Corporate Governance

Corporate Governance
JAIBB
Abstract
Disclaimer: All are samples - Writers are not liable for these questions and answers.
MD SAIDUL ALAM RAJAN

saidulrajon@eximbankbd.com
Paper-2: Governance in Financial Institutions (GFI)
Full Marks: 100
Module-A: Concept and pre-requisites
 Basic Concept and Historical Perspective of Governance - Need & Importance of Corporate
Governance. Benefit of Good Governance in Banks. BASEL‘s Principles on Corporate Governance
for Banks. Vision, Mission, Purpose, Brand Promise, Code of Conduct,
Module-B: Board and its Responsibilities

 Overall responsibility of Board, Board Members, Independent Members, Various Committees, Setting
strategic objectives, governance framework and corporate culture, BB‘s Guidelines for Measuring
Board Performance, Board Dissolve and Appointment of Observer
Module-C: CEO and Senior Management

 Tone from the top; Composition and qualification of CEO and other senior managers; Senior
Management Committees; Business strategy; Management Culture; Organization Culture; Changing
CEO and Senior Management
Module-D: Capital, Liquidity and Assets
 Capital Adequacy, Liquidity Profile, Asset Composition, RWA, Liability and Asset Drives, Managing
Problem Assets
Module-E: Risk Management and Controls
 ERMF, Risk Scanning and emerging Risks, Risk Appetite, Risk Culture, Managing Material Risks,
Appropriate implementation of 03 (three) lines of defense, Strength and Independent functioning of
2nd line functions and Internal Audit, Regulatory compliance,
Module-F: Subsidiary and other business governance
 Brokerage, Merchant Banking, Custodial Services, OBU, Islamic Window, MFS, Agent Banking.
Module-G: Stakeholder Governance
 Relationship with Regulators, Local Government Agencies; Regulations on Corporate Governance;

Relationship with Shareholders; Relationship with Competitors and Market Conduct; Relationship
with Customer, Complaint Management; Relationship with Media; Relationship with Civil Society;
Relationship with Community and CSR. Disclosure and Transparency.
Module-H: Future Outlook of the Organization
 Market Positioning, New Business initiatives, Digital Agenda, Systems and infrastructure capabilities,
People Plan, Succession Plan, Recruiting and upscaling employees of future.
References:
1. G. N. Bajpai ―The Essential Book of Corporate Governance‖., SAGE Publications
2. Corporate Governance: Robert A. G. Monks, Nell Minow, Malden, Mass. : Blackwell Pub., 2004.
3. Robert Ian Tricker: Corporate Governance 4e: Principles, Policies, and Practices., Oxford University
Press, 2019
4. Zabihollah Rezaee : Criminal and Civil Investigation Handbook, Wiley
5. Carol Padgett: Corporate Governance: Theory and Practice, Springer Publications
6. Cornelis A De Kluyer: A Primer on Corporate Governance, Business Expert Press, 2013
7. Chris A. Mallin: A Primer on Corporate Governance, Published by OUP Oxford (2012)
8. Hester PaanakkerAdam MastersLeo Huberts, Quality of Governance
9. Mark Bevir, Governance: A Very Short Introduction
Zabihollah Rezaee, Corporate Governance and Ethics
Corporate Governance
Module-A
Question 1. Define corporate governance with historical perspective.
Answer: Corporate governance is the system of rules, practices, and processes by which a firm is
directed and controlled. The word governance comes from the Latin word 'gubarnare' which means
'to steer'. In other word, this how a business entity is run through its various functions and arms. As
Sir Adrian Cadbury says corporate governance is “The system by which companies are directed
and controlled”. Corporate Governance is concerned with holding the balance between economic and
social goals and between individual and communal goals. The basic principles of corporate governance
are accountability, transparency, fairness, responsibility, and risk management.
The modern concept of corporate governance emerged during the 19th century. The 1980s and 1990s
saw a series of high-profile corporate scandals that exposed weaknesses in corporate governance such
as the collapse of the United States' stock market, the collapse of Enron. Enron executives used
fraudulent accounting practices to inflate the company's revenues and hide debt in its subsidiaries.
These incidents highlighted the need for greater transparency and accountability in financial reporting.
As a result, new regulations were introduced which aimed to improve the accountability of
corporations and reduce the risk of financial fraud basically a good corporate governance.
Question 2. Why good governance is so important especially in the financial

institutions?
Answer: Overall, good governance is essential for the long-term success and sustainability of financial
institutions. It helps to ensure that the institution is operating in a transparent, accountable, and
responsible manner, and that it is meeting the needs and expectations of its stakeholders. Good
governance is crucial in financial institutions for several reasons:
 Economic Growth: Good governance plays extremely important role in financial institutions
which lead us to a healthy economic growth. Low risk, better accuracy, financial transparency
is the bread and butter for a healthy economy.
 Performance and profitability: Good governance can lead to better performance and
profitability for the financial institution. This is because good governance practices can help
to attract and retain talented employees, improve decision-making processes, and ensure that
resources are used efficiently and effectively.
 Risk management: Financial institutions are exposed to various risks, including credit risk,
market risk, liquidity risk, operational risk, and reputational risk. Good governance ensures
that the institution has adequate risk management systems and controls in place to mitigate
these risks and safeguard the interests of stakeholders.
 Compliance: Financial institutions are subject to a complex web of laws, regulations, and
codes of conduct. Good governance ensures that the institution is compliant with these
requirements and is conducting its business in an ethical and responsible manner.
 Trust and confidence: Good governance helps to establish trust and confidence in the
financial institution among its stakeholders, including customers, shareholders, investors, and
regulators. When the institution is perceived as being well-governed, stakeholders are more
likely to trust its decision-making processes and operations.
 Reputation: Good governance is critical for the reputation of the financial institution. In the
event of a crisis or scandal, a well-governed institution is more likely to recover quickly and
maintain its reputation than a poorly governed one.
Today, corporate governance is a major concern for financial institution, businesses, investors, and
governments around the world. It is also crucial for a financial institution stability and growth.
Question 3. How good governance can be achieved in a business organization?

Answer: By following these steps, organizations can establish and maintain good corporate
governance, which can help to build trust with stakeholders, promote long-term sustainability, and
enhance overall performance.
 Diversified board: For an organization, filling gaps in expertise, provide a broader range of
viewpoints, fresh perspective could make the best choice in making strategy and other plans.
All this things can be achieved by expanding the boardroom which is a characteristics of a
good corporate governance.
 Review the Board Regularly: A good corporate governance can be established by Review
the Board Regularly. With proper evaluation, progress tracing time to time, finding the lope
hole and fill them, by understanding the strength and use it properly can create good
governance.
 Directors' independence: Independence is desirable on a board that wants to break away from
safe, conservative thinking. Forward-looking boards need directors that are not afraid to think
outside of the box, rather than old ways. It helps create innovation and avoid unproductivity.
 Auditor independence: By only ensuring the independence of audit committee authenticate
financial reports can be achieved which will attract more investors and can say the true tale of
the company.
 Transparency: Transparency is an essential tool for good governance. It shows trust to others
that builds a solid brand reputation for an organization.
 Shareholder rights: Shareholders should know their rights when they invest in a business.
They should be ensured of their rights are backed up by Articles of Association, constitution
and bylaws of the organization.
 Risk Management: Identifying risks is important, but taking a good precaution to reduce that
risk before you face it is the goal.
 Adequate Disclosures: This refers to the disclosure of all related parties transactions. If any
party has external financial interests that could influence their decision-making.
Question 4. What are the benefits of good governance in the FIs?

Answer: Good corporate governance creates transparent rules and controls, provides guidance to
leadership, and aligns the interests of shareholders, directors, management, and employees. It helps
build trust with investors, the community, and public officials. Corporate governance can provide
investors and stakeholders with a clear idea of a company's direction and business integrity. Below are
some of the benefits that arise from good governance:
 Efficient Processes: Good governance ensures reliability and repeatability in a financial

institution.
 Reducing the cost of capital: With good governance an organization become capable of
reducing potential risks which can collect funds at lower rate.
 Visibility of Errors: Good governance creates transparency, accountability which helps
spotting errors quickly by the directors also allows them to resolve and create an error-proof
organization.
 Improving top-level decision-making: By ensuring directors independence good governance
improve the management decision making and monitoring process which is required to make
the best choice of options to formulate the company‘s strategy and other plans.
 Smoother Running Operations: Good governance guarantees time saving in director’s

essential discussions that results faster and convenient operations.
 Assuring internal controls: By implementing corporate governance, management can assure
adequate and effective control process over the organization.
 Good Reputation: With the good governance, adequate and effective control, transparency
management could lead the organization and its brand value to the highest peak.
 Enabling better strategic planning: Good governance provide quick access to information
and close communication with management that will help board get better in strategic planning.
 Clarity: Good Governance ensure clarity in the process of an organization which creates low
risk and healthy environment.
 Financial Sustainability: Good governance significantly reduces the threat of safety, legal,
performance, and warranty issues that can established financial sustainability. It also ensures
that the stakeholders, shareholders, depositors, customers, employees, directors, and others are
financially secured.
 Higher staff retention: Under the good governance a company can provide their stuffs clear
growth opportunities, keep employees engaged with the future plans, maintain a productive
environment possible.
 Focus on compliance: Policies in good corporate governance makes a company to stay
compliant with local laws and regulations. It also ensure that company has proper control
mechanisms, meets its objectives, and operates efficiently in terms of people, processes,
technology, and information.
 Share Value: Company with good governance remains robust, profitable and sustainable, that
increases the confidence of the shareholders which has a positive impact on the share price.
 Effective Response to External Environment: By the productive environment, transparent
financial activities, unbitten strategy, good reputation, Financial Sustainability and error-proof
structure good governance spread effective as well as valuable response to the External
Environment.
Question 5. What do we understand by vision and mission?

Answer: Vision: A vision statement is a short statement that describes the future goals and ambitions
of an organization. This vision describes the long-run objective of your company, usually for a time
frame of five to ten years or even longer. It is the extract of the company‘s dream for the future in a
way that outlines its long-term goals and reflects core values.
Mission: A mission statement is like a road map of how to achieve the goals set in your
vision statement. It defines the purpose of the organization. A Mission Statement is a definition of the
company’s business, who it serves, what it does, its objectives, and its approach to reaching those
objectives.
Question 6. What is the importance of mission statement?

Answer: The importance and the benefits of a mission statement can be described as under:
 Clarity: Creating a mission statement and having it actually written down‖ helps to create
clarity.
 Direction: The mission statement provides the direction to the future achievement that should
be followed by the organization and stay on it.
 Focus: A mission statement will help all the employees and stakeholders to understand and
align with the company‘s purpose and vision. It also helps them to keep focus about the true
goal of the organization.
 Trust: A mission statement must shows trust so that it can help the organization to attract the
employees, target audience, and investors.
 Uniqueness: Uniqueness of mission statement gets more attention and it sends out a powerful
message to the public.
 Motivation: Mission statements focus employee’s energy and attention and motivate them to
reach the goal beyond their imagination.
 Support/building community: The mission statements provide a focal point that helps to
align everyone with the organization and build a strong relationship among them, thus ensuring
that everyone is working towards a single purpose.
 Identity: A mission statement can creates a sense of identity for the brand and a feeling of
purpose for the employees.
 Guiding culture: Mission statements guide the company forward. It helps to properly align
the resources of an organization towards achieving a successful future.
 Improved performance: The mission statement provides the organization with a clear and
effective guide for making decisions. This helps to increase efficiency and productivity in the
organization.
Question 7. Discuss the Basel principles on Corporate Governance of FIs.

