Chapter - 1

Introduction
1.0 Introduction

Banking industry of Bangladesh has immense influence in economy as banks are critical
components of any economy. They provide financing for commercial enterprises, basic
financial services to a broad segment of the population and access to the payment system.
They have a huge investment on them and have access to governments safety nets.
Crucially, to protect the interests of the stakeholders and depositors and to avoid unethical
practices, misadventures by the management, Good Governance is a must. In Bangladesh,
the issue of corporate governance came into light in the wake of stock market debacle in the
1996 by organizing seminars, conferences and discussion by OECD, SEC and other scholars
of corporate culture. In Bangladesh capital market, banking industry is performing better
than other industries with the risk of massive corporate scandal that can shut down a giant
corporation and harm stakeholders or even economy if too much happen! Here we are trying
to focus the corporate governance of Bank Asia Limited. Particularly, how they are
following the guideline by SEC ensuring transparency, full disclosure and accountability as
required.

The structure of corporate governance specifies the distribution of rights and

responsibilities among companys different participants, such as board, management,
shareholders and other stakeholders. Transparency and accountability are its major
attributes. Corporate governance covers the concepts, theories and practices of boards
and their directors and the relationship between boards and shareholders, top
management, regulators and auditors and other stakeholders.

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 (King and
Levine, 1993). Second, as financial markets are usually underdeveloped, banks in
developing economies are typically the most important source of finance for the majority of
firms (Levine, 2004). 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.

However, Corporate Governance practices play the pivotal role in the banking industry in
Bangladesh. This is because of the fact that Banks deal in public money. So, public
confidence is of outmost importance for the development of banking industry in Bangladesh.
But, it is an alleged that the practice of Corporate Governance in banking industry in
Bangladesh is not up to the mark because of a number of problems is reported to exist in
corporate governance practices by past studies (Kutubi, 2011; Hossain, 2011).

Therefore, this study is an effort to identify the major problems involved in Corporate
Governance practices in Bank Asia Limited.

1
1.2 Objectives
The main objective of the study is to pinpoint the major problems of Corporate
Governance practices in Bank Asia Limited.
In order to achieve the main objective, the study highlights the following specific objectives:
To examine the composition of the Board size in Bank Asia Limited.
To find out the major problems hindering good Corporate Governance practice
in Bank Asia Limited.
To highlight the prospects of Corporate Governance practices in Bank Asia Limited
by removing the problems involved therein.

1.3 Methodology
The study aims at evaluating the Corporate Governance practices in Bank Asia Limited
and find out the existing problems in matching with the standards.

Data Collection Methods

The study is the outcome of both the primary and secondary data.

Primary Data Sources

Hard To Find because of no response of Bank Authority.

Secondary Data Sources

Policy Guidelines on Corporate Governance
Various relevant online articles and journals
Annual Report of the Bank

Sample
The opinions on Corporate Governance have been collected from the respondents on the
basis of three different sets of prepared questionnaires. Data were collected from 15
randomly selected bank personnel from Bank Asia Limited, 12 shareholders of the bank and
15 customers of the bank.

Research Instrument
A close-ended questionnaire has been used as a tool for collecting primary data for the study.

Data Analysis
The collected data have been analyzed and interpreted critically in order to make the
study more effective, valuable & useful to the readers. The results are presented in
charts to obtain better visual representations.

1.4 Scope
The scope of the report is limited to the overall description of the bank, its services, its
position in the industry and its competitive advantages. The scope is also defined by the
organizational set-up, functions and performances.

2
1.5 Limitation of the Study
The present study suffers from the following limitations:
There was a limited scope for us to deal with the banking activities directly.
Due to lack of time sufficient information could not be gathered.
The number of respondents for collecting primary data was small compared
to the total population.
Enough information could not be collected due to lack of access to data.

1.6 Literature Review

Berle and Means (1932) and the even earlier Smith (1776), Zingales (1998) defines
corporate governance as allocation of ownership, capital structure, managerial
incentive schemes, takeovers, board of directors, pressure from institutional investors,
product market competition, labour market competition, organizational structure, etc.,
can all be thought of as institutions that affect the process through which quasi-rents are
distributed (p. 4).
Garvey and Swan (1994) assert that governance determines how the firms top
decision makers (executives) actually administer such contracts (p. 139).
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 opaque 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.

