their oversight function; nomination of
supervisory board members should be approved by the supervisors (as it is in
case of management board members).
The role of independent board members should be strengthened; board members
should be required to have proper knowledge and experience (including the
financial expertise).
Regulators and market supervisors should strengthen banks transparency
allowing for the effective market discipline.
Professional bodies should promote best practice in disclosure and motivate
banks to publish more informative reports.
The accountability of external and internal auditors should be stronger and they
should be obliged to report any observed non-compliance to supervisors.
The auditors should be subject to mandatory rotation and should be banned from
performing services for one client of other services beyond the audit of financial
statements.
comply or explain rule used in corporate governance area, being a sort of a
soft law should be strengthened by the monitoring function performed by
financial market and the supervisor should verify whether the disclosed
information is reliable and sufficient;
Supervision should make formally binding rules; one should keep in mind,
however, that this should not lead to excessive growth of regulation because it
would harm the competition (overly restrictive regulation can lead to inefficient
provision or supply of financial services).
Where there are controlling shareholders with power to appoint board members,
the board should exercise corresponding caution. In such cases, it is useful to
bear in mind that the board members have responsibilities to the bank itself,
regardless of who appoints them. In cases where there are board members
appointed by a controlling shareholder, the board may wish to set out specific
procedures or conduct periodic reviews to ensure the appropriate discharge of
responsibilities by all board members.
To avoid undue concentration of power and to promote fresh perspectives, it
may be useful to consider occasional rotation of membership and chairmanship
of the board committees provided that doing so does not damage the collective
skills, experience, and effectiveness of these committees.
Banks board committees should maintain appropriate records (e. g meeting
minutes or summary of matters reviewed and decisions taken) of their
deliberations and decisions. Such records should document the committees
fulfillment of their responsibilities and help in the assessment by those
responsible for the control functions or the supervisor of the effectiveness of
these committees.
The audit committee should consist of a sufficient number of independent nonexecutive board members. In jurisdictions where external auditors are selected
by the audit committee, it is beneficial for the appointment or dismissal of
external auditors to be made only by a decision of the independent, nonexecutive audit committee members.
45 | P a g e
Closing Part
Reference
Appendix
Reference
Alam, K (2011), Evaluation of Corporate Governance Practices by the Banking Sector of
Bangladesh, A Research Study Report, Available at SOMBA Seminar Library, Khulna
University, Khulna, pp. 3.
Arun, T.G. and J. Turner (2003), Corporate Governance of Banks in Developing Economies:
Concepts and Issues, Corporate Governance: An International Review, Vol. 12, No. 3, pp.
371-377.
Cadbury Committee, (1992), "Report of the Committee on the Financial Aspects of Corporate
Governance", Gee Publishing, London, U.K.
Clarke, R. (1988), Remarks in Comptroller of the Currency News Release, No. NR885,Washington DC.
Douglas A. Lind, William G. Marchal, Statistical Techniques in Business and Economics,
Fourteenth Edition, pp. 146-147.
Fama,E. and M. Jensen (1983), Separation of Ownership and Control, Journal of Law and
Economics, Vol. 26, pp.301-325.
Gupta, S. P. and M. P. Gupta (2006-2007), Business Statistics, New Edition, Sultan Chand &
Sons, New Delhi,
India, p. 506.
Greuning, H. and S. Bratanovic (2003), Analyzing and Managing Banking Risk: A Framework
for Assessing
Corporate Governance and Financial Risk, World Bank, Washington DC.
Jensen, M.C. and Meckling, W.H. (1976), Theory of the Firm Managerial Behavior, Agency
Costs and Ownership
Structure, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
Kocourek, P. F, (2003), Corporate Governance: Hard Facts about Soft Behaviors, Strategy &
Business, Issue 30, First Quarter.
Link: http://en.wikipedia.org/wiki/Exim_Bank_%28Bangladesh%29
Link: http://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20140203.12.pdf
46 | P a g e
Link:
http://www.academia.edu/8484524/Corporate_Governance_Practices_in_Commercial_
Banking_Sector_of_Malawi_Evidence_from_Annual_Reports
Link: http://www.assignmentpoint.com/business/thesis-report-on-corporate-governance-and-inprivate-banking-sector.html
http://www.bangladesh-bank.org/aboutus/regulationguideline/prudregsep2011.pdf
March 23, 2013 | Filed under: Banking,Economy | Posted by: Jahangir(Published in New Age on
Sunday, 30 November 2014.)
Mamtaz and Yusuf, (2005), Corporate Governance: Bangladesh Perspective, The Cost and
Management, Vol. 33 No. 6 November-December 2005, pp. 18-26. 48 ShantaKar and
Mithunsarker: Corporate Governance Practices in Private Commercial Banks-A Study on
Khulna City
Principles of corporate governance, OECD, 2004, OECD publications service, France
W.G. Zikmund, (2010-2011), Business Research Method, Eighth Edition, pp. 395-396
47 | P a g e
Appendix
Questionnaire Survey on
Corporate Governance Practices in Commercial Banks of Bangladesh
A. General Information of Respondent