Answer: Basel Committee has formulated 13 principles to preventing any bank failure for weak corporate
governance. Those principles are as follows:
 Principle 1: Board‘s overall responsibilities: The board has overall responsibility for the
bank including management activities, bank’s strategic objectives, governance framework and
corporate culture.
 Principle 2: Board qualifications and composition: The board should have a diversity of
skills, knowledge, and experience. They should have clear and separate responsibilities.
 Principle 3: Board‘s own structure and practices: The board should define appropriate
governance structures and practices for its own work.
 Principle 4: Senior management: Senior management should manage the bank’s activities,
business strategy, risk appetite, compensation and other policies approved by the board.
 Principle 5: Governance of group structures: The board has overall responsibility for
ensuring the establishment and operation of a clear governance framework.
 Principle 6: Risk management function: Banks should have an effective independent risk
management function, under the direction of a chief risk officer (CRO), with sufficient stature,
independence, resources and access to the board.
 Principle 7: Risk identification, monitoring and controlling: Risks should be identified,
monitored and controlled on an ongoing bank-wide and individual entity basis.
 Principle 8: Risk communication: Good governance requires strong communication about
risk management across the bank with good reporting facility to the senior management.
 Principle 9: Compliance: The board should establish the bank‘s policies and processes for
identifying, assessing, monitoring, reporting and advising on compliance risk.
 Principle 10: Internal audit: Internal audit should support board in promoting an effective
governance process and the long-term reliability of the bank.
 Principle 11: Compensation: The bank‘s compensation structure should support sound
corporate governance and risk management.
 Principle 12: Disclosure and transparency: The governance of the bank should be
sufficiently transparent to its shareholders, depositors, other relevant stakeholders and market
participants.
 Principle 13: The role of supervisors: Banks should stay under the effective supervision by
regulatory authorities. The regulatory authorities should have the power to take corrective
action if necessary.
Module-B
Question 8. What are the responsibilities and authorities of the Board of Directors?
Answer: The Bank Company Act, 1991 Section 15 (kha) & (ga) defines responsibility of the board of
directors. The said guidelines are as follows:
 Work-planning and strategic management:

 The board shall determine the objectives and goals on annual basis.
 Making structural changes for development of institutional efficiency
 Board shall analyze/monitor implementation of the work-plans quarterly basis.
 In annual report, board shall mentioned its success/failure in achieving the business.
 It shall share its opinions and strategies with the shareholders in its annual work-plan.
 It shall set the Key Performance Indicators for the CEO & officers and evaluate it
periodically.
 Credit and risk management:

 Loan/investment proposal, sanction, disbursement, recovery, reschedule and write-off
policies must be made by the board.
 The board shall distribute the power of sanction of loan/investment among the CEO
and his subordinate. No director shall interfere, direct or indirect, into the process of
loan approval.
 Making Risk management policies and review the report with concerned team also
monitoring those policies quarterly.
 The board shall monitor the compliance of the guidelines of Bangladesh Bank
regarding key risk management.
 Internal control management:

 The board shall be cautious to maintain satisfactory qualitative standards on
loan/investment portfolio.
 Establish internal control in as way so that audit process can be independent.
 The board shall review the recommendations from internal and external audit reports
and the Bangladesh Bank inspection reports at quarterly basis.
 Human resources management and development:

 Policies relating to recruitment, promotion, transfer, disciplinary and punitive
measures, human resources development etc. and service rules shall be framed and
approved by the board. The chairman or the directors cannot manipulate in this policies.
 No member of the board of directors shall be included in the selection committees for
recruitment and promotion.
 However Board can recruit, promote, transfer and punish of the officers immediate two
tiers below the CEO. Board shall follow the services rule in above cases.
 The board shall focus its special attention to the development of skills of bank's staff.
 The board will compose healthy code of conducts for every tier and follow it properly.
 Financial management:
 The annual budget and the statutory financial statements shall be finalized with the
approval of the board as well as monitoring it quarterly.
 The board shall frame the policies and procedures for bank's purchase and procurement
activities and shall accordingly approve the distribution of power for making such
expenditures.
 The board will review whether an Asset-Liability Committee (ALCO) has been formed
and it is working according to Bangladesh Bank guidelines.
 Appointment of Chief Executive Officer (CEO):

 The Board of directors will appoint an honest, efficient, experienced and suitable CEO
or Managing Director with the approval of the Bangladesh Bank.
 Other responsibilities of the Board:

 The board should follow and comply with the responsibilities assigned by Bangladesh
Bank.
 Meeting of Board:
 Board of directors shall meet at least once in every three months.
 Board of directors may meet once or more than once in a month if necessary.
Question 9. What is governance framework and the importance of the governance

framework?
Answer: A governance framework is a set of principles, policies, and procedures that an organization
puts in place to ensure that it operates effectively and efficiently, and that it complies with relevant laws
and regulations. The governance framework provides guidance on how decisions are made, how risks are
managed, and how accountability is established. A governance framework consists of two distinct sides:
governance and management
The importance of a governance framework can be summarized in the following points:

 Promotes accountability: A governance framework helps to establish clear lines of
accountability and responsibility within an organization. This ensures that everyone knows
their role and is responsible for their actions.
 Enhances transparency: A good governance framework promotes transparency, which

means that all stakeholders have access to information about the organization's activities,
decisions, and performance.
 Ensures compliance: A governance framework helps to ensure that an organization
complies with relevant laws, regulations, and standards. This reduces the risk of legal and
regulatory sanctions and promotes good governance practices.
 Facilitates decision-making: A governance framework provides clear guidelines for
decision-making processes, which ensures that decisions are made in a consistent and
transparent manner.
 Manages risks: A governance framework helps to identify and manage risks, which reduces
the likelihood of negative consequences for the organization.
 Improves performance: A governance framework provides a framework for setting goals,
monitoring progress, and evaluating performance. This helps organizations to improve their
performance over time.
In summary, a governance framework is important because it helps to promote accountability,

transparency, compliance, good decision-making, risk management, and performance improvement.
Question 10. What is corporate culture? What is the importance of developing

corporate culture?
Answer: Corporate culture refers to the shared values, beliefs, attitudes, behaviors, and practices that
shape the identity and character of an organization. It is the "personality" of the organization, and it is
the unwritten rules and standards that guide how employees interact with each other and with external
stakeholders, and how they approach their work. Corporate culture is shaped by a variety of factors,
including the organization's history, leadership style, mission and vision, organizational structure,
communication practices, reward systems, and employee experiences. It can also be influenced by
external factors such as the industry, economic conditions, and societal trends.
Corporate culture plays a significant role in shaping employee behavior and performance. A positive
corporate culture can promote employee engagement, innovation, and collaboration, while a negative
culture can lead to low morale, high turnover, and poor performance.
It is important for organizations to actively manage their corporate culture, as it can have a significant
impact on their success and reputation.
Developing a positive corporate culture is important for several reasons:
 Attracts and retains talent: A positive corporate culture can help attract and retain top
talent by creating a workplace that employees want to be a part of. A positive culture can
also improve employee morale and job satisfaction, which can reduce turnover.
 Improves productivity: When employees feel valued and engaged in their work, they are
more likely to be productive and motivated. A positive corporate culture can help foster this
sense of engagement, leading to higher productivity and better business outcomes.
 Encourages innovation: A positive corporate culture can encourage employees to take
risks, experiment with new ideas, and be innovative. This can lead to new products and
services, increased efficiency, and a competitive advantage in the marketplace.
 Builds brand reputation: A strong corporate culture can help build a positive reputation
for the organization among employees, customers, and stakeholders. This can improve the
company's brand image, increase customer loyalty, and attract new business.
 Supports organizational values: A positive corporate culture can help reinforce the
organization's core values, such as integrity, transparency, and accountability. This can help
create a strong sense of purpose and mission within the organization, and promote ethical
behavior and responsible decision-making.
In summary, developing a positive corporate culture is important because it can attract and retain
talent, improve productivity, encourage innovation, build brand reputation, and support organizational
values.
Question 11. When and how the Board of an FI can be dissolved and observer is
appointed?
Answer: As per Bank Company Act, 1991 Bangladesh Bank has absolute power to dissolve the entire
board of a bank if the board is failing to secure the interest of the depositors or the bank.
 The section 47 says Bangladesh Bank can dissolve a board if its action goes against the
interest of bank or depositors.
 The Section 46 says Bangladesh bank can remove a chairman or director or principal
executive officer if their action goes against the interest of bank or depositors.
 Bangladesh bank can appoint any individual who can have all the powers and functions of
a board and can fulfil any of its duties.
Observer: Bangladesh Bank can appoint an observer in the board of any bank and financial institution
to promote good corporate governance, recommend proper credit disciplines and most importantly to
protect depositors interest.
 Section 49 of the act says Bangladesh Bank can appoint any of its officers to observe the
board meetings of the bank. If needed that officer can send a progress report to Bangladesh
Bank of that meeting.
 Appointed officical can also observe the working activities of the bank or any of its branches.
Module-C
Question 12. Define CEO & Senior Management. Discuss the roles of CEO and
Senior Management Team (SMT).
Answer: A senior management team consists of top-level employees who work together to manage
an organization. Headed up by the chief executive officer (CEO). The CEO sits at the top of the senior
management team structure and is ultimately responsible for the operational success of the company.
 Chief Executive Officer (CEO):

 Making strategic plans for the organization with the support from senior
management.
 Decide on top-level business goals through discussions with board and other senior
management.
 Ensure that the organization is implementing its strategy effectively and achieving
targets.
 Report back to the board of directors on the company‘s progress.
 Work with the chairperson to communicate with shareholders and the public.
 Assign critical business tasks to the senior executives and ensure that they are
achieving their goals.
 The CEO shall ensure compliance of the Bank Company Act, 1991 and other rules
and regulations.
 The CEO shall report to Bangladesh Bank any violation of the Bank Company Act,
1991or of other laws/regulations.
 The recruitment and promotion of all staff of the bank except those in the two tiers
below him shall rest on the CEO.
 The authority relating to transfer of and disciplinary measures against the staff,
except those at two tiers below the CEO, shall rest on him.
 The CEO shall be accountable for financial achievement and other business targets.
 The CEO shall ensure the compliance of Bank Company Act, 1991 while presenting
any memorandum in the board meeting.

 Senior Management Team (SMT):

 Planning suitable strategy and ensuring effective implementation.
 Setting achievable ambitious goals and manage teams to work towards them
 Coordinating activities in functional departments
 Organizing Firm resources
 Managing the demands of stakeholders through the board of directors
 Create internal control structure in a way so that that could clear responsibility,
authority and reporting relationship.
 Monitor the capability and effectiveness of the Internal Control System based on the
bank‘s policy & procedure.
 Provide Certificate to the board on the effectiveness of Internal Control policy,
practice and procedure
 Making report to the Head of ICC about the lapses or irregularity found in audit
period which was not mentioned by the audit team conduct before.
 The senior management will develop audit team with suitable skilled manpower and
proper IT system.
 The senior management will ensure compliance of all Laws and regulations that are
circulated by various regulatory authorities s like, Bangladesh Bank, Ministry of
Finance, Security and Exchange Commission etc.
Question 13. In what ways organizational culture impacts business strategy?