3
 Chapter - 2
Corporate Governance Concept &
Bangladesh Perspective
Corporate governance is the set of process, customs, policies, laws and affecting the way in
which corporation is directed, administered and controlled. The United Kingdom Cadbury
Report (Cadbury, 1992, p.15) defined corporate governance as the system by which
companies are directed and controlled. Its structure specifies the distribution of rights and
responsibilities among companys different participants, such as board, management,
shareholders and other stakeholders. Transparency and accountability are its major attributes.
Corporate governance covers the concepts, theories and practices of boards and their
directors and the relationship between boards and shareholders, top management, regulators
and auditors and other stakeholders. As for example, Asian Development Bank (ADB)
describes corporate governance as (i) a set of rules, that define the relationship between
shareholders, managers, creditors, the government and stakeholders, (ii) a set of mechanism
that help directly or indirectly to enforce these rules (Asian Development Bank, 2000, p. 5).
From a banking industry perspective, corporate governance involves the manner in which the
business and affairs of banks are governed by their boards of directors and senior
management, which affects how, they:
Set corporate objectives;
Operate the banks business on a day-to-day basis;
Meet the obligation of accountability to their shareholders and take into account the
interests of other recognized stakeholders
Align corporate activities and behavior with the expectation that banks will operate in
a safe and sound manner, and in compliance with applicable laws and regulations; and
Protect the interests of depositors (Basel Committee on Banking Supervision, 2006).
Good corporate governance requires appropriate and effective legal, regulatory and
institutional foundations. A variety of factors, including the system of business laws and
accounting standards, can affect market integrity and overall economic performance.
Supervisors are nevertheless encouraged to be aware of legal and institutional impediments to
sound corporate governance, and to take steps to foster effective foundations for corporate
governance where it is within their legal authority to do so (Basel Committee on Banking
Supervision, 1997).
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 (King and Levine,
1993a,b; Levine, 1997). Second, as financial markets are usually underdeveloped, banks in
developing economies are typically the most important source of finance for the majority of
firms (Levine, R. 2004). 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.
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. This is truer in case of Banking Industry. Since Banks deal in public
money, public confidence is of outmost importance in this Industry
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.

5
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 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.
Corporate governance actually deals with the duties and responsibilities of a companys
board of directors in managing the company and their relationships with the shareholders of
the company and the stakeholder group (Cornelius, 2004).Corporate governance is the
relationship between the investor, the management team and the board of directors of
company (Levitt, 2002). Corporate governance is not only shown and analyzed the conflict of
interest and its impact on firm value, but also has unveiled good governance principles and
their implementation (Doost & Fishman, 2004).Corporate governance refers to the rules and
incentives by which the management of a company is directed and controlled to maximize the
profitability and long-term value of the firm for shareholders while taking into account the
interests of other legitimate stakeholders (Hurley and Khemani, 1998).Corporate governance
refers to the private and public institutions, including laws, regulations and accepted business
practices, which in market economy; govern the relationship between corporate managers and
entrepreneurs on one hand, and those who invest resources in corporations, on the other
(Oman 2001).In addition, theory of corporate governance can be interpreted as a theory
concerned with the alignment of management and shareholder interests (Grant, 2003).
Corporate governance issue came into light in the wake of stock market debacle in
Bangladesh in 1996 by organizing seminars, conferences and discussion by Organization for
Economic Co-operation and Development (OECD), SEC and other scholars of corporate
culture (Talukdar,2007). Bangladesh Enterprise Institute in March 2004 introduces the code
of corporate governance for Bangladesh. The corporate governance issue came to front line in
Bangladesh after Oriental Bank had taken by Bangladesh Bank in2006 (Aims of Bangladesh,
2006).The Securities and Exchange Commission (SEC) in February 2006 issued a
notification and by this notification the SEC imposes condition comply or explain to all
companies listed with any stock exchange. After introducing SEC guidelines the corporate
governance practices are gradually increasing in Bangladesh, but it is in initial stage till now.
100 companies within 107 disclosed according to SECs guidelines, only 18 companies fully
complied with all the conditions of SEC corporate governance guidelines, in their annual
report and another seven did not disclosed according to SEC format of corporate governance
(Uddin and Begum, 2012). They also examine corporate governance compliance gives the
poor state of disclosure as well as compliance with corporate governance in Bangladesh need
to make compulsory instated of comply or explain.

6
 Chapter - 3
Profile & Banking Operation of Bank
Asia Ltd
3.1 Background of Bank Asia

Bank Asia has been launched by a group of successful entrepreneurs with recognized standing in
the society. The management of the Bank consists of a team led by senior bankers with decades
of experience in national and international markets. The senior management team is ably
supported by a group of professionals many of whom have exposure in the international market.
Bank Asia Limited is a scheduled commercial bank in the private sector established under the
Banking Company Act 1991 and incorporated in Bangladesh as a public limited company under
the Companies Act 1994 to carry out banking business in Bangladesh. It set milestone by
acquiring the business operations of the Bank of Nova Scotia in Dhaka, first in the banking
history of Bangladesh. It again repeated the performance by acquiring the Bangladesh operations
of Muslim Commercial Bank Ltd. (MCB), a Pakistani bank.
In the year 2003 the Bank again came to the limelight with oversubscription of the Initial Public
Offering of the shares of the Bank, which was a record (55 times) in our capital market's history
and its shares commands respectable premium. The asset and liability growth has been
remarkable. Bank Asia has been actively participating in the local money market as well as
foreign currency market without exposing the Bank to vulnerable positions. The Bank's
investment in Treasury Bills and other securities went up noticeably opening up opportunities for
enhancing income in the context of a regime of gradual interest rate decline.
Bank Asia Limited started its service with a vision to serve people with modern and innovative
banking products and services at affordable charge. Being parallel to the cutting edge technology
the Bank is offering online banking with added delivery channels like ATM, Tele-banking, SMS
and Net Banking. And as part of the bank's commitment to provide all modern and value added
banking service in keeping with the very best standard in a globalize world.