1. Respondents Name:
2. Position:
Board of Director
Managing Director
Director
Manager (Deputy General Manager/ Assistant General Manager/ Manager/ Others
(Please Mention: )
Executive
Others .
3. Age:
4. Sex:
Personal Address:
Contact no.: Email:
B. General Information of the Bank

1. Name of the Bank:
2. Ownership type of the Bank:
48 | P a g e
3. How do you describe the ownership and the control structure of the company?
a) The largest shareholder has a substantial voting right and effectively controls the
company ( You can express share percentage if you want) or ( say over 30%- 40%
including that of companies he/she control)
b) Two or more large shareholders collectively control the company
c) Ownership is fairly disseminated with no controlling shareholder, and shareholder
doesnt directly control the management
d) Others ( Please explain your answer in one sentence)
4. What relation does the CEO have the founder or the largest shareholder?
a) Founder himself
b) Founders Family Member
c) Professional Manager
d) Other ( Please explain your answer in one sentence)
C. Shareholder Rights and Disclosure of Information
1. Do you agree with the following statements for your company?

Statements
Strongly
Agree
Agree
No
Opinion
Disagree
Strongly
Disagree
a) Shareholders are provided with

adequate information on the
agenda
items
of
the
Shareholders Meeting
b) Adequate time is given for
asking questions and placing
issues at the Shareholders
Meeting
49 | P a g e
2. Role of shareholders in practice in nominating candidates and electing outside

directors of your Bank:
A. Are director candidates disclosed before the shareholders meeting?
B. Can minority shareholders (holding more than a certain level of shares) nominate
candidates at the shareholders meeting or prior to the meeting (to have the company
disseminate relevant information)
C. Would it be possible for the director candidates proposed by the management of your
company to fail to be elected at the shareholders meeting?
3. How easy is it for your Shareholders to participate in voting at the shareholders

meeting?
a)
b)
c)
d)
Is voting by mail allowed?

Can anybody serve as a proxy
Presence requires
Others ( Please explain your answer in one sentence)
D. Discloser and Transparency

1. Does your company disclose the following information?
50 | P a g e
If YES, then by what means?

SL.
Web
Page
Queries
Directors selling or buying

shares in their bank
Audit report of the company
Background of the Directors
Significant Changes in
Ownership
Annual
Report
Report to
Regulatory
Agency
No
2. How timely and informative are the disclosures?

SL.
Queries
Does your company disclose semi-annual

reports?
Does your company disclose quarterly financial

statements?
Yes
No
E. Effectiveness of the Board of Directors

(A) Board Size and Structure
1. How many directors does your supervisory board have in total? ________________
2. How many outside directors does your board have?_________________
3. How many independent directors does your board have? ___________________

4. Does the CEO of your Bank also serve as Board Chairman?
51 | P a g e
5. How about the review of CEO compensation?
6. Is the CEO given a stock option?
(B) How prevalent are the following practices?