Answer: Organizational culture and business strategy are closely linked and can have a important
impact on each other. Here are some ways in which organizational culture can impact business
strategy:
 Alignment: A strong organizational culture can help to align employees around a shared set
of values, goals, and objectives, making it easier to implement a business strategy.
 Innovation: An organizational culture that encourages innovation, risk-taking, and
experimentation can facilitate the development of new business strategies and help a
company stay ahead of its competitors.
 Agility: An organizational culture that values agility, flexibility, and adaptability can help a
company respond quickly to changes in the market or competitive landscape.
 Decision-making: The culture of an organization can influence the decision-making
process, affecting how strategies are chosen and implemented.
 Resource allocation: The values and priorities of an organization's culture can also affect
how resources are allocated towards different strategic initiatives.
 Communication and collaboration: A culture that values transparency and open
communication may lead to better teamwork and position towards achieving strategic goals.
In summary, an organization's culture can have a significant impact on its business strategy by
influencing decision-making, resource allocation, communication and collaboration, and adaptability
and change. It is important for leaders to understand the role that culture plays in their organization to
effectively align it with their strategic objectives.
Question 14. Explain the criteria for changing CEO and Senior Management.
Answer: Changing CEO is a regular phenomenon, creating a formal succession process to fill up this
crucial position can modernize teamwork, increases efficiency and mitigates risk. Although there is
no formal textbook formula of CEO succession plan but HR experts recommend some measures.
 Creating a future CEO criteria: The board and the existing CEO should decide the
essential future CEO capabilities.
 Future CEO should be capable to manipulate organizations future revenue
 Future CEO should have a better position in the market
 Future CEO should have knowledge about customer say, customer size and the
corporate culture.
 Future CEO can be an external candidate or an internal successor
 Building a talent pipeline: An internal candidate should be trained properly by the
organization about the relationship building with customers learning about the job and all
other formal trainings.
 Assessing internal candidates: An organization should check properly about the candidate
and evaluate their abilities on CEO responsibilities.
 Benchmarking against external talent: To create a benchmark both external and internal
candidate need to be compared neutrally without notifying them. It will be helpful to identify
the potentially of the candidates separately.
 Changing CEO by regulatory action: as far financial institution act 1993, regulatory
authority can change a CEO of any financial institution. It could be done in very rare and
abnormal situation.
Module-D
Question 15. Define CAR. What are the importance and implications of CAR?
Answer: Capital Adequacy refers to maintain sufficient capital to absorb a reasonable amount of
losses from liabilities credit risks and operational risks as a cushion before they become insolvent. The
capital adequacy ratio measures the ability of a bank to meet its obligations by comparing its capital
to its assets. As per regulatory guidelines banks have to maintain a prescribed rate of capital as
compared to its weighted risks. This rate is called the capital adequacy ratio (CAR). Capital Adequacy
Ratio (CAR) is the measurement ratio that assesses the ability of banks to absorb losses.
TIER 1 CAPITAL + TIER 2 CAPITAL

CAR =
RISK WEIGHTED ASSETS
The importance and implications of CAR: The minimum capital adequacy ratios (CARs) are critical
to the banks because:
 Ensures that bank have enough fund to cover the losses from various risk before it become in
 It also ensures that the efficiency and stability by lowering the risk of banks becoming insolvent.
 High capital adequacy ratio is considered safe and likely to meet its financial obligations.
 The higher the bank‘s capital adequacy ratio, the higher the degree of protection of depositor's
assets.
 A high CAR can improve a bank's reputation and creditworthiness, as it signals to investors,
customers, and regulators that the bank is well-managed and financially sound.
Overall, the capital adequacy ratio is an important measure of a bank's financial health and is closely
monitored by regulators and investors. It helps to ensure that banks are operating in a safe and sound
manner, and it can help to prevent financial crises by identifying and addressing potential risks in the
banking system.
Question 16. What assets a commercial bank maintain?

Answer: Assets of a bank reflects the sources of its funds. Main source of fund is customer deposit as
well as borrowings from other banks, capital, reserves and surplus. This deposits holds 80% of the
total sources of funds which come mainly from savings, current and term deposits. Out of the total
deposits, term deposits is above 50 per cent. Borrowings are normally around 5 per cent of the total
liabilities. The following various types of assets a bank holds:
 Cash: These are the most liquid assets held by commercial banks and include cash, balances
with central banks, and treasury bills. These assets are typically held to meet day-to-day
liquidity requirements and to settle transactions.
 Money at Call at Short Notice: Money that lent to other banks and financial institutions for
a very short period varying from 1 to 14 days.
 Investments: It means are bonds and shares that have been acquired for investment purposes.
investments in securities usually classified under three heads:
 Government securities: The treasury bills, national savings certificates
 Other approved securities: Securities approved under the provisions of the Banking
Companies Act, 1991
 Other securities: Money-market securities for quick conversion to cash.
 Loans, Advances and Bills Discounted-or Purchased: This includes various types of loans
such as personal loans, home loans, auto loans, and business loans. They are the principal
component of bank assets and the main source of income of banks. Various forms of credits
are given under:
 Cash Credit: Cash credit is the main form of bank credit.
 Overdrafts: Is an advance given by allowing a customer to overdraw his current
account up to agreed limit.
 Demand Loans: The loans that become repayable on demand by the bank.
 Time Loans: Fixed term one-time loan for a short period which may vary for few
months up to a maximum period of a year.
 Term Loans: Loan with a fixed maturity period of more than one year.
 Fixed Assets: Fixed assets are the tangible assets or property, plant, and equipment that are
purchased for long-term use and are not likely to be converted into cash easily.
The types and composition of assets held by a commercial bank depend on the bank's business model,
the economic environment, and regulatory requirements. There are other assets like investment in
subsidiaries, advance payment of tax, account receivables, interest income receivables, investment in
shares, prepaid expenses, security deposits, advance against rent, stock of stationeries etc. that a bank
can maintain.
Question 17. What do we understand by problem asset? How problem asset

management works?
Answer: The term "Problem asset" is mentioned in the Basel framework under Principle 18 of Core
Principles for Effective Banking Supervision. An asset is defined as a problem asset when there is
reason to believe that all amounts due, including principal and interest, will not be collected in
accordance with the contractual terms of the agreement. They typically include non-performing loans
(NPLs) and other assets that are either impaired or have the potential to become impaired.
Managing problem asset: Problem asset management is a process that involves identifying,
assessing, and managing assets that are at risk of becoming non-performing or impaired. The process
typically involves the following steps:
 Identification: As per existing regulations the problem assets are to be classified as under:
 Special Mention: Special Mention (SM) assets are loans that show potential weakness,
but their repayment is not yet classified as a Non-Performing Loan (NPL).
 Substandard: These are assets that have been identified as non-performing or
impaired, but still have a reasonable chance of recovery.
 Doubtful: These are assets that have been identified as non-performing or impaired,
and the bank has serious doubts about the borrower's ability to repay the loan.
 Bad and Loss: These are assets that have been identified as non-performing or
impaired, and the bank has concluded that the recovery of the loan is unlikely.
 Assessment: Once potential problem assets have been identified, the bank will assess the level
of risk associated with each asset. This may involve evaluating the borrower's financial
position, the value of the collateral securing the loan, and other relevant factors to determine
the likelihood of recovery.
 Action: Based on the assessment, the bank will take action to manage the problem asset. This
may involve loan restructuring, debt recovery, sale of assets, or write-offs.
 Implement an independent SAM unit reporting directly to CRO/CFO and informing the risk
function.
 Allocate each case to one collection officer, responsible for the case from start to final
settlement.
 Assign all cases of a single debtor to one person.
 Review and adjust collection officers portfolios based on workload and number.
 Invest in improving collection officer’s negotiation skills and legal knowledge.
 Design a specific collection path for complex cases or cases with high exposure.
 Link collection officer’s compensation package to their individual performance.
 Do not design an aggressive incentive scheme as it might foster unethical activities that may
harm the bank‘s image.
SHORT NOTE
CAPITAL
Capital refers to the money or other assets that are used to start, operate, or expand a business or
investment. In the financial context, capital can refer to the funds that banks and other financial institutions
use to operate, manage risks, and lend money to borrowers. In Bangladesh, banks are required to maintain
a minimum amount of capital as per the guidelines set by the Bangladesh Bank, the country's central bank.
LIQUIDITY
Liquidity is the ability of a bank or financial institution to meet its short-term obligations without incurring
significant losses. It refers to the availability of funds or assets that can be easily converted into cash. In
Bangladesh, banks are required to maintain a certain level of liquidity as per the guidelines set by the
Bangladesh Bank.
ASSETS
Assets are resources or properties that have economic value and can be owned or controlled by an
individual, business, or institution. In the context of banking, assets can refer to loans, investments, and
other financial instruments that generate income for the bank. Banks in Bangladesh are required to
maintain a certain level of quality assets as per the guidelines set by the Bangladesh Bank.
CAPITAL ADEQUACY
Capital Adequacy refers to the amount of capital that a bank or financial institution must maintain in order
to cover potential losses from its operations. In Bangladesh, banks are required to maintain a minimum
level of capital adequacy as per the guidelines set by the Bangladesh Bank.
LIQUIDITY PROFILE
Liquidity profile refers to the composition and quality of a bank's liquid assets and liabilities. It provides
information about a bank's ability to meet its short-term obligations and manage its liquidity risks. Banks
in Bangladesh are required to maintain a certain level of liquidity profile as per the guidelines set by the
Bangladesh Bank.
ASSET COMPOSITION
Asset composition refers to the mix of assets held by a bank or financial institution. It provides information
about the level of risk and return associated with a bank's portfolio of assets. Banks in Bangladesh are
required to maintain a certain level of asset composition as per the guidelines set by the Bangladesh Bank.
RISK-WEIGHTED ASSETS (RWA)

RWA refers to the total amount of assets held by a bank or financial institution that are weighted according
to their risk level. It is used to calculate a bank's capital adequacy ratio (CAR), which measures its ability
to absorb potential losses. Banks in Bangladesh are required to calculate and report their RWA as per the
guidelines set by the Bangladesh Bank.
LIABILITY AND ASSET DRIVES

Liability and asset drives refer to the factors that drive the growth of a bank's liabilities and assets,
respectively. It provides information about a bank's sources of funding and its lending activities. Banks in
Bangladesh are required to manage their liability and asset drives as per the guidelines set by the
Bangladesh Bank.
MANAGING PROBLEM ASSETS

Managing problem assets refers to the process of identifying, evaluating, and resolving non-performing
assets (NPAs) held by a bank or financial institution. It involves strategies such as restructuring, recovery,
and disposal of NPAs. Banks in Bangladesh are required to manage their problem assets as per the
guidelines set by the Bangladesh Bank.
Module E
Question 18. What are the components of ERM.
Answer: Enterprise risk management is the process of planning, organizing, directing and controlling
the activities of an organization to minimize the harmful effects of risk on its capital and earnings.
Enterprise risk management includes financial risks, strategic risks, operational risks and risks
associated with accidental losses.
Financial experts have identified the following components of an Enterprise Risk Management
Framework for Banks:
Code of conduct Setting objective and goals Identify Assess

Response Checks and balances Information and communication Monitoring
Question 19. Describe the benefits of maintaining effective ERM.