3.2 Vision of Bank Asia

Bank Asia's vision is to have a poverty free Bangladesh in course of a generation in the new
millennium, reflecting the national dream. Our vision is to build a society where human dignity
and human rights receive the highest consideration along with reduction of poverty.

3.3 Mission of Bank Asia

To assist in bringing high quality service to our customers and to participate in the
growth and expansion of our national economy

To set high standards of integrity and bring total satisfaction to our clients, shareholders
and employees

To become the most sought after bank in the country, rendering technology driven
innovative services by our dedicated team of professionals

8
3.4 Objectives of Bank Asia
Place customers interest and satisfaction as first priority and provide customers
banking product and services.
Value addition to the stakeholders through attaining excellence in banking operation.
Maintain high standard and transparency in dealings.
Be a compliant institution through adhering to all regulatory requirements.
Contribute significantly for the betterment of the society.
Ensure high degree of motivation and dignified working environment for our human
capital and respect optimal work-life balance.
Committed to protect the environment and go green.

3.5 Corporate Information

Letter of Intent received 24/02/1999

First meeting of the Promoters held 15/04/1999

Certificate of Incorporation received 28/09/1999

Certificate of Commencement of Business 28/09/1999

First meeting of the Board of Directors held 01/10/1999

banking license received 06/10/1999

First Branch license received 31/10/1999

Inauguration of Bank 27/11/1999

Date of Publication of Prospectus 29/06/2003

Date of IPO Subscription 23/09/2003, 24/09/2003

Date of First Share Trading in Bourse 08/01/2004

Date of Agreement with CDBL 20/12/2005

Date of First Scrip less Trading 30/01/2006

Number of Promoters 22

Number of Directors 12

Auditors Rahman Rahman Huq Chartered Accountants

9 Mohakhali C/A,(11th & 12th Floors)Dhaka 1212,
Bangladesh

Legal Advisor Lee & Associates Barristers& Advocates

Suit # 5/8, City Heart (4th Floor),67
NayaPaltan,Dhaka-1000, Bangladesh

9
3.6 Management Hierarchy

10
3.7 Products & Services
Bank Asia has on offer a broad array of innovative financial services specially designed to
match the specific requirement of the clientele ranging from large corporate houses, small and
medium enterprises, to private individuals. The team of professionals assists the clients in
finding the most appropriate financing package to help the clients realize their short-term goals
and long-term aspirations. Bank Asia offers several products and packages through different
banking systems. Such are-

(I) Corporate Banking

Corporate Banking unit offers banking products and services to the corporate clients customized
to meet the specific needs of those organizations. Apart from the traditional current and short-
term deposit facilities, Bank Asia helps in import and export financing through different
services offered to their corporate clients. The products and services offered by Bank Asia
Limited to the corporate clients can be divided into the following categories.

Bank Asia presents several effective credit schemes for corporate clients. The major programs
are:
Working Capital Financing
Term Loans
Equity Financing
Structured Finance

Other than these schemes the bank may arrange consultative and documentary services for
corporate clients. Thus Bank Asia supports big businesses and industries of the country in
their endeavor for expansion and growth.

Payments and Cash Management: Account Management Services,

Countrywide Payments/Countrywide Collections, etc.

Customized Loans
Trade Services include Export Services, Import Services, Trade Express, Document Tracker etc.
Electronic Banking: Cash Management Services and Trade Services

(II) International Trade, Remittances

International Division at the Head Office is fully equipped with expertise including
computerizes operations to deal with foreign trade and foreign exchange operations of all
kinds including L/C, Bills, Travelers Cheques, Foreign Drafts, TTs, Remittances from
Bangladeshi staying abroad and handling students remittance studying abroad, etc. Such
operations are conducted through 18 AD (Authorized Dealer) branches throughout the
country.
Bank Asia Ltd has launched Foreign Remittance in September 2003. Starting from a unit under
Scotia Branch, Dhaka, this operation is now handled by a dedicated team of young energetic and
yet highly experienced officers. Bank Asia, now-a-days, has Agency Arrangement with 34

