BWBB 3033 INTERNATIONAL BANKING

(GROUP B)

FIRST SEMESTER SESSION 2019/2020 (A192)

CASE STUDY:
NEW TREND IN INTERNATIONAL BANKING
SUBMITTED TO:

DR. LOGASVATHI A/P MURUGIAH

PREPARED BY:

NO NAME MATRIC NO

1 PAVITRA A/P NADARAJA 259037

2 NURUL SYAZWANI BT ZAZUKI 261341

3 SITI ROSAYU BINTI NOR 262557

4 NUR AFIQAH BT SOTAR 264515

5 NUR IZZIAN BT SALMI 264668

6 SITI NUR ATIRAH BT MOHD FAEIZAM 264826

7 KESHAVA VARTHINI A/P KANNIPEN 264934

8 TASHENE A/P CHANDARA MUTHUSAMY 265093

9 NORHANIZA BINTI ABDUL RAHAMAN 265442

10 SITI AMINAH AMIRAH BT RUSLI 265654

1. What is the main problem with Zedmo (Asia) Pacific Bank?

The main problem with Zedmo (Asia) Pacific Bank is that it still performs day-to-day
operations using the old-fashioned business practice. As all the other banks have used the
latest state-of-the-art technology, Mr Zem, is very old-fashioned and conservative banker,
still thinks the manual accounting system is the best system for the bank.

Zedmo (Asia) Pacific Bank have lack of information technology, and Zedmo (Asia)
Pacific Bank facing some serious administrative problems with its account. When issues
like power failure at the bank arise, the job could not be completed as planned and it leads
to more delayed tasks.

Mr. Zem’s belief is that what had worked for the last 36 years of the bank’s existence
will continue even in the 21st Century. There has been a very poor professional judgment
by Mr. Zem. His quote of "slowly but surely" made him exposed to many problems as a
result of not choosing a faster lane.

2. Do you think that Mr. Zem’s behaviour is acceptable in today’s banking era?

We think that Mr.Zem’s behaviour is unacceptable in today’s banking era because he has
been an autocratic leader not to allow the bank to adapt to new banking practices and also
refused to change to new administrative practices and modernize the bank’s operations
while all the bank are conducting all their transactions electronically and Information
Technology in banking is now one of the key drivers. The most prevalent trend in the
banking era today is the shift to Fintech. Modern banking has used the technology-based
services which are being rendered very fast and efficiently. This is because Mr. Zem is a
very old-fashioned and conservative banker which is dangerous for the bank.

Besides that, it has variety of services which fulfil the unsatisfactory in traditional
banking and has brought a great positive impact to the customers. For example, with the
 introduction of Automatic Teller Machine (ATM), Credit and Debit Cards, Digital Banking
and Online Banking, it able to minimize cost, save time for payment and therefore improve
the competitive advantage in financial services industry.

3. What are the risks that Zedmo (Asia) Pacific Bank under the Chairmanship of Mr.
Zem?

Under the Chairmanship of Mr. Zem the bank face a multitude of risks like:
a) Reputational risk

For example, the Regulatory Agency had issued a warning to Mr. Zem concerning the
bank’s liquidity and capital adequacy requirement. Mr. Zem never disclosed information
to the directors and nor to the management team. Auditors found out that there is a sum
of US$5 million missing from one of the customer’s account. This matter was brought to
the attention of Mr. Zem, who claimed that the bank should keep quiet and the money will
be refunded to the client without much publicity. From this, Zedmo (Asia) Pacific Bank
will face reputational risk.

b) Operational risk

For example, Mr.Zem still performs day-to-day operations using the old-fashioned
business practice. Every night at least 25 employees including Mr, Lin would stay behind
to complete the day’s work manually. The bank also paid huge overtime to the employees.
Other than that, Mr. Zem suggested to other members of the Board of Directors that the
bank is doing very well with their manual accounting system. From this, Zedmo (Asia)
Pacific Bank facing operational risk under the Chairmanship of Mr. Zem.

c) Compliance risk

The Regulatory Agency argued that the bank has not been able to meet its capital adequacy
ratio under the Basel 1 Accord for quite sometimes. Mr. Zem stated that stated that the
bank operated without having under the Basel Accord. He refused to follow the New Basel
 II, which shortly will become the norm for all banks to comply with. This will lead the
Zedmo (Asia) Pacific Bank to face compliance risk.