Answer: Enterprise Risk Management, is a process that helps organizations identify, assess, and
manage risks across the entire organization. Here are some benefits of implementing ERM:
 Ensures compliance:
 ERM helps a business to remain compliant and to reduce loss, support growth, and
improve profitability.
 ERM can create a culture to place importance in long term success and proactive risk
management rather than short term success.
 See Risk as Opportunity:
 ERM helps organizations to identify emerging risks that may present opportunities for
growth or competitive advantage.
 ERM helps organizations to develop new products and services that are resilient to risks.
 By the help of ERM, organizations can reduce costs, increase efficiency, and improve
their reputation, all of which can provide a competitive advantage.
 Better Decisions: ERM helps in management decision regarding risk factors, possible new
risks, and strategies to combat or work with risk.
 Change the Risk Culture: For ERM the company becomes more aware of possible future risks
and management can take precautions to reduce possible risk.
Question 20. What are the key requirements of ERM?

Answer: International management consultancy firm McKinsey & Company highlighted few key
capabilities for successful implementation of ERM. They mentions the following factors:
 Risk insight and transparency: It enable an organization to identify and assess potential risks,
develop appropriate risk mitigation strategies, and communicate the results of those efforts to
stakeholders.
 Risk appetite and strategy: Risk appetite refers to the level of risk that an organization is
willing to accept in pursuit of its strategic objectives.
 Risk-related decisions and processes: Develop strategies and action plans to manage or
mitigate identified risks within the organization.
 Risk organization and governance: Continuously monitor and assess the effectiveness of risk
management strategies and adjust as needed to remain within the organization.
 Risk culture and performance transformation: By improving risk culture and performance
transformation, organizations can build a strong foundation for effective risk management,
improve their performance, and achieve their strategic objectives while minimizing potential
losses.
Question 21. What is risk appetite? Describe the benefits of articulating risk appetite.
Answer: Risk appetite refers to the level of risk that an organization is willing to accept in pursuit of
its strategic objectives. It is a key component of an organization's risk management framework and
helps to ensure that risk-taking is aligned with the organizations overall goals and objectives. Risk
appetite can also be described as a bank's risk capacity, or the maximum amount of remaining risk it
will accept after controls and other measures have been put in place.
A well-developed risk appetite statement and process can:
 Help a company better manage and understand its risk exposure
 Help management make informed risk-based decisions
 Help management allocate resources and understand risk/benefit trade-offs
 Help improve transparency for investors, stakeholders, regulators and credit rating
agencies.
Question 22. What are the material risks?

Answer: Material risk refers to a risk that has the potential to significantly impact an organization's
financial or operational performance, reputation, or stakeholder relationships. Material risks can arise
from a variety of sources, including external factors such as economic conditions, regulatory changes,
natural disasters, or cyber-attacks, as well as internal factors such as organizational culture, governance,
and operational processes.
Some material risks which can be managed or minimized adopting various measures:
 Credit Risk: Credit risk refers to the probability of loss due to a borrower‘s failure to make
payments on any type of debt.
 Market Risk: Market risk mostly occurs from a bank‘s activities in capital markets. It also
occurs due to the unpredictability of equity markets, commodity prices, interest rates, and credit
spreads.
 Liquidity Risk: Liquidity risk refers to the ability of a bank to access cash to meet funding
obligations.
 Interest Rate Risk: Interest rate risk in bank refers to the current or future risk to the bank's
capital.
 Operational Risk: Operational risk is the risk of loss due to errors, interruptions, or damages
caused by people, systems, or processes.
 Information Technology Risk: It occur due to the choice of faulty or unsuitable technology
and adoption of experimental or outdated technology.
 Legal risk: Legal risk was defined as part of operational risk by the Basel II accord in 2003. It
includes the risk of financial or reputational loss resulting from any type of legal issue.
 Compliance Risk: Compliance risk refers to the risk of legal or regulatory sanctions, financial
loss, or damage to an organization's reputation arising from failure to comply with laws,
regulations, or industry standards.
 Reputation Risk: The risk that the bank might be exposed to negative comment and opinion
due to the violation of applicable regulatory requirements.
 Strategic Risk: Decisions that could potentially stop an organization from achieving its goals.
Question 23. Define the importance of three line of Defense of an organization.

Describe the benefits three lines defense model.
Answer: The three lines of defense is a risk management framework that is commonly used by
organizations to manage risks and ensure effective controls. The framework consists of the following:
1st line of 2nd line of 3rd line of

defense defense defense
• Business • Risk and • Internal
Operations Control Audit
• Enterprise-wise risk Functions • Advisory role to
management • independent risk improve process
control and
compliance
 1st Line of defense:

 Leads and directs actions (including managing risk) and application of resources to achieve
the objectives of the organization.
 Maintains a continuous dialogue with the governing body, and reports on: planned, actual,
and expected outcomes linked to the objectives of the organization; and risk.
 Establishes and maintains appropriate structures and processes for the management of
operations and risk (including internal control).
 Ensures compliance with legal, regulatory, and ethical expectations.
 2nd Line of Defense:
 Provides balancing expertise, support, monitoring, and challenge related to the
management of risk, including:
The development, implementation, and continuous improvement of risk
management practices at a process, systems, and entity level.
The achievement of risk management objectives, such as: compliance with laws,
regulations, and acceptable ethical behavior;
Internal control; information and technology security; sustainability; and quality
assurance.
 Provides analysis and reports on the capability and effectiveness of risk management.
 3rd Line of defense:

 Maintains primary responsibility to the board of directors or the Audit Committee of the
Board.
 The role of internal audit is to provide independent communication and objective assurance
so that an organization’s risk management, governance and internal control processes are
done effectively. They do this by reviewing and evaluating the adequacy and effectiveness
of an organization’s internal controls, risk management process and practice of the
governance.
 Reports weaknesses to independence and objectivity to the Audit Committee and
implements safeguards as required.
Benefits of Three Lines Defense Model:
 Clarity and Accountability: The model provides a clear delineation of roles and responsibilities,
ensuring that each group understands their specific role in managing risk.
 Risk Management Integration: The model encourages integration of risk management activities
throughout an organization, rather than soloing them within specific departments.
 Compliance: The model promotes compliance with regulations by ensuring that there is a clear
line of sight between compliance activities and the overall risk management strategy.
 Efficiency and Effectiveness: By dividing responsibilities for risk management, the model can
improve efficiency and effectiveness. The first line of defense is responsible for day-to-day risk
management, the second line is responsible for oversight and guidance, and the third line is
responsible for independent assurance. This helps to ensure that resources are used in the most
efficient and effective manner.
 Continuous Improvement: The model encourages continuous improvement by establishing a
feedback loop between the different lines of defense.
Question 24. How the 2nd line defense functions can be strength?
Answer: The second line of defense is created of the basic infrastructure processes of support to the
first line of defense and the third line of defense. The second line needs to be strong and independent
because, the first line will be more effective when the second line coordinates their activities. These
functions are critical to an organization's success because they provide a systematic and structured
approach to identifying and managing risks, which can help prevent losses and improve overall
performance.
As per Institute of Internal Auditors some benefits are mentioned below:

 Supporting management policies, defining roles and responsibilities, and setting goals for
implementation.
 Providing risk management frameworks.
 Identifying known and emerging issues.
 Identifying shifts in the organization‘s implicit risk appetite.
 Assisting management in developing processes and controls to manage risks and issues.
 Providing guidance and training on risk management processes. Facilitating and monitoring.
 Implementation of effective risk management practices by operational management.
 Alerting operational management to developing issues and changing regulatory and risk scenarios.
 Monitoring the adequacy and effectiveness of internal control, accuracy and completeness of
reporting, compliance with laws and regulations, and timely solution of deficiencies.
Overall, the second line of defense functions play a critical role in helping organizations manage risks and
comply with regulations and standards by providing expertise, developing risk management strategies,
monitoring risk management activities, ensuring compliance.
Question 25. What are the core principles of regulatory compliance?
Answer: The core principles of regulatory compliance refer to the fundamental guidelines that
organizations must follow to ensure that they meet the legal and regulatory requirements that apply to
their operations. These principles include:
 Strong governance and oversight: An effective compliance program requires strong governance
and oversight, including a dedicated compliance function and a clear organizational structure.
 Risk-based approach: A risk-based approach to compliance involves identifying and prioritizing
the risks that are most relevant to the organization's operations and developing controls to mitigate
those risks.
 Effective policies and procedures: Clear and concise policies and procedures are essential to
ensuring that employees understand their obligations and responsibilities and that the organization
is able to comply with applicable regulations.
 Training and awareness: Employees must be trained on the policies and procedures that are in
place to ensure compliance, and they must be made aware of the consequences of non-compliance.
 Monitoring and testing: An effective compliance program requires ongoing monitoring and testing
to ensure that policies and procedures are being followed and that controls are effective.
 Reporting and escalation: Employees must be encouraged to report compliance issues or concerns,
and there should be a clear process for escalating such issues to the appropriate level of
management.
 Continuous improvement: A compliance program should be subject to regular review and
improvement to ensure that it remains effective in addressing the organization's compliance risks.
Overall, the core principles of regulatory compliance as per McKinsey and Company involve a strong
governance structure, a risk-based approach to compliance, effective policies and procedures, training and
awareness, ongoing monitoring and testing, reporting and escalation, and continuous improvement.
Question 26. What is the significance of ERMF (Enterprise Risk Management