11
Exchange houses in various countries around the world like UK, USA, Canada, UAE, Kuwait,
Mauritius, Oman & Malaysia. Moreover, global brands like Western Union, Xpress Money and
Instant Cash Worldwide are also satisfactorily been served by Bank Asia Ltd. Some other
companies like Placid NK Corporation, IME, Merchantrade, and Choice Money Transfer
etc. has gone beyond their originating countries and has become global brands. Bank Asia is
proud to be an active participant in their growth.
(III) Syndication Financing
On many occasions, the financial requirement of the client, particularly for new investments
is so large that it is not possible for Bank Asia to meet the demand from the Banks own
resources, and also because of regulatory restrictions. In such cases the syndication
department is entrusted with the responsibility of raising the required funds through
syndication arrangement with other banks.
(IV) Small and Medium Enterprises
Bank Asia has entered into an agreement with South Asian Enterprise Development Facility (a
concern of the IFC) for Technical Assistance and training program for creating a Small and
Medium Enterprise lending segment. Under the agreement SEDF has conducted an in-house
diagnostics of the existing facility to assess the quality of corporate governance, credit risk
management structure, sales and delivery channels, quality of information technology, and the
MIS structure. Such a SME product named Shachondo Loan has already launched in two
semi-urban branches in Dhaka and Chittagong.
(V) Retail Banking
Retail Banking provides individual and self-employed customers with a wide range of banking
and related financial services. These includes

Savings Account Any Branch Banking

Current Account Short Term Deposit

SMS Banking Personal Installment Loan

Bonus Savings Schemes Real time online Banking

Personal Credit Deposit Pension Scheme (DPS)

Evening Banking Fixed Deposits

Monthly Benefit Plus (MB +) Double Benefit Plus (DB +)

12
 3.8 CSR activities of Bank Asia Limited
Bank Asia has been conscious of corporate social responsibility from the very beginning of its
operation in 1999. The Bank looks beyond short-term quantitative gains and concentrates on
issues which make the financial institution socially responsible and thus expects a sustainable
balanced growth. Bank Asia has three major CSR programs. These are as follows:

1. Higher Study Scholarship

2. Ophthalmological Operation
3. Operating Computer Learning Centers

Higher Study Scholarship

Bank Asia provides higher scholarship to rural poor meritorious students, who are studying in
important subjects in public universities. So far (since 2005) 215 students have been awarded
the scholarship. Of them, 94 scholarships have been provided this year. Total expenditure of
scholarship this year is Tk. 53.08 lac for this purpose while Tk.1.57 crore till date. Next year
we have a plan to provide 100 more scholarships, which will raise beneficiary numbers to 334,
and budget will be Tk 10.64 million/Tk 1.64 crore. The scholarships are given on the basis of
SSC and HSC results.

Bank Asia gives scholarships for higher study to the meritorious students in the rural areas,
where the Bank has branches. A total of 134 (one hundred thirty four) students have been
selected for Bank Asia Higher Study Scholarship for the current year.

Ophthalmological Operation
The Bank bears entire cost of cataract-related eye operations, whose parents are poor and
cannot afford the high cost of operations. Since 2006, 874 operations have been conducted
under the program at a cost of about Tk 92 lac (till July, 2010). Most of the children are leading
normal life and learning education.

Computer Learning Centers

Bank Asia, with the help of D-net, is operating 13 Computer Learning Centers (since 2006) in
rural areas, where rural youths learn computer education. A total of Tk 4.7 lac has been spent
for operational cost of these centers this year. Besides, 12 more learning centers have been set
up this year involving Tk.1.58 million/Tk.15.76 lac as a part of our expansion program. So far,
about 3000 youths received computer training though these centers, and cost involvement in this
CSR program is Tk.1.03 crore (till Dec. 2009).
Organizing Eye Camp: Bank Asia started eye screening of 10,000 children in 50 schools in
four upazilas of Kishoreganj district namely, Tarail, Sadar, Hossainpur and Pakundia with the
help of Kishoreganj Eye Hospital of Nari Uddog Kendra (NUK). If the pilot program, involving
Tk.5 lac, is successful we will cover whole the district and subsequently whole the country to
save eyes of the children of the nation.
Blood Donation: Bank Asia every year organizes blood donation programs where Bank staffs
donate blood. As recognition, Bank Asia received the Highest Blood Donation Organization
Award from the Bangladesh Red Crescent Society Blood Centre in this (2010) year. Bank
Asia spent Tk 1 million/10 lac for organizing blood donation program.

13
Conservation of Environment: Bank Asia has been one of the pioneers in supporting
environment friendly CNG projects by financing CNG conversion and CNG filling stations. It
always averts financing in environment hazardous business. The Bank has decided not to
finance any tobacco related business,

and all offices of the Bank are declared smoking free zone. Bank Asia is committed to
protect the environment, and in the effort to do so has undertaken beautification and
maintenance of the main highway Pragati Sarani from Natun Bazar to Railway Crossing
near Airport Road. Financing in solar panels for urban households is under process.