4. What are the auditors’ roles in this scenario?

Internal auditors does not have much to contribute with the exception that they have done
their duties professionally and to highlight any administrative deficiencies. It is up to the
Board of Directors should take necessary actions to remedy any problem. If the Auditors
had known the problem and had kept quiet without alerting the Board of Directors, they
can be considered as an accomplice to such problem. They will be considered negligence
and liable for the professional negligence.

Besides that, the External Auditor’s roles in this scenario help to minimize the damage
that the accounts should be reconciled to the last dollar. This is because the last year’s
audit was not complete on time because the bank using manual system instead modernize
the system. Auditors are also assisting the management to put the accounts up to date.
Other than that, the External Auditor’s roles is to verify whether the bank are following
the guidelines given by the central bank from time to time.

5. Is there anything that the competitors can do to save Zedmo (Asia) Pacific Bank from
collapse?

The competitors can join forces together to analyze the magnitude of the problem of
Zedmo (Asia) Pacific Bank and take necessary administrative actions to either purchase
the bank in whole or in part or restructure the whole operations to save Zedmo (Asia)
Pacific Bank from collapse. This strategy can be done with the help of the Regulatory
Agency so as to avoid a systemic risk in the banking system. Other than that, competitors
also can launch a hostile bid to take over the operations of Zedmo (Asia) Pacific Bank.
 Furthermore, competitors can offer a better computerized accounting system to Zedmo
bank for make their day-to-day operations much easier. Meanwhile, by using this
accounting system it can also complete the audit by time and there will be no missing
information from the customer’s account.

Last but not least, the competitors can save the bank from collapse by giving seminar
about current banking services for the staff and the Board of Directors of the Zedmo (Asia)
Pacific Bank to make sure their administrative operations run smoothly.

6. Is Mr. Lin’s action warranted?

Mr.Lin’s action is warranted to resign from his position because Mr.Lin is one of the most
respected bankers of his generation. Other than that, his action is warranted to save his
profession and also his reputation with other bank. If Mr.Lin continues to work with
Zedmo (Asia) Pacific Bank the financial market will have no confidence in his
professional reputation. Persist with this, he may not get another job within the banking
sector.

7. What about the position of the Regulatory Agency – is acceptable the way they have
dealt with the situation?

The position of the Regulatory Agency is unacceptable the way they have dealt with the
situation. This is because they doesn’t take any action on Mr Zem and also on Zedmo
(Asia) Pacific Bank. The duties of Regulatory Agency is to implement laws and to enforce
the laws. Regrettable, the Regulatory Agency did not performs their function in
accordance with the local and international standards to follow and monitor the progress
of the bank. Suppose in this situation, Regulatory Agency have to enforce Zedmo (Asia)
Pacific Bank to follow the Basel I Accord to make sure that banks do not become too
much exposed. They are equally guilty with Mr. Zem to create a moral and financial
 hazard in the banking system. So, that’s are the position of the Regulatory Agency in this
situation.

8. What do you think the Board of Directors should do?

Board of Directors should monitor internal control effectively. For example, the board is
in charge of the auditing process and hires the external auditor. They also must make sure
the audit is done in a timely manner each year without any missing information from the
customer’s account.

Furthermore, Board of Director also should tell the other board of directors about the
bank's performance and not to keep it secret. This is because, they can evaluate their
management performance and improve or resolve the existing issues to avoid bankruptcy.
Board of Directors need to make sure the performance of the company is up to date.

Moreover, Board of Directors must terminate Mr.Zem and appoint a new responsible
CEO for the Zedmo (Asia) Pacific Bank in order to make sure the bank conducting all
their day-to-day transactions electronically instead of using old-fashioned business
practice. Last but not least, the board must also ensure the bank complies with all relevant
statutes, both internal and external. The board must make sure all the staff of the Zedmo
(Asia) Pacific Bank comply with the new Basel II in order to save the bank’s reputation.