Framework) in the banking industry in Bangladesh?
Answer: The Enterprise Risk Management Framework (ERMF) is significant in the banking industry in
Bangladesh as it provides a structured and systematic approach to identify, assess, and manage risks across
the organization. ERMF helps banks to develop a holistic view of the risks they face, including strategic,
financial, operational, and reputational risks. It enables the bank to establish a risk management culture
that is embedded within the organization, allowing for better decision-making and prioritization of
resources.
ERMF provides a framework for banks in Bangladesh to integrate risk management into their
business operations, making it an integral part of their overall strategy. It also helps banks to align their
risk appetite with their strategic objectives and business goals, ensuring that risk-taking is consistent with
their overall risk tolerance.
Furthermore, ERMF is significant in the banking industry in Bangladesh as it helps banks to
comply with regulatory requirements related to risk management. Bangladesh Bank, the central bank of
Bangladesh, mandates that all banks in Bangladesh implement an ERMF. By implementing ERMF, banks
in Bangladesh can demonstrate to regulators and stakeholders that they are taking proactive steps to
manage risks effectively, enhancing their credibility and reputation.
Question 27. How do banks in Bangladesh ensure effective risk scanning to identify
and mitigate emerging risks?
Answer: Banks in Bangladesh ensure effective risk scanning to identify and mitigate emerging risks by
implementing a structured and comprehensive risk management process. Here are some of the key steps
banks in Bangladesh take to ensure effective risk scanning:
 Develop a risk management framework: Banks in Bangladesh need to develop a risk
management framework that includes risk identification, risk assessment, risk response, and risk
monitoring. This framework should be aligned with the bank's overall strategy and risk appetite.
 Conduct regular risk assessments: Banks in Bangladesh need to conduct regular risk
assessments to identify and prioritize potential risks. These assessments should be comprehensive
and consider various risk factors, including external factors such as economic conditions,
technological advancements, and regulatory changes.
 Use data analytics: Banks in Bangladesh use data analytics to scan large volumes of data to
identify potential emerging risks. They can use data from various sources, including social media,
customer feedback, and market trends, to identify potential emerging risks.
 Collaborate with industry peers: Banks in Bangladesh can collaborate with industry peers to
share information on emerging risks and develop best practices for mitigating them. This
collaboration can take the form of industry associations or forums.
 Implement risk mitigation strategies: Once the emerging risks are identified, banks in
Bangladesh need to implement risk mitigation strategies. These strategies can include improving
operational processes, investing in new technology, and developing contingency plans.
 Monitor and review: Banks in Bangladesh need to monitor and review their risk management
processes regularly. This will help them to identify any gaps or weaknesses in their processes and
take corrective action.
By following these steps, banks in Bangladesh can ensure effective risk scanning to identify and mitigate
emerging risks, ensuring the stability and growth of the banking industry in Bangladesh.
Question 28. Can you explain the concept of risk appetite in the context of
Bangladesh's banking industry?
Answer: Risk appetite is the level of risk that an organization is willing to accept to achieve its strategic
objectives. In the context of Bangladesh's banking industry, risk appetite refers to the amount and type of
risk that banks are willing to take on in pursuit of their strategic goals.
Each bank in Bangladesh has its own unique risk appetite based on its business strategy, size,
complexity, and risk profile. Some banks may be more willing to take on higher levels of risk to achieve
higher returns, while others may have a more conservative approach and prioritize risk mitigation over
growth.
Bangladesh Bank, the central bank of Bangladesh, mandates that all banks in Bangladesh develop
and implement a risk appetite framework that aligns with their overall strategy and objectives. The
framework should be developed in consultation with the board of directors and senior management, and
should be reviewed and updated regularly.
The risk appetite framework should include clear risk tolerance limits, risk limits, and risk
indicators that provide guidance on the acceptable level of risk-taking in different areas of the bank's
operations. It should also include a process for monitoring and reporting on risk appetite and ensuring that
risk-taking remains within the acceptable limits.
The concept of risk appetite is crucial in the banking industry in Bangladesh as it provides a clear
direction on the acceptable level of risk-taking, ensuring that banks maintain a balance between growth
and risk management. It also helps banks to comply with regulatory requirements related to risk
management and demonstrate to stakeholders that they have a sound risk management culture in place.
Question 29. How can banks in Bangladesh develop a strong risk culture to ensure
effective risk management and controls?
Answer: Developing a strong risk culture is crucial for effective risk management and controls in the
banking industry in Bangladesh. Here are some key steps that banks can take to develop a strong risk
culture:
 Leadership commitment: Developing a strong risk culture requires a strong commitment from
senior management and the board of directors. Leaders need to set the tone from the top and
demonstrate their commitment to risk management by actively promoting and supporting a risk-
aware culture.
 Clear communication: Banks in Bangladesh need to communicate their risk management policies
and procedures clearly to all employees. This includes providing training and education on risk
management, highlighting the importance of risk management, and ensuring that employees
understand their roles and responsibilities.
 Reward and recognition: Banks in Bangladesh can incentivize risk management by rewarding
and recognizing employees who demonstrate good risk management practices. This can include
financial incentives, promotions, and public recognition.
 Embedding risk management into business operations: Banks in Bangladesh can embed risk
management into their business operations by integrating risk management into key decision-
making processes, such as product development, credit assessment, and investment decisions.
 Continuous improvement: Banks in Bangladesh need to continuously monitor and evaluate their
risk management processes and controls to identify areas for improvement. This includes
conducting regular risk assessments, monitoring risk indicators, and reviewing incidents and near-
misses.
 Independent oversight: Banks in Bangladesh need to ensure that risk management is subject to
independent oversight, including internal audit and regulatory oversight.
By following these steps, banks in Bangladesh can develop a strong risk culture that promotes effective
risk management and controls, and enhances their reputation and credibility in the marketplace. A strong
risk culture will enable banks to take informed risks, while ensuring that they are operating within
acceptable risk tolerances and limits.
Question 30. What are the material risks that banks in Bangladesh need to manage
effectively, and how can they do it?
Answer: Banks in Bangladesh face a range of material risks that can have a significant impact on their
operations, financial stability, and reputation. Here are some of the key material risks that banks in
Bangladesh need to manage effectively:
 Credit risk: Credit risk is the risk of loss due to the failure of a borrower to repay a loan or meet
other obligations. Banks in Bangladesh need to have robust credit risk management systems in
place, including sound underwriting practices, regular credit monitoring, and effective recovery
procedures.
 Market risk: Market risk is the risk of loss due to changes in market conditions, such as interest
rates, exchange rates, and commodity prices. Banks in Bangladesh need to have effective market
risk management systems in place, including regular stress testing, scenario analysis, and hedging
strategies.
 Liquidity risk: Liquidity risk is the risk of loss due to the inability of a bank to meet its funding
requirements. Banks in Bangladesh need to have adequate liquidity risk management systems in
place, including maintaining adequate liquid assets, monitoring liquidity positions, and stress
testing.
 Operational risk: Operational risk is the risk of loss due to inadequate or failed internal processes,
systems, or external events. Banks in Bangladesh need to have effective operational risk
management systems in place, including sound internal controls, regular risk assessments, and
business continuity plans.
 Cybersecurity risk: Cybersecurity risk is the risk of loss due to cyber threats, including data
breaches, hacking, and cyber-attacks. Banks in Bangladesh need to have effective cybersecurity
risk management systems in place, including regular vulnerability assessments, training for
employees, and incident response plans.
To manage these material risks effectively, banks in Bangladesh need to have a robust risk management
framework in place that includes the following:
 Regular risk assessments to identify potential risks and assess their potential impact.
 Clear risk policies and procedures that are aligned with the bank's overall strategy and risk appetite.
 Effective risk monitoring systems that provide timely information on emerging risks and changes
in risk profiles.
 Adequate capital and liquidity buffers to absorb potential losses.
 Regular stress testing and scenario analysis to assess the bank's resilience to potential shocks.
 Regular reporting and disclosure to regulators and other stakeholders.
 By effectively managing material risks, banks in Bangladesh can ensure their financial stability
and sustainability, and maintain the confidence of their stakeholders.
Question 31. How can banks in Bangladesh ensure appropriate implementation of
the three lines of defense to manage risks effectively?
Answer: The three lines of defense is a framework that enables banks to manage risks effectively by
assigning responsibilities for risk management across different levels of the organization. Here are some
key steps that banks in Bangladesh can take to ensure appropriate implementation of the three lines of
defense:
 First line of defense: The first line of defense is responsible for identifying and managing risks
within business operations. Banks in Bangladesh need to ensure that their first line of defense is
adequately staffed with individuals who have the necessary skills and expertise to manage risks
effectively. This includes ensuring that staff are aware of the bank's risk management policies and
procedures, and that they have the necessary tools and resources to manage risks.
 Second line of defense: The second line of defense is responsible for overseeing risk management
activities and providing independent risk oversight. Banks in Bangladesh need to ensure that their
second line of defense functions, such as risk management, compliance, and audit, are adequately
staffed with individuals who have the necessary skills and expertise to provide effective oversight.
This includes ensuring that the second line of defense functions are independent and have the
necessary resources to perform their oversight responsibilities effectively.
 Third line of defense: The third line of defense is responsible for providing independent assurance
that risk management processes are effective. Banks in Bangladesh need to ensure that their
internal audit function is adequately staffed with individuals who have the necessary skills and
expertise to provide independent assurance. This includes ensuring that the internal audit function
has the necessary resources to perform its responsibilities effectively and that its findings and
recommendations are acted upon.
 Clear roles and responsibilities: Banks in Bangladesh need to ensure that roles and
responsibilities for risk management are clearly defined and communicated across the
organization. This includes ensuring that staff understand their roles and responsibilities for
managing risks and that there is a clear escalation process for reporting risks and issues.
 Regular review and assessment: Banks in Bangladesh need to regularly review and assess their
three lines of defense framework to ensure that it remains effective and aligned with the bank's
overall risk management strategy. This includes conducting regular assessments of the
effectiveness of each line of defense and making any necessary adjustments.
By following these steps, banks in Bangladesh can ensure appropriate implementation of the three lines
of defense framework and manage risks effectively. A well-functioning three lines of defense framework
can help banks to identify and manage risks proactively, reduce losses, and enhance their reputation and
credibility in the marketplace.
Question 32. What are the key challenges faced by banks in Bangladesh in complying
with regulatory requirements related to risk management and controls?
Answer: Banks in Bangladesh face a range of challenges in complying with regulatory requirements
related to risk management and controls. Some of the key challenges include:
 Lack of skilled professionals: There is a shortage of skilled professionals in Bangladesh with the
necessary expertise in risk management and compliance. Banks may struggle to find and retain
staff with the appropriate skills and experience, making it difficult to implement effective risk
management practices.
 Inadequate technology: Many banks in Bangladesh rely on outdated technology infrastructure,
which can make it difficult to implement effective risk management processes. This may include
challenges in capturing and analyzing data, implementing automated risk monitoring and reporting
systems, and integrating different technology platforms across different departments and
functions.
 Insufficient resources: Some banks in Bangladesh may lack the resources, including staff, budget,
and technology, to implement and maintain effective risk management and control systems. This
can create challenges in identifying and mitigating risks effectively, complying with regulatory
requirements, and ensuring that risk management practices are sustainable over the long term.
 Cultural and organizational barriers: There may be cultural and organizational barriers to
implementing effective risk management practices in some banks in Bangladesh. This may include
a lack of awareness or understanding of risk management principles, resistance to change, and
difficulty in aligning risk management practices with business objectives.
 Evolving regulatory landscape: The regulatory landscape for banks in Bangladesh is constantly
evolving, with new and updated regulations being introduced regularly. This can create challenges
for banks in keeping up with the latest regulatory requirements and ensuring that their risk
management and control systems remain compliant.
Overall, banks in Bangladesh need to address these challenges in order to comply with regulatory
requirements related to risk management and controls effectively. This may involve investing in
technology and infrastructure, recruiting and training skilled professionals, and developing a strong risk
management culture and organizational structure.
Question 33. How can banks in Bangladesh effectively manage emerging risks and
ensure regulatory compliance at the same time?
Answer: Banks in Bangladesh can effectively manage emerging risks and ensure regulatory compliance
by adopting a proactive and integrated approach to risk management. Here are some key steps that banks
can take:
 Establish a risk governance framework: Banks in Bangladesh should establish a risk