Disaster Management: Bank Asia donated Tk. 25 lac to the Prime Ministers Relief Fund as
financial assistance to the victim families of devastating fire at Nimtoli and building collapse at
Begunbarui in first week of June, 2010 that caused loss of more than hundred lives, leaving
hundreds of people severely injured. Besides, the Bank donated blankets among cold-hit people
in the district of Rajshahi, Pabna and Bogra districts.

Sports: During the event of South Asian Games (SAF Games) Bank Asia contributed Tk 5 lac
for smooth organizing of the program. Bank Asia also contributed Tk 20 lac for purchasing car
presented to cricketer(s) of Bangladesh National Cricket Team for their emphatic win against
New Zealand.

Culture and Heritage: Bank Asia is dedicated to protect culture and heritage of the country. In
respect to the martyred freedom fighters, Bank Asia donated Tk 1 crore for Multijuddha
Jadughar Nirman, Tk2 lac to Muktijuddher Smritisangrakshan Kendra for the international
conference on Human Rights.

Poverty Eradication Program: The Bank has disbursed Tk 62.76 crore (Tk 40.11 crore
directly and Tk 22.65 crore through NGO linkage) as short and long-term credit in
agriculture/rural credit sectors during last six months (Jan 1-June 30, 2010). This financing
helped create innumerous employment opportunities in farms, especially in the fields of crops
and fisheries. Of the total amount, Tk 10 crore has been disbursed for poverty alleviation in
rural areas.

Bank Asia through its 10 SME Service Centers and 46 Branches in urban and rural areas
provides Tk. 21.75 crore credit to small and medium enterprises for expansion or promotion
of their business which ultimately create productive new off-farm employment.

Other Health Programs: Assist construction of hospital (Islamia Eye Hospital Tk 20 lac,
TMSS Tk 5 lac), donate microbus for running mobile hospital (of Bir Sreshtha Matiur Rahman
Foundation-Tk 15 lac), rehabilitation of paralyzed people (CRP-Savar Tk 3 lac), support
accident victims (Tarail-Tk 1.97 lac), kidney and cancer patients, Tk 0.43 million to Marie
Stopes Clinic, etc.

Others Csr/Donation Program: Bank Asia also donated Tk 10 lac to FBCCI Foundations
One Businessman: One Family program. Besides, Bank donated Tk 5 lac for Women
Entrepreneur Award and Tk 4.8 lac for support to victim Army Family of BDR carnage.

14
 Chapter - 4
Corporate Governance Practices in
Bank Asia
In Bank Asia, corporate governance means increasing the stakeholders value by being efficient
& professional to the organization, transparent and accountable to the shareholders and
responsible to the society and the environment. The board of directors plays a key role in
corporate governance. It is their responsibility to endorse the organizations strategy, develop
directional policy, appoint and supervise senior executives and to ensure accountability of the
organization to its owners and regulatory authorities. This enables the banks to undertake, in an
effective manner, the prudent risk-taking activities which are the basis of its business. Bank Asia
Limited, as a publicly listed company, is a highly regulated company where Bangladesh Bank,
Bangladesh Securities and Exchange Commission (BSEC) play a very significant role in
establishment and adherence to norms and regulations.

4.1 BOARD OF DIRECTORS

Composition of the Board: Directors are accountable to the shareholders for the banks
performance and governance. Bank Asia always complies with the direction of the regulatory
authorities regarding the appointment of directors. Bangladesh Bank circulars, BSEC
notification, Bank Company Act and Company Act are strictly followed. The Constitution
provides that there will be a minimum of one-fifth Independent Directors of the board and
maximum 20and minimum 5 Directors on the Board. The Board currently comprises of 16
Directors as of December 31, 2014 including the Managing Director. The Chairman and 13 other
Directors are Non-Executive Directors from which 4 are independent directors and only the CEO
(Managing Director) is an Executive Director. The Chairman has been independent to CEO. All
the Directors except independent directors & CEO were elected by the shareholders of the
company & CEO is selected by the board of directors with the approval of the Bangladesh Bank.
Independent directors are appointed by the board and approved by the shareholders in the AGM.
All the Directors are well qualified, experienced professionals and add tremendous value to the
overall management capability. Most of the Directors are successful businessmen in their own
right with long experience in banking industry and they also hold very responsible positions in
public life. The details qualifications about board of directors can be found in Directors profile

Board of Directors Selection Mechanism and Independence: Bank Asia complied with
relevant guidelines of Bangladesh Bank and other rules and regulations of the Bank Companies
Act, 1991 Bangladesh Securities and Exchange Commission while forming its board of directors.
While appointing new directors Bank Asia assesses the size & formation of the board and mix of
knowledge, skills, condition, experience legal proceedings and perception. The directors are
elected by the shareholders in AGM. In case of nomination, removal, causal vacancy, deposit
directors & alternate Directors, Bank Asia follows all relevant rules and regulations day to day
business of the bank. The Banks Non-Executive corporate governance 153 www.bankasia-
bd.com annual integrated report 2014 Directors are independent of management and free from
day to day business of the bank