9. Is there any recourse, which the Board of Directors can take against the external
Auditors?

Board of Directors can offer salary that is reasonable to external Auditors to attract them
to audit the financial statements of the Zedmo (Asia) Pacific Bank. The Board of Director
also should pay overtime wage to external Auditors because this bank have a lot of
problem for example last year's audit was not completed on time because the Bank is still
 using manual methods to record the financial so, of course the external audit will take
more time to resolve the issue.

Board of Directors should appoint knowledgeable External Auditors so that they can
help internal Auditors to solve the Zedmo (Asia) Pacific Bank’s account problem. For
example, while the Auditors assisting the management to put the account up to date, they
found out that US$5 million had been missing from one of the customer’s account so when
this type of situation happen an external Auditors need to report this problem to the Board
of Director so that they can take action towards the management

10. Do you share the view that Mr. Zem can save the bank’s operations through the
establishment of a “one-stop financial services boutique?”

In our view, that Mr. Zem cannot save the bank’s operations through the establishment of
a "one-stop boutique of financial services." A one-stop boutique of financial services is a
company that provides its clients a multitude of goods or services, all under one roof, so
to speak. A one-stop boutique of financial services may refer to a bank dealing with a
range of products or services. The corporate strategy behind the modernized idea of a one-
stop financial services boutique is to offer easy and reliable service which will give the
company the ability to sell more to customers. By pursuing this strategy, the bank is able
to raise sales by selling more to existing customers, in addition to new customer growth.

Meanwhile, Mr. Zem said that he will keep the same level of services and charge the
customers more for the bank’s services. By doing so, Mr.Zem cannot save the bank’s
operation. In general bank’s responsibility is to give good services to the customers so
that the customers will trust the bank. Without additional services being provided by the
bank, Mr. Zem has already mis-managed the operations. To enlarge the products or
services portfolio would mean more problem for the bank to handle under his leadership.
According to one financial analyst for the banking sector the bank should grow at a more
rapid pace but the market is not making progress as expected because Mr. Zem is a very
old-fashioned and conservative banker. Moreover, Mr. Zem lacks understanding of the
advance banking system and brings new concepts of banking practices.
11. Where the Board of Directors collectively responsible for this problem?

The Board of Directors are collectively responsible for overseeing all management
functions and making all management decisions. Therefore, the Board of Directors is
responsible for overseeing the external audit of processes, including the appointment of
audits and the quality and independence of process audits. The external auditor will
generally ask the Chair of the board to sign a letter of representation, on behalf of those
charged with governance, acknowledging and confirming their responsibility for financial
reporting and ensuring there are appropriate internal controls in place to prevent and detect
fraud.

Through its management, the Board of Directors is responsible for the financial
statements and notes relating to the financial statements. The Board of Directors must
ensure that the audit process runs smoothly so as not to cause any harm to the company.
One of the things to keep in mind is information technology so that information can be
understood and in keeping with today's technological progress. This is because,
information technology plays an important role in the audit process so that no information
leakage can affect the annual audit. Therefore, efficient and modern information
technology should be used to enhance the audit process.

12. Are you of the opinion that the bank must switch from a manual accounting system
to a computer-based accounting system?

We believe that the The Zedmo (Asia) Pacific Bank must switch from a manual
accounting system to computer-based accounting system. In this day, all banks have a
computerized accounting system. It is considered as one of the key drivers in a bank’s
resources. In contrast with manual accounting, computerized accounting has the benefit
of improved productivity and time management for any banks. Computers can perform
accounting or appraisal functions more rapidly than manual accounting systems once data
is inserted into the system. Any bank that uses manual accounting system will face trouble
in their daily operations and it is not appropriate to do so. Customers are now more
sophisticated and demand up to date information about their accounts and services that
will help them be more business-like.

Computerise accounting is scalable. As the bank expands, it not only increases the
amount of accounting required but also becomes more complicated. All is kept clear with
computerized accounting, as sifting through data using software is simpler than sifting
through a bunch of documents. Computer based accounting can be done quickly. Through
accounting software, the whole process of accounts management is getting faster.
Alternatively, statements and reports can be instantly produced by clicking a button.
Managers need not wait for hours, or days, to lay their hands on an important paper.