governance framework that defines the roles and responsibilities of different stakeholders involved
in managing risks, including the board of directors, senior management, risk management function,
and other departments.
 Identify and assess emerging risks: Banks in Bangladesh need to identify and assess emerging
risks by using a range of tools and techniques, such as scenario analysis, stress testing, and horizon
scanning. This can help banks to stay ahead of potential risks and take appropriate measures to
mitigate them.
 Define risk appetite: Banks in Bangladesh should define their risk appetite, which is the level of
risk that they are willing to accept in pursuit of their business objectives. The risk appetite should
be aligned with the bank's strategic objectives and should be communicated throughout the
organization.
 Implement risk controls: Banks in Bangladesh should implement risk controls to mitigate
identified risks. This can include measures such as risk limits, monitoring and reporting systems,
and risk mitigation plans.
 Embed risk management in the organizational culture: Banks in Bangladesh should embed
risk management in the organizational culture by developing a strong risk culture that encourages
risk awareness and accountability at all levels of the organization.
 Ensure regulatory compliance: Banks in Bangladesh should ensure that their risk management
practices are compliant with regulatory requirements by regularly monitoring and reporting on
their risk management activities.
By adopting these steps, banks in Bangladesh can effectively manage emerging risks and ensure
regulatory compliance at the same time. This can help banks to enhance their reputation, improve their
risk-adjusted performance, and ensure sustainable growth over the long term.
Question 34. Can you explain the importance of internal audit in ensuring effective
risk management and controls in banks operating in Bangladesh?
Answer: Internal audit is an important function in ensuring effective risk management and controls in
banks operating in Bangladesh. The internal audit function is responsible for providing independent
and objective assurance that the bank's risk management and control processes are working effectively
and in compliance with regulatory requirements. Here are some key reasons why internal audit is
important in the context of risk management and controls in Bangladesh's banking industry:
 Provides independent assurance: The internal audit function provides independent assurance
to the board of directors and senior management that the bank's risk management and control
processes are working effectively. This helps to ensure that the bank is managing risks in
accordance with its risk appetite and regulatory requirements.
 Evaluates effectiveness of risk management processes: Internal audit evaluates the
effectiveness of the bank's risk management processes, including the identification, assessment,
and mitigation of risks. This helps to identify areas where improvements can be made and
ensures that the bank's risk management practices are aligned with its strategic objectives.
 Identifies emerging risks: Internal audit can help banks to identify emerging risks by
conducting risk assessments and horizon scanning. This helps the bank to stay ahead of potential
risks and take appropriate measures to mitigate them.
 Ensures compliance with regulatory requirements: Internal audit helps to ensure that the
bank's risk management and control processes are compliant with regulatory requirements. This
can help the bank to avoid regulatory fines and reputational damage associated with non-
compliance.
 Improves operational efficiency: Internal audit can help to improve the operational efficiency
of the bank by identifying areas where processes can be streamlined and automated. This can
reduce the risk of errors and improve the accuracy of data used in risk management and control
processes.
Overall, internal audit plays a critical role in ensuring effective risk management and controls in banks
operating in Bangladesh. By providing independent assurance, evaluating the effectiveness of risk
management processes, identifying emerging risks, ensuring compliance with regulatory requirements,
and improving operational efficiency, internal audit helps banks to manage risks effectively and achieve
their strategic objectives.
Module F
Short Notes
BROKERAGE
Brokerage refers to the process of facilitating buying and selling transactions between buyers and sellers
of financial assets such as stocks, bonds, currencies, and commodities. A brokerage firm acts as an
intermediary between the buyer and seller and earns a commission or fee for its services. For doing
brokerage business banks have to purchase brokerage license from stock exchanges and to become a
member of the exchanges. Brokerage house operates the business activities by following ways:
 Brokerage Service: The Company trade shares on behalf of clients in exchange of trade
commission as set by BSEC. There are two types of account:
 Non Margin Account: No loan facility is provided for trading shares.
 Margin Account: Clients are allowed loan facility for share trading.
 Dealer Service. (Stock Dealer): The Company itself can trade shares for its own portfolio to earn
capital gain and dividend.
MERCHANT BANKING
Merchant banking is a type of financial service that involves providing customized financial solutions and
advice to companies, institutions, and governments. Merchant banks typically specialize in a range of
services, including corporate finance, underwriting, trading, and investment management. Merchant Bank
acts as a medium between small investors and companies. Bangladesh Securities and Exchange
Commission issues license for merchant Banking operation. The operation is guided by the Securities and
Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996 se (2) (1).
In our country, Merchant Banks mainly provide the following services:
 Issue Management Services: Issue management includes preparing prospectus, correspondence
with SEC regarding IPO, collecting IPO applications, performing allotment through lottery or
other measures, managing placements, listing the Company with DSE/CSE and distributing
refund.
 Underwriting Services: Merchant Banks assures that if the issue is under-subscribed, Merchant
Bank will purchase the unsubscribed shares at a predetermined price. This service is known as
underwriting service.
 Portfolio Management Services: A portfolio is usually a combination of investment in the Capital
Market. The Portfolio Manager acts as the custodian of shares of the clients, provides them
information and helps them constricting a portfolio that minimizes risk and maximizes return.
 Structured finance: Structured finance is a form of financial intermediation in cases of complex
financing needs, which cannot be ordinarily solved with conventional financing.
CUSTODIAL SERVICES
Custodial services refer to the safekeeping and management of assets, such as securities, cash, and other
financial instruments, on behalf of clients. Custodians are responsible for the administration and settlement
of transactions involving these assets and may also provide additional services such as record-keeping and
reporting.
In Bangladesh the true custodial services are not available in the banks excepting locker service. The stock
or securities custodial services are provided by an organization named Central Depository Bangladesh
Ltd, owned by the banks, FIs, stock exchanges etc., which performs the custodial service only share of the
investors.
OFFSHORE BANKING UNIT (OBU)

Off shore banking means international banking business involving foreign currency denominated assets
and liabilities and is kept separate from domestic banking business. An off shore bank is a bank located
outside the country of residence of the depositor, typically in a low tax authority that provides financial &
legal advantages. Any banking unit means offshore banking unit (OBU).
 Features of OBU
 An independent unit of the bank
 Transaction in foreign currency
 Local capital requirement in low
 Profit rate is LIBOR plus 2 to 4%
 Types of off-shore banking:
 Paper center
 Functional center
 Functions of off-shore banking:
 Deposit taking
 Investment
 Wire & electronic fund transfer
 Fund management
 L/C & trade finance
 Foreign exchange
 Corporate administration
 Trustee services
 Advantage
 Greater privacy
 Low / no taxation
 Easy access to deposits
 Protection against local political / financial instability
 Disadvantage
 Physical access costly & difficult
 Money laundering, terrorism is available
ISLAMIC WINDOW
An Islamic bank is entirely operated using Islamic principles, while an Islamic window refers to services
that are based on Islamic principles that are provided by a conventional bank. A separately incorporated
Islamic subsidiary of a conventional bank is not treated as a window but as a full-fledged Islamic bank.
Islamic Window refers to a banking service that offers Islamic financial products and services in
compliance with Shariah law. These products and services follow the principles of Islamic finance, which
prohibits the payment or receipt of interest (riba) and promotes risk-sharing and asset-backed financing.
MOBILE FINANCIAL SERVICES (MFS)

Mobile Financial Services (MFS) is a technique of delivering financial services that combines banking
with mobile wireless networks, enabling customers to conduct banking and other financial transactions
using their cell-phones. Mobile banking provides banking services to the customer at any time, from
anywhere through a mobile device such as a mobile phone or tablet.
 Service of Mobile Banking :

 Cash in (deposit)
 Cash Out (withdraw)
 Fund Transfer from one account to another
 Merchant Payment
 Mobile Recharge (Top-Up)
 Balance Check
 Mini Statement Check
 PIN Number Change
 Merchant /Utility Payment
 DPS/Loan installment Payment
 Salary Disbursement
 Foreign Remittance
AGENT BANKING
Agent banking means providing limited scale banking and financial services to the underserved population
through engaged agents under a valid agency agreement, rather than a teller/ cashier. It is the owner of an
outlet who conducts banking transactions on behalf of a bank. It works on behalf of a full-fledged
commercial bank. The main features of agent banking guidelines are quoted below:
 Small value cash deposits and cash withdrawals

 Inward foreign remittance disbursement
 Small value loan disbursement and recovery of loans
 Utility bill payment
 Cash payment
 Facilitating fund transfer
 Balance inquiry
 Processing of loan application, credit and debit card application from
 Monitoring of loans advances and recovery
 Receiving of clearing cheque etc.
Question 35. Describe the importance of MFS in digital agenda.