16
Independent director: As part of good governance in the organization participation of
independent opinion in the Board is considered as an important instrument. Independent
directors in the Board exert an independent view on the policies and decisions of the Board and
ensure that the policies and decisions are for the best interest of the whole bank. Bank Asia has
appointed 4 (four) independent directors in the Board. They are Mr. A M Nurul Islam, a
renowned bureaucrat and three renowned retired bankers Mr. Mohammed Lakiot ullah, Mr. Shah
Md. Nurul Alam and Mr. Mashiur Rahman. The Independent Directors are also member of the
sub-committees of the Board. One of them is the members of the Executive Committee, two of
them are the members of the Audit Committee where one is acting as chairman of audit
committee and three of them are the members of the Risk Management Committee.

Delegation of Authority: The Board has delegated to the CEO and, through the CEO, to other
senior executives, responsibility for the day-to-day management of the banks business and
implementation of the banks strategy and policy initiatives. The CEO and other senior
executives operate in accordance with a comprehensive set of management delegations under the
banks Delegation of Authorities framework.

17
4.2 BOARDS OWN STRUCTURE AND PRACTICE
The board structure is maintained in terms of leadership, size and the use of committees so as to
effectively carry out its oversight role and other responsibilities. This includes ensuring that the
board has the time and means to cover all necessary subjects in sufficient depth and have a
robust discussion of issues. The board continuously maintaining and periodically updating
organizational rules, by-laws, or other similar documents setting out its organization, rights,
responsibilities and key activities. To support its own performance, the board carry out regular
assessments alone or with the assistance of external experts of the board as a whole, its
committees and individual board members.

Chairman of the Board; Roles & Responsibilities: The Chairman of the Board is elected to the
office of chairman by the directors. The Chairmans primary responsibility is to lead the Board,
to ensure a
common purpose, effectiveness as a group and at individual Director Level and that it upholds
and promotes high standards of integrity, probity and corporate governance. The Chairman has
the link between the Board and the Company.

Roles and Responsibilities:

Appropriate Accounting Standards, Policy and regulatory compliance

Overseeing the financial reporting process

Accounting policy & procedures

Reviewing significant related party transactions

Going concern assumption

Checking the financial statements completeness and concreteness

Reviewing the financial statements prepared in according to existing rules & regulations
and standards enforced in the country and as per relevant prescribed accounting standards
set by Bangladesh Bank

Discussing with management and the external auditors to review the financial statements

before submission to the Board for approval.
Dealing with Significant changes of accounting policies and practices

Reviewing the content and accounts to advise the Board for the understandable and fair

presentation of the annual report
Quarterly & Half yearly review of the financial statements

Financial Reporting:

Review the annual financial statements and determine whether they are complete and
consistent with the accounting standards set by the regulatory authority

Meet with management and the external auditors to review the financial statements
before their finalization
Other Responsibilities:

Submit compliance report to the Board on quarterly basis on regularization of the
omission, fraud and forgeries and other irregularities detected by the internal and external

auditors and inspectors of regulatory authorities
Perform other oversight functions as desired by the Board of Directors and evaluate the
committees own performance on a regular basis.

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4.3 EXECUTIVE COMMITTEE

The Executive Committee (EC) of the Board of Bank Asia was first constituted in January 2010
to ensure efficient, competent, compliant and secured structure for approval of credit proposals
and business decisions. The number of members in executive committee is 7 (seven) nominated
by the Board from directors. The EC time to time reviews policies and guidelines issued by
Bangladesh Bank regarding credit and other operations that are customized and adopted by the
management after approval of the Board of directors. EC approves credit proposals as per
approved policy of the Board.

4.4 RISK MANAGEMENT COMMITTEE

To minimize risk while implementing the policies and business plan of the Bank, the Board has
formed a Risk Management Committee as per the guidelines of Bangladesh Bank. The
Committee will supervise whether the risks arise from credit, foreign exchange, internal control
and compliance, money laundering, information technology, operation, interest rate, liquidity
and other sources are identified, and measured and adequate systems are in place to minimize
such risks. Currently 5 (five) members are in the Risk Management Committee. They set risk
appetite; formulate risk identification & control policy, deciding on recommended changes to the
risk management framework and internal capital adequacy assessment process and monitoring
the operation and effectiveness of the risk management framework, policies and standards. The
Risk Committee assists the Board in relation to the oversight of risk including the risk appetite
and risk management strategy