SL.
Queries
Often Sometimes
a.
Independent Directors altering or

adding the board meeting agenda
set by the CEO
b.
Independent Directors
participating actively in board
discussions
c.
Agenda items disapproved at the

board meetings by independent
Directors
Rarely
Never
F. Functions of the Board and Board Committees

1. Does your board have the following committees?
SL.
Queries
a.
Audit Committee
b.
Nomination Committee
c.
Does Audit committee have someone with

accounting/ finance expertise?
d.
Does a genuine independent director chair the

committee?
Yes
No
Others
52 | P a g e
e.
Are there written rules governing overall audit

function in your company?
2. What proportion of the committee members are independent directors?

(e.g.: 2/3)
G. Miscellaneous
SL.
Queries
a.
System for punishment is active?
b.
Bank got any Award for C.G practice?
c.
MIS system is followed for evaluating C.G

practices?
d.
Does the bank perform any CSR activities?
e.
Environmental Management Concerns are

effective or not?
f.
Do you think that recent bank embezzlements

shows that CG is must for banking sector?
g.
Does this bank provide any counseling, training

or other program for CG?
h.
Credit condition of borrowers is deteriorating in

our country? Is it the result of bad CG practice?
i.
Is this corporations any system to readdress

stakeholders complaints maintained or not?
j.
BoD selects the member of audit committee to be

chairman. Do you think this is responsible for bad
CG practice in Bangladesh?
Yes
No
Others
53 | P a g e
SL.
Queries
a.
Does your company select/

recommend the external auditor
and conduct a proper review of
his work?
b.
Does the company provides any

education or training opportunities
for directors beyond- What is
mandatory?
Always
Sometimes
Rarely
Never
Present scenario of banking sector is a matter of concern. Form the following which is
mostly responsible Weak selection if the BOD (Board of Directors)
Influence of governmental body and political parties
Non- compliance of rules and regulations
THANK YOU
54 | P a g e
List of Respondents
Sl
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
Name
Md. Riaz Uddin
Mohammad Obaidul Hoque
Sumon Halder
Md. Zahidul Islam
Md. Azizur Rahman
Mousumi Talukder
Md. Shamimur Rahman
Mohammad Kamal
Soyon Chowdhury
Shoel Barua
Sazzad Hossain
Midhat Ara
Sanjay Das
Fatima Lia
Monika Rahman
Md. Ruiaz Uddin
Adnan Mahmud
Mahmud Hadiuzzaman
Zahidul Islam
Sahjadi Akter
Shafiqur Rahman
Md. Jasim Uddin
AKM Sydur Rahman
Rehena Dewan
ABM Arfanuzzaman
Torsa Atia Sultana
MD. Rumon Mahmud
Nipa Akter
Md. Shahriar Iqbal
Mrs. Kaniz Fatema
Mr. Saifur Rahman
Munira Yasmin
Md. Rezaul Karim
Md. Lutfur Rahman
Md. Abdul Alim
Afroza Sultana
Md. Abdul Hai
Rajesh Kumar Shaha
Abul Kalam Azad
Md. Asif Iqbal
Designation
Manager
Executive Officer
Senior Officer
Principal Officer
Executive Officer
Officer
Executive
Officer
Executive Officer
Executive Officer
Executive Officer
Vice President
Executive Officer
Customer
Customer
Assistant Manager
Executive
Junior Asistent VP
Senior Officer
Senior Officer
Assistant Manger
Senior Officer
Senior Manager
Manager
Senior Officer
Assistant Officer
Cash Officer
Customer
TAO
Executive
Other
Executive
Asst. GM
Senior Officer
Executive
Executive
Manager
Other
Executive
Executive
Organization
Janata bank
Jamuna Bank
IBBL
Meghna Bank
DBBL
Bank Asia Ltd
Janata Bank
Jamuna Bank Ltd
Pubali Bank
Sonali Bank
IBBL
SIBL
IFIC
Sonali Bank
Bank Asia
FSBL
IBBL
SIBL
NCC Bank
Rupali bank
City Bank Ltd
IBBL
City Bank
NCC Bank
IBBl
IBBL
IBBL
Sonali Bank
Contact info.
riazuddin@gmail.com
obaidulhoque@gmail.com
01678715236
azizurrahman66@yahoo.com
talukderbut@gmail.com
letter2rahman@gmail.com
01673762362
01675838375
01794078090
01672979673
01678715235
01713271199
01716759672
sydur.rahman@citybank.com
01911624387
01717798230
NBR Commercial Bank
EXIM Bank Ltd.