Answer: Mobile Financial Services (MFS) have become a critical component of the digital agenda for
many countries, including Bangladesh. MFS refers to the use of mobile phones and other digital devices
to enable financial transactions and access to financial services. There are several reasons why MFS is
important for the digital agenda:
 Financial inclusion: MFS has the potential to increase financial inclusion, by providing access to
financial services to people who are excluded from the formal banking system. This can help to
reduce poverty and promote economic development.
 Convenience: MFS is convenient for customers, as it allows them to access financial services
from their mobile phones or other digital devices, without having to visit a bank branch.
 Lower costs: MFS is often less expensive than traditional banking services, as it does not require
the same level of infrastructure and investment as traditional banks.
 Innovation: MFS is a source of innovation in the financial sector, and has led to the development
of new products and services that are better suited to the needs of digital consumers.
 Data analysis: MFS generates a vast amount of data, which can be used for analysis and insights
into consumer behavior and financial trends.
In Bangladesh, MFS has played a key role in promoting financial inclusion, particularly in rural areas.
It has enabled people to access banking services, make payments, and transfer money, without having to
travel long distances to a bank branch. MFS has also been a driver of innovation in the financial sector,
with the development of new products and services that are better suited to the needs of digital consumers.
Overall, MFS is an important component of the digital agenda, and has the potential to transform the
financial sector in Bangladesh and other countries. By promoting financial inclusion, convenience,
innovation, and data analysis, MFS is helping to create a more inclusive and dynamic financial ecosystem
that can support economic development and growth.
Question 36. What is the core philosophy of agent banking? Why has it become so
popular and preferred to traditional branch banking?
Answer: The core philosophy of agent banking is to provide financial services to people who are
underserved by traditional branch banking. Agent banking involves the use of agents, who are typically
local businesses or individuals, to provide basic financial services such as deposits, withdrawals, and
transfers to customers in their communities. The agents act as intermediaries between the banks and the
customers, and are equipped with mobile devices or point-of-sale (POS) terminals to facilitate
transactions.
Agent banking has become popular and preferred to traditional branch banking for several reasons:
 Accessibility: Agent banking provides greater accessibility to financial services, particularly for
people who live in remote areas or who have limited mobility. Agents are often located in places
where traditional banks do not have branches, making it easier for customers to access financial
services.
 Convenience: Agent banking is more convenient for customers, as they can access financial
services at any time and in any location. They do not have to travel to a bank branch, which can
be time-consuming and expensive.
 Lower costs: Agent banking is less expensive than traditional branch banking, as it does not
require the same level of infrastructure and investment. This allows banks to offer services at lower
costs, which can be passed on to customers in the form of lower fees and charges.
 Trust: Agents are often members of the local community, which can help to build trust with
customers. This is particularly important in areas where there is a lack of trust in banks or financial
institutions.
 Financial inclusion: Agent banking is a key tool for promoting financial inclusion, by providing
access to basic financial services to people who are excluded from the formal banking system.
This can help to reduce poverty and promote economic development.
In summary, the core philosophy of agent banking is to provide greater accessibility, convenience, and
lower costs to customers, particularly those who are underserved by traditional branch banking. By
leveraging the trust and local knowledge of agents, agent banking is a powerful tool for promoting
financial inclusion and economic development.
Question 37. What are the regulatory requirements for establishing a subsidiary in
Bangladesh, and how do these requirements differ from those in other countries?
Answer: To establish a subsidiary in Bangladesh, foreign investors must comply with the country's
foreign investment regulations. The Bangladesh Investment Development Authority (BIDA) is the
primary agency responsible for approving and registering foreign investment in the country.
The regulatory requirements for establishing a subsidiary in Bangladesh include:
 Obtaining approval from BIDA: All foreign investment in Bangladesh must be approved by
BIDA, which assesses the investment proposal and determines whether it meets the criteria for
approval.
 Incorporating the subsidiary: Once the investment proposal is approved, the foreign investor
must register the subsidiary with the Registrar of Joint Stock Companies and Firms (RJSC) and
obtain a certificate of incorporation.
 Obtaining necessary permits and licenses: The subsidiary must obtain any necessary permits
and licenses from relevant government agencies, such as the Bangladesh Bank and the National
Board of Revenue.
 Opening a bank account: The subsidiary must open a bank account in a local bank and deposit
the minimum required capital.
 Complying with labor laws: The subsidiary must comply with Bangladeshi labor laws, including
those related to minimum wage, working conditions, and social security contributions.
The regulatory requirements for establishing a subsidiary in Bangladesh are similar to those in other
countries, although the specific requirements may vary depending on the country and industry. Some
countries may require additional approvals or permits, or may have more stringent requirements for
foreign investors. It is important for foreign investors to understand the regulatory environment in
Bangladesh and seek legal and professional advice before establishing a subsidiary in the country.
Question 38. How has the brokerage industry in Bangladesh evolved over the past
decade, and what challenges and opportunities do brokerage firms face today?
Answer: The brokerage industry in Bangladesh has undergone significant changes over the past decade.
The industry has seen a gradual shift towards digitization and automation, with the introduction of online
trading platforms and the adoption of mobile technologies. This has led to increased competition among
brokerage firms and a greater focus on customer service and user experience.
One of the major challenges facing brokerage firms in Bangladesh is the low level of investor
awareness and education. Many potential investors lack the knowledge and skills required to make
informed investment decisions, which can lead to high levels of risk and volatility in the market. As a
result, brokerage firms must invest in educational initiatives and marketing campaigns to attract and retain
customers.
Another challenge for brokerage firms in Bangladesh is the regulatory environment. The
Bangladesh Securities and Exchange Commission (BSEC) has introduced a number of new regulations
and guidelines in recent years aimed at improving market transparency and investor protection. While
these measures are positive for the long-term growth and stability of the market, they can also create
compliance challenges and increase operational costs for brokerage firms.
Despite these challenges, the brokerage industry in Bangladesh also presents significant
opportunities for growth and innovation. The market is relatively underdeveloped compared to other
emerging economies, which means there is room for new entrants and innovative business models.
Brokerage firms that can differentiate themselves through technological innovation, customer service, and
educational initiatives are well-positioned to capture market share and grow their business in the long
term.
Question 39. What role do merchant banks play in the Bangladeshi economy, and how
do they differ from traditional commercial banks?
Answer: Merchant banks in Bangladesh play an important role in the country's economy by providing a
range of financial services to businesses and investors. Unlike traditional commercial banks, which
primarily offer deposit and loan services to individual customers, merchant banks focus on providing
financial advice, investment banking services, and other specialized services to corporate clients.
Merchant banks in Bangladesh typically offer the following services:
 Investment banking: This includes underwriting and advising on mergers and acquisitions, initial
public offerings (IPOs), and other capital market transactions.
 Corporate finance: Merchant banks provide financial advice and assistance to corporations on
issues such as capital structure, financing strategy, and risk management.
 Project finance: Merchant banks help to finance large-scale infrastructure projects such as power
plants, highways, and airports, often in partnership with other banks and financial institutions.
 Trade finance: Merchant banks provide financing and other support to businesses engaged in
international trade, including letters of credit, export financing, and foreign exchange services.
 Advisory services: Merchant banks offer a range of advisory services to clients, including
business valuation, feasibility studies, and market research.
Merchant banks in Bangladesh differ from traditional commercial banks in several ways. First,
merchant banks typically serve corporate clients rather than individual customers, and their services are
more specialized and tailored to the needs of these clients. Second, merchant banks are often more focused
on investment banking and corporate finance services, whereas commercial banks are more focused on
traditional banking services such as deposits and loans. Finally, merchant banks may have a smaller branch
network and may be more concentrated in urban areas where their corporate clients are based.
Question 40. How have custodial services providers in Bangladesh adapted to changes
in the regulatory environment, and what impact has this had on the industry?
Answer: Custodial services providers in Bangladesh have had to adapt to a changing regulatory
environment in recent years, as the Bangladesh Securities and Exchange Commission (BSEC) has
introduced new regulations aimed at improving transparency and investor protection in the capital market.
These changes have had a significant impact on the custodial services industry, requiring providers to
upgrade their systems and processes to comply with new regulations and standards.
One of the key changes in the regulatory environment has been the requirement for custodial
services providers to comply with international standards for custodian banks. The BSEC has adopted the
International Securities Services Association (ISSA) standards for custodian banks, which require
providers to meet rigorous standards for risk management, operational efficiency, and transparency.
Custodial services providers in Bangladesh have had to invest in new systems and processes to meet these
standards, which has led to higher costs and increased competition in the industry.
Another change in the regulatory environment has been the introduction of new rules for the
custody of securities. The BSEC has introduced rules requiring custodial services providers to segregate
client assets and maintain separate records for each client. This has improved transparency and reduced
the risk of fraud and mismanagement in the industry, but has also increased compliance costs for providers.
Despite these challenges, the custodial services industry in Bangladesh has continued to grow and
expand, driven by the increasing demand for professional custodial services in the capital market.
Custodial services providers have responded to the changing regulatory environment by investing in new
technologies and services to meet the evolving needs of their clients, such as providing real-time reporting
and analytics. Overall, the industry has become more competitive and professional, which has benefited
both investors and issuers in the capital market.
Question 41. What are the benefits and risks of establishing an offshore banking unit
(OBU) in Bangladesh, and how do these compare to other offshore jurisdictions?
Answer: Establishing an offshore banking unit (OBU) in Bangladesh can offer several benefits, including
tax advantages, reduced regulatory oversight, and access to a pool of skilled labor. However, there are
also risks and challenges associated with operating an OBU, both in Bangladesh and in other offshore
jurisdictions.
Benefits of establishing an OBU in Bangladesh:
 Tax advantages: OBUs in Bangladesh enjoy several tax benefits, including exemptions from
income tax and value-added tax (VAT) on transactions with non-residents.
 Reduced regulatory oversight: OBUs in Bangladesh are subject to less stringent regulatory
requirements than traditional banks, which can reduce compliance costs and increase operational
flexibility.
 Access to a pool of skilled labor: Bangladesh has a large pool of skilled workers, including IT
professionals and financial experts, who can help to support the operations of an OBU.
Risks of establishing an OBU in Bangladesh:
 Political and economic instability: Bangladesh has experienced political and economic
instability in the past, which can create risks for OBUs operating in the country.
 Limited infrastructure: Bangladesh's infrastructure is still developing, which can create
challenges for OBUs in terms of accessing reliable telecommunications and transportation
services.
 Limited market size: OBUs in Bangladesh may face challenges in finding enough clients to
sustain their operations, as the country's market size is relatively small compared to other offshore
jurisdictions.
Comparing Bangladesh to other offshore jurisdictions:
Compared to other offshore jurisdictions such as the Cayman Islands, Singapore, and Hong Kong,
Bangladesh may offer lower costs and a larger pool of skilled labor, but may also have a less established
financial industry and regulatory environment. Each jurisdiction has its own benefits and risks, and the
decision to establish an OBU in a particular location will depend on a variety of factors, including the
nature of the business, the target market, and the regulatory environment.
Question 42. What are the key features of Islamic banking in Bangladesh, and how has
this sector grown in recent years?
Answer: Islamic banking is a rapidly growing sector in Bangladesh, with several banks and financial
institutions offering a range of Shariah-compliant products and services to customers. The key features of
Islamic banking in Bangladesh include:
 Shariah-compliant products: Islamic banks in Bangladesh offer a range of Shariah-compliant

products, such as Murabaha, Musharaka, Ijarah, and Mudarabah, which are based on profit and
loss sharing rather than interest-based lending.
 Governance by Shariah Supervisory Committee: Islamic banks in Bangladesh are governed by
a Shariah Supervisory Committee, which ensures that all banking operations comply with Islamic
principles and guidelines.
 Separation of funds: Islamic banks in Bangladesh maintain separate funds for investment and
deposit accounts, to ensure that customers' funds are not used for interest-based lending or other
prohibited activities.
 Social welfare: Islamic banking in Bangladesh also emphasizes social welfare and charity, with a
portion of profits being allocated towards community development and poverty alleviation.
In recent years, the Islamic banking sector in Bangladesh has experienced significant growth, with
several new banks and financial institutions entering the market. According to the Bangladesh Bank, the
central bank of Bangladesh, the total assets of Islamic banks in the country reached over BDT 1 trillion
(USD 11.8 billion) as of December 2020, representing a growth rate of 15.35% compared to the previous
year. The sector now accounts for around 14% of the total banking industry in Bangladesh.
The growth of Islamic banking in Bangladesh has been driven by several factors, including increasing
demand from consumers for Shariah-compliant financial products, as well as government initiatives to
promote Islamic banking and finance in the country. As the sector continues to expand, there are
opportunities for Islamic banks in Bangladesh to expand their product offerings, reach new markets, and
play a greater role in the country's overall economic development.
Question 43. How are mobile financial services (MFS) transforming the financial
landscape in Bangladesh, and what opportunities and challenges do they present
for banks and other financial institutions?
Answer: Mobile financial services (MFS) have transformed the financial landscape in Bangladesh,
providing access to financial services to a large segment of the population that was previously underserved
or excluded from the formal banking system. MFS refers to the use of mobile phones to conduct financial
transactions, such as sending and receiving money, paying bills, and purchasing goods and services. The
key features of MFS in Bangladesh include:
 Low-cost and accessible: MFS are low-cost and accessible, as they do not require a physical bank
branch or a traditional bank account, making them an attractive option for many people.
 Increased financial inclusion: MFS have increased financial inclusion in Bangladesh, by