4.5 CORPORATE GOVERNANCE TRAINING AND ITS OBJECTIVES

Bank Asia is very serious about Corporate Governance. For this purpose, high quality
training was arranged regarding this matter. A daylong workshop on Corporate Governance was
organized to create a strong risk management culture on October 18, 2014 where our senior
management participated. Among them, Mr. A Rouf Chowdhury, Chairman of Bank Asia; Md.
Mehmood Hussain, President and Managing Director; Vice Chairmen Mr. A M Nurul Islam, Mr.
Mohammed Lakiotullah, Directors of the company Mr. Mashiur Rahman, Mr. Rumee A
Hossain, Mr. Shah Md. Nurul Alam, Mr. Mohd. Safwan Choudhury; Deputy Managing Directors
and Head of other departments were present. Board of Directors and Senior Management
participated at an exclusive workshop on Corporate Governance conducted by IFC Corporate
governance training offers tangible benefits for Board directors committed to playing a key role
in guiding their companys success. Governance training puts one in touch with the latest best
practice research and offers evaluation of best practice Boards. Therefore, the main objective of
these training programs is:

19

To help to identify Boards route to success. This includes strategic appointment to

leverage Board member competencies as well as effective structures and processes.
To determine the best practices suited to your organization through structured

assessment.
To develop broad-spectrum insights into best practices to understand how they improve
coherence in business direction and strategy, drive corporate responsibility, and improve

company accountability for stakeholder confidence
To shed light on Board-specific strategies to mitigate risk and maximize opportunities by
paving the skills, tools and frameworks for action plans to address challenges and boost

Boards performance.
To help the Board members develop the right strategies for change management and
create advance plans for seamless change in order to identify internal and external

opportunities and challenges, manage change or implement new approaches.
To drive positive Board culture such as skills and leadership style.
4.6 REMUNERATION

Bank Asia compensation program focuses on individual short-term goals vis--vis long-term
success and overall profitability of the Bank. Both our short-term annual incentive and long-term
compensation plans promote our pay-for-performance philosophy, as well as our goal of having
a meaningful amount of pay at-risk, and we believe both plans provide them a competitive
advantage in talent acquiring and retaining. A summary of Short-term and Long-term
compensation plan are given below:

20
4.7 RELATION AND COMMUNICATION WITH THE SHAREHOLDERS AND
OTHER STAKEHOLDERS

While maintaining investors relation proper communication and equitable treatment of every
shareholder are given the highest priority by Bank Asia. Bank Asia always share information to
the concern party and publish integrated operational and financial output and takes initiative to
enrich the ability of future assessment of bank of shareholders. Bank always provides quarterly
and half-annually financial statements and Annual Report to provide balanced and clear
assessment of its performance. Bank Asia also provides copies of annual report to the related
regulatory parties and it can also be found on Bank Asia website www. Bankasia-bd.com with
other related information.

4.8 SHARE HOLDING STRUCTURE

21
 Chapter - 5
SWOT Analysis
SWOT ANALYSIS OF BANK ASIA
Every organization is composed of some internal strengths and weaknesses and also has some
external opportunities and threats in its whole life cycle. The following will briefly introduce the
customer to the Bank Asias internal strengths and weaknesses, and external opportunities and
threats as I have explored in the past ten weeks.

Strength
Superior Quality: Bank Asia provides its customers excellent quality of service. It gives the first
priority to customer satisfaction.

Dynamism: Bank Asia draws its strength from the adaptability and dynamism it
possesses. It has quickly adapted to world class standard in terms of banking services.
Bank Asia has also adapted state of the art technology to connect with the world for
better communication to integrate facilities.

Financial Strength: Bank Asia is a finally sound company backed by the enormous
resource base of the mother concern Rangs Group. As result customers feel comfortable
in dealing with the company.

Efficient Management: All the levels of the management of Bank Asia are solely directed
to maintain a culture of the betterment of the quality of the service and development of a
corporate brand image in the market through organization wide term approach and open
communication system.

State of the Art Technology: Bank Asia utilizes state-of-the-art technology to ensure
consistent quality and operation. The corporate office is equipped with SWIFT (SWIFT
is a banking software, used by Bank Asia). All other branches are also equipped with
SWIFT system.

Experts: The key contributing factor behind the success of the Bank Asia is their
employees, who are highly trained and most competent in their own field. Bank Asia
provides their employees training both in-house and outside job.

In-House Utility: Bank Asia is free from dependence on ever disruptive power supply of
our public sources. The company generates the required power through generator fed on
diesel. Water generation is done by deep tube wells on site and in abundance.

Excellent Working Environment: Bank Asia provides its workforce an excellent place to
work in. Total complex has been centrally air conditioned. The interior decoration was
done exquisitely with choice of soothing colors and blend of artistic that is comparable to
any overseas bank.

23
Weaknesses
Limited Workforce: Bank Asia has limited human resources compared to its financial
activities. There are not many people to perform most of the tasks. As a result many of
the employees are burdened with extra workloads and work late hours without any
overtime facilities. This might cause high employee turnover that will prove to be too
costly to avoid.