Eastern Bank Ltd.
Eastern Bank Ltd.
Janata Bank Ltd.
Uttara Bank
01731315834
MCBL
01819138148
Uttara Bank
Janata Bank Ltd. 01772626446
Janata Bank Ltd.
Janata Bank Ltd.
SIBL
55 | P a g e
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
Mehnaz Akter
Sultana Begum
Kazi Md. Tareq
Md. Tazuddin Mollah
Golam Mohiuddin
Kazi Ahasan Habib
Sultan Ahamed
Md. Shafiqul Islam
Hasan Masud
Ayesha Hamid
Customer
Executive
Executive
Manager
Manager
A.V.P
Executive
Officer
Manager
Officer
NCC
IBBL
SIBL
IBBL
Janata Bank Ltd.
IFIC
Janata Bank Ltd.
DBBL
IBBL
IFIC
01713229835
01812998953
List of Tables
Table a: Position of the Respondents in the Bank
Board of Director
1
Managing Director
2
Director
0
Manager
10
Executive
22
Others
15
Total
50
Table b: Age distribution of the Respondents
25-35
31
35-45
8
45-55
7
55-65
1
Total
47
Table c: Gender of the Respondents
Male
38
Female
12
Total
50
Table d: Ownership type of the Bank
Public/ State- Owned
12
Private
38
Others
0
Total
50
56 | P a g e
Table e: Ownership and control structure of the company

The largest shareholder has a substantial voting right and effectively
controls the company
Two or more large shareholders collectively control the company
Ownership is fairly disseminated with no controlling shareholders,
and shareholder doesnt directly control the management
Others
Total
5
2
42
1
50
Table f: Relation between CEO and the founder or the largest shareholders
Found Himself
5
Founders Family Member
2
Professional manager
42
Others
1
Total
50
Table g: Shareholders participation in voting at the shareholders meeting

Voting by mail allowed
1
Anybody can serve as a proxy
2
Presence Required
44
Others
1
Total
48
Table h: Adequate information on the agenda items of the shareholders meeting

Strongly Agree
Agree
No Opinion Disagree Strongly Disagree
16
33
0
0
1
Table i: Adequate time for asking questions and lacing issues at the shareholders meeting
Strongly Agree
Agree
No Opinion Disagree Strongly Disagree
10
35
1
0
0
Table j: Director Candidates disclose before the shareholders meeting

Yes No Total
22
23
45
Table k: Minority shareholders nominate candidate at the shareholders meeting or prior to the meeting
Yes No Total
26
19
45
57 | P a g e
Table l: Director Candidates proposed by the management fail to be elected at the shareholders meeting
Sometimes Rarely Unthinkable Total
12
35
2
49
Table m: Information Discloser of the Company

Yes No Total
28
4
32
Table n: Discloser of the information
Directors selling or buying of share

Audit report of the company
Background of the company
Significant changes in ownership
Webpage
12
25
26
10
26
11
Annual
Report
10
15
21
9
13
13
Report to
Regulatory
Agency
10
13
11
16
7
13
No
8
0
0
5
0
4
total
40
53
58
40
46
41
Table o: Timely and informative disclosures

Yes No Total
Semi-Annual Reports
28
16
44
Quarterly Financial Statement
33
10
43
Table p: CEO as Board Chairman

Yes No Total
9
36
45
Table q: Review of CEOs compensation

Yes
Sometimes Rarely Never Total
26
5
7
5
43
Table r: Stock option for the CEO

Substantially Some
None Total
4
17
24
45
58 | P a g e
Table s: prevalence of the practices

Often
Sometimes
Independent directors altering or adding
the board meeting
8
21
Independent Directors participating
actively in board discussion
20
15
Agenda items disapproved at the board
meeting by independent directors
11
21
Rarely
Never
11
Table t: Board have the following committee

Yes No
Audit Committee
39
3
Nomination committee
29
14
Audit committee have someone with accounting/
finance expertise
27
9
A genuine independent director chair the committee
20
19
Written rules for governing overall audit function
35
7
Table u: Miscellaneous I (Queries table 2)