Problem in Delivery: Few of the Bank Asias products offered to its clients like
Personal Credit (PC) is lying idle due to proper marketing initiative from the
management. These products can easily be made available in attractive ways to increases
its client base as well as its deposit status.

Opportunities
Already entered the world of e-banking but yet to provide full electronic banking
facilities to its customer.

A proper blend of Banking and information technology might give the bank leverage to
its competitors. Nevertheless there are ample opportunities for Bank Asia to go for
product innovation in line with the modern day need. The bank has yet to develop credit
card facility, lease financing and merchant banking.

Threats
Merger and Acquisition: The worldwide trend of merging and acquisition in financial
institution is causing concentration. The industry and competitors are increasing in power
their respective areas.

Poor Telecommunication Infrastructure: As previously mentioned, the world is advancing

e-technology very rapidly. Though Bank Asia has taken effort to join the stream of
information technology, it is not possible to complete the mission due to poor technology
and infrastructure of our country.

Frequent Currency Devaluation: Frequent devaluation of Taka exchange rate fluctuations

and particularly South-East Asian currency crisis adversely affects the business globally.

Government Support: Government of Bangladesh has rendered its full support to the
banking sector for a sound financial status of the country, as it has become one of the
vital sources of employment in the country now. Such government concern will facilitate
and support the long-term vision of Bank Asia.

24
 Chapter 6
Findings & Analysis
 Bank Asia provides training programs on Corporate Governance.
Bank Asia is very serious about Corporate Governance. For this purpose, high quality
training was arranged regarding this matter. A daylong workshop on Corporate
Governance was organized to create a strong risk management culture on October 18,
2014 where the senior management participated. Governance training puts one in touch
with the latest best practice research and offers evaluation of best practice Boards.
The chairman of the Board does not participate in or interfere into the administrative or
operational affairs of the bank. Sometimes the chairman conducts on-site inspection of
any bank-branch or financing activities under the purview of the oversight
responsibilities of the Board.
There were 33 meetings of the Board during the year 2014. Around four members of the
Board were absent in all the meetings and more 3 were absent in more than 20 meetings.
This is not a good practice as being the supreme authority of the Bank, all members
should show maximum interest in the meetings by being present.

A significant proportion of the shares are held by the directors of the bank. Ideally, the
Board of Directors are not supposed to hold too much shares as this might lead to
manipulation of the decisions of the organization in the interest of the B.O.D. to achieve
personal gains.

Weak regulatory system along with board interference with the management exists in CG
in the country.
Capital market facilitates good governance through information production and
monitoring. The capital market of Bangladesh consists of two stock exchanges: Dhaka
Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). Bangladesh does not
have depth in its equity market. The capital market of Bangladesh is still a weak link in
the movement towards strengthening CG.
General shareholders do not pay attention on issues of performance, business strategy,
future business plans, disclosures and processes that could give them a greater voice in
the policy decisions of a company.

26
 Conclusion
The primary objective of the study was to evaluate the practices of Corporate Governance codes
by Bank Asia Ltd. The broad issues like shareholders rights and disclosure of information,
disclosure and transparency, audit practices, board issues and customer satisfaction are the main
yardstick to assess the practice of CG codes. The study found some problems in meeting the
Corporate Governance Issues transparency and accountability, financial reporting, reliability on
audit reports, shareholders participation, customers satisfaction, etc.

In short the fairness, accountability and transparency of private banks can be improved in order
to meet Corporate Governance standards. 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, each bank should follow
the Corporate Governance codes properly to bring the authenticity in its operations and to bring
the faith of the stakeholders as well as the people of Bangladesh.

27
 8. Recommendations
After completing the research following recommendations have been made to ensure the
practice of corporate governance codes in bank Asia Ltd. and to increase sustainability of
the business:

The Bank should focus more on corporate governance training programs to make
everyone in the organization aware of its practices.

The effectiveness of independent directors should be increased in the organization to

bring more transparency.

The performance of Board of directors should be evaluated more strictly and timely to
bring the accountability in the organization.

More detailed information on major shareholders equity and ownership should be

disclosed.

Adequate time and scope should be given to the shareholders for asking questions and
placing issues in the Annual General Meetings (AGM).

Complete resume of directors of every organization should be disclosed to enable

shareholders to judge their qualification and skills.

Employees should be encouraged to participate in decision making and bring forward

their ideas and viewpoints about the organization.

Customers should be treated more fairly and provided with detailed information about
their banking activities and costs involved.

Minor shareholders should not be neglected by any means.

28
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The following websites were accessed.

18. www.mblbd.com
19. www.Bangladeshbank.org
20. Annual report of Bank Asia ltd.
21. Bangladesh Bank Guidelines
http://www.bangladesh-bank.org/mediaroom/circulars/fid/creditrisk.pdf