Yes No
System for punishment is active
40
3
Award for CG practice
24
19
MIS system is followed for evaluating CG
practice
37
3
CSR activities performed by the bank
43
0
Environmental management concerns are
effective
44
0
CG is must for banking sector
40
0
Counseling, training, or other program for CG 34
4
Credit condition of borrowers is deterioratingis the result of bad CG practice
32
6
System to readdress stakeholders complaints
34
6
BoD selects the member of audit committee
to be as chairman
15
29
Table v: Miscellaneous II (Queries table 1)

Always Sometimes
Company selects/ recommends the external
auditor and conduct a review of his work
27
15
The company provides education or training
opportunities for directors
21
17
Others
3
2
4
6
3
Others
2
1
5
2
1
3
6
6
5
1
Rarely
Never
59 | P a g e
Table w: Responsible for resent scenario of Banking Sector

Weak Selection of BoD
3
Influence of Govt. and Political Party
36
Non-Compliance of rules and regulations
11
Total
50
60 | P a g e

CG Praactices in Banking Secotor of Bangladesh

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Corporate

3.3 Pre-Requisites of Effective Corporate Governance

Background of the Study

Objectives of the study

1.2.1 Primary Objective

1.3.2 Target Population

1.5 Hypothesis Development

1.6 Literature Review

Hossain (2011) highlighted the corporate governance practices in Bangladesh. The

Commercial Banking Sector

Short History of Banking

Lists of commercial banks

State-owned commercial banks

Private commercial banks

South Bangla Agriculture and Commerce Bank Ltd

Islamic Commercial Banks

Foreign commercial banks

2.3 Brief description of some commercial banks:

Definition of Corporate Governance

However, Arun and Turner (2004) stated that:

Interests of other stakeholders: Organizations should recognize that they

Integrity and ethical behavior: Ethical and responsible decision making is

Disclosure and transparency: Organizations should clarify and make

Issues involving corporate governance principles include:

Pre-Requisites of Effective Corporate Governance:

The effectiveness of Corporate Governance in Bangladesh depends on the major Key

Effective corporate governance requires a clear understanding of the

Depositors are protected by the deposit insurance fund. Because

Corporate Governance Guidelines for Banking Sector

The responsibility of individual board members fiduciary duties of bank board

The committees of the boardaudit committee, the Risk Management

As in many developing countries, banks play a vital role in Bangladesh economy, as

Motivation to disclose information and improve governance practices by banks

Weak regulatory system

Misappropriation of Tk. 622 coroes by one Nurunnabi in Chittagong in 2007

Several other related incidents need to be recalled as rude reminders of indifference to

Result and Analysis

On the basis of sample size of 50 respondents, here is our graphical analysis.

Figure: 3.7 (a): Position of the Respondent

Among the 50 respondent 2% are BOD, 4% are Managing Director, 0% are

Figure: 3.7 (b): Age Distribution of the Respondent

Figure: 3.7 (c): Gender of the Respondent

Among the 50 respondents 76% are male 24% are female.

Figure: 3.7 (d): Ownership type of the Bank

Ownership and Control Structure

Figure: 3.7 (e): Ownership and Control Structure

Here respondent are 49.Among 49 respondent A (the largest shareholders has a

RELATION BETWEEN CEO AND

Among 50 respondents Founder Himself is 10%, Founders family member is

Figure: 3.7 (g): Shareholders participation on Voting at shareholders meeting

Figure: 3.7 (h): Adequate information on agenda items of the shareholders

Adequate time for asking question at the

Failed to elect director candidates at

Figure: 3.7 (k): Failed to elect director candidates at shareholders meeting

Director's selling and buying shares in

Respondents response on discloser of information about Director selling and

Audit Report of the company

Report to Regulatory Agency

Respondents response on discloser of information about Audit Report of the

Backgroud of the Directors

Figure: 3.7 (n): Disclosure if information regarding background of the directors

Respondents response on discloser of information about Background of the

Remuneration of the Directors

Figure: 3.7 (o): Disclosure if information regarding remuneration of the directors