providing access to financial services to people in remote or rural areas, as well as to low-income
populations.
 Convenience and speed: MFS are convenient and fast, allowing customers to conduct
transactions quickly and easily from their mobile phones.
 New business models: MFS have enabled the development of new business models, such as
mobile wallet providers, that have disrupted traditional banking models in Bangladesh.
The growth of MFS in Bangladesh presents both opportunities and challenges for banks and other
financial institutions. Some of the opportunities include:
 Collaboration with MFS providers: Banks and other financial institutions can collaborate with
MFS providers to offer additional services to their customers, such as mobile banking and payment
services.
 Expansion of customer base: Banks and other financial institutions can use MFS to expand their
customer base, by reaching out to underserved populations and offering them new financial
products and services.
 Cost savings: MFS can help banks and other financial institutions to reduce costs, as they do not
require physical branches or expensive infrastructure.
However, MFS also present several challenges for banks and other financial institutions, including:
 Increased competition: MFS providers are disrupting traditional banking models, and banks and
other financial institutions must adapt to remain competitive.
 Regulatory challenges: MFS is a rapidly evolving sector, and regulatory frameworks in
Bangladesh may not be fully equipped to deal with the risks and challenges of this new business
model.
 Cybersecurity risks: MFS transactions are vulnerable to cybersecurity risks, and banks and other
financial institutions must ensure that their systems are secure to protect against fraud and other
risks.
Overall, MFS are transforming the financial landscape in Bangladesh, and banks and other financial
institutions must adapt to remain competitive in this rapidly evolving sector.
Question 44. What are the advantages and disadvantages of using agent banking as a
means of expanding financial inclusion in Bangladesh, and what steps can be taken
to address these challenges?
Answer: Agent banking is a model that allows banks and other financial institutions to offer banking
services through a network of agents, rather than through traditional brick-and-mortar bank branches. This
model has been used in Bangladesh to expand financial inclusion and bring banking services to
underserved populations. Some of the advantages of agent banking in Bangladesh include:
 Cost-effective: Agent banking is a cost-effective way to provide banking services, as it does not
require the same level of infrastructure and investment as traditional bank branches.
 Increased access: Agent banking can help to increase access to financial services for underserved
populations, including those in rural areas.
 Convenience: Agent banking is convenient for customers, as it allows them to access banking
services close to their homes or workplaces.
However, there are also some disadvantages to agent banking in Bangladesh, including:
 Agent capacity and training: Agent banking requires a network of trained agents to offer banking
services, and there may be challenges in finding and training enough agents to provide adequate
coverage.
 Security risks: Agent banking is vulnerable to security risks, such as fraud and theft, and banks
and other financial institutions must take steps to ensure the security of their systems and
transactions.
 Regulatory challenges: Agent banking is a new business model in Bangladesh, and there may be
regulatory challenges related to licensing, supervision, and consumer protection.
To address these challenges, steps can be taken to promote the development of agent banking in a
sustainable and responsible way. Some of these steps include:
 Developing agent capacity: Banks and other financial institutions can work to develop a network
of trained agents, and provide ongoing support and training to ensure the quality and security of
their services.
 Strengthening regulatory frameworks: The government and regulatory bodies can work to
establish clear and robust regulatory frameworks that address the challenges and risks of agent
banking, and provide guidance on licensing, supervision, and consumer protection.
 Enhancing security and risk management: Banks and other financial institutions can invest in
robust security and risk management systems, to protect against fraud and other security risks.
Overall, agent banking has the potential to expand financial inclusion in Bangladesh, and address the
challenges of providing banking services to underserved populations. However, it is important to address
the challenges and risks associated with this business model, to ensure that it is developed in a sustainable
and responsible way.
Module G
Question 45. Why relationship with the competitors is so important?
Answer: A bank's relationship with its competitors can be complex, as they are often competing for the
same customers and market share. When a bank share a market segment, it not only share customers and
business, it also shares the same difficulties, laws and regulations and many common issues. For this
reason, the relationship among the competitors must be close and cordial and it's often said that banks
should be grateful to their competitors. The competitors can help in various ways as under:
 Force to make improvement: A bank may choose to compete aggressively with its competitors,
seeking to outperform them in terms of products, services, and customer experience. This approach
can help the bank gain market share and improve its profitability.
 Make the others focused: Competitors sharpen focus of the others towards their goal and thus help
indirectly to survive and prosper. Competition among banks can be a powerful motivator that drives
each bank to focus on its strengths and become more efficient in delivering value to its customers.
 Difficult to sustain success without competitors: Having competitors can create challenges for a
bank, but it also provides important benefits such as market feedback, innovation, cost control, and
customer choice. Therefore, it can be difficult for a bank to sustain long-term success without
competitors in the market.
 Sharing information: By sharing ideas and best practices with competitors, banks can discover
new ways to improve their products and services. Banks that have a good relationship with their
competitors can often benefit from a more positive customer experience.
 Benefits the industry as a whole: A bank that has a positive relationship with that competitor may
be able to use its influence to help mitigate the damage to the industry as a whole. Bank may choose
to collaborate with its competitors on certain initiatives, such as industry-wide initiatives, regulatory
compliance efforts, or joint marketing campaigns. This approach can help build trust and goodwill
between the banks, while also benefiting the industry as a whole.
 Innovation: Collaboration and competition can drive innovation in the banking industry. By
sharing ideas and best practices with competitors, banks can discover new ways to improve their
products and services.
Overall, having competitors can create challenges for a bank, but it also provides important benefits
such as market feedback, innovation, cost control, and customer choice. Therefore, it can be difficult
for a bank to sustain long-term success without competitors in the market.
Question 46. How deeper relationship can be built with the customers?
Answer: Creating deeper relationships with customers is a key priority for banks, as it can help to increase
customer loyalty, drive revenue growth, and improve the overall customer experience. Developing and
managing quality relationships with the customers represents one of the essential conditions for the growth
and benefit of a Bank. The relationship between banker and Customer are categorized into:
 Relationship as debtor and creditor.
 Banker as a trustee.
 Banker as an agent.
 Other special relationships with the customer.
Here are different ways to connect with modern banking customers to build long lasting customer
relationships.
 Proactive communication: Banks can build trust and confidence with their customers by
communicating with the right service at the right time. This could involve sending regular updates
on account activity, providing timely alerts and notifications, and responding promptly to customer
inquiries and concerns.
 Transparency and honesty: Banks can build trust and credibility by being transparent and honest
in their communications with customers. Banks have an opportunity and responsibility to guide
customers through policy changes and reduce unnecessary hassle.
 Personalization: Banks can use data and analytics to understand customer preferences, behavior,
and needs, and to tailor their products and services accordingly.
 Value-added services: Offering value-added services such as financial planning, investment
advice, and educational resources can help customers achieve their financial goals and create
deeper relationships with their bank.
 Rewards and incentives: Providing rewards and incentives such as cashback, discounts, or
loyalty points can encourage customers to engage more deeply with a bank's products and services
and help build stronger relationships.
 Social responsibility: Banks can create deeper relationships with customers by demonstrating a
commitment to social responsibility.
Overall, creating deeper relationships with customers requires a customer-centric approach that focuses
on personalization, communication, education, incentives, and community involvement. By building
stronger relationships with customers, banks can improve customer loyalty, drive revenue growth, and
provide a better overall customer experience.
Question 47. What are the benefits of relationship with Media?

Answer: Media could be used as a powerful tool to widespread positive news throughout the globe
regarding an organization such as banks or any other financial institutions. This is used by almost all the
banks to campaign their story or any messages to the public. The better the media relationship becomes,
the easier it will be to ensure reaching a wide and engaged audience every time. Now, with the initiation
of digital world, media relations include everything from interactions from social media, online portals and
blogs that can facilitate a bank on their public relationship.
 Positive publicity: By building a good relationship with the media, a bank can increase the
likelihood of positive coverage in the press. This could help the banks earned trust from their
customers.
 Crisis management: In the event of a crisis or negative news story, a bank with a good relationship
with the media may be better equipped to manage the situation.
 Thought leadership: A bank with a good relationship with the media may be able to position itself
as a thought leader in the industry.
 Talent acquisition: A bank with a strong reputation and positive media coverage may be more
attractive to potential employees.
 Investor relations: By providing accurate and timely information to the media, the bank can help
to ensure that investors have a positive view of the company and its performance.
Overall, having a good relationship with the media can provide several benefits for a bank. By building
trust, enhancing reputation, and positioning itself as a thought leader, the bank can improve its competitive
position and achieve long-term success.
Question 48. How Community Relations can be improved through CSR activities?
Answer: Community relations with a bank can be improved through Corporate Social Responsibility
(CSR) activities. CSR is a way for companies to give back to the community, support social and
environmental causes, and demonstrate their commitment to making a positive impact on society. Here are
some ways that a bank can use CSR activities to improve its community relations:
 Charity: A bank can support local charities and community organizations through charitable
donations. This can include supporting organizations that work to alleviate poverty, promote
education, or support healthcare initiatives.
 Environmental care: A bank can demonstrate its commitment to environment by implementing
green-banking practices in its operations, such as reducing paper waste, conserving energy, or
supporting renewable energy initiatives.
 Financial education: A bank can help to improve financial literacy in the community by offering
financial education programs and resources. This can include workshops, online resources, or
partnerships with local schools or organizations.
 Employee volunteerism: A bank can encourage its employees to volunteer their time and skills to
support community organizations. This can help to build stronger relationships with the community
and demonstrate the bank's commitment to social responsibility.
 Community development: A bank can support community development initiatives, such as
affordable housing, small business development, or community revitalization projects. This can
help to create a more vibrant and sustainable community, which can benefit both the bank and its
customers.
By engaging in CSR activities that support the community, a bank can improve its community relations
and demonstrate its commitment to making a positive impact on society. This can help to build trust and
credibility with customers, employees, and other stakeholders, which can ultimately lead to long-term
success for the bank.
Question 49. How do financial institutions in Bangladesh ensure compliance with

regulations on corporate governance?
Answer: Financial institutions in Bangladesh ensure compliance with regulations on corporate governance
by implementing a range of measures. These include:
 Establishing a board of directors with diverse backgrounds and expertise, including independent
directors.
 Developing and implementing a code of conduct and ethics that outlines the institution's values,
principles, and standards of behavior.
 Implementing risk management and internal control systems to identify, measure, monitor, and
manage risks.
 Developing and implementing policies and procedures that comply with local laws and regulations
on corporate governance, such as the Companies Act, 1994, and the Securities and Exchange
Commission (SEC) rules and regulations.
 Conducting regular training and awareness programs for employees, managers, and board members
on corporate governance principles and practices.
 Establishing effective internal audit functions to monitor compliance with policies and procedures
and identify any weaknesses or gaps in the institution's governance structure.
 Engaging with external auditors and regulators to ensure that the institution's financial reporting
and compliance with regulations are in line with industry best practices.
By implementing these measures, financial institutions in Bangladesh can ensure that they comply with
regulations on corporate governance, mitigate risks, and build trust and confidence among stakeholders.
Question 50. What is the relationship between financial institutions and local
government agencies in Bangladesh in terms of stakeholder governance?
Answer: Financial institutions in Bangladesh have a significant relationship with local government
agencies in terms of stakeholder governance. This relationship is based on the shared interest in promoting
economic growth, ensuring financial stability, and protecting the interests of consumers and investors.
Local government agencies in Bangladesh, such as the Bangladesh Bank and the Securities and
Exchange Commission, play a crucial role in regulating and supervising financial institutions to ensure
compliance with laws and regulations. Financial institutions must establish a relationship with these
agencies to obtain licenses and approvals to operate, comply with reporting requirements, and seek
guidance and support when needed.
Moreover, financial institutions in Bangladesh also engage with local government agencies in
stakeholder governance by participating in forums and consultations on policies and regulations affecting
the financial sector. These engagements allow financial institutions to provide feedback, share their
perspectives, and influence the development of regulations and policies that affect their operations and
stakeholders.
Additionally, financial institutions may collaborate with local government agencies on initiatives
related to corporate social responsibility and community development. For instance, financial institutions
may partner with local governments to fund and implement projects that promote financial inclusion,
education, and entrepreneurship.
In summary, the relationship between financial institutions and local government agencies in
Bangladesh is critical for stakeholder governance, as it enables financial institutions to operate within a
regulatory framework, engage in policy discussions, and collaborate on initiatives that benefit stakeholders
and society.
Question 51. How do financial institutions in Bangladesh manage their relationships

with regulators in the context of stakeholder governance?
Answer: Financial institutions in Bangladesh manage their relationships with regulators in the context of
stakeholder governance by establishing transparent and open communication channels, complying with
regulations, and engaging in proactive risk management practices.
Firstly, financial institutions in Bangladesh maintain ongoing communication with regulators to
ensure compliance with regulations and address any issues or concerns that arise. This communication
includes providing regular reports on their financial performance, risk management practices, and
compliance with regulatory requirements. Additionally, financial institutions may participate in regulatory
consultations and contribute to the development of regulations and policies that affect their operations and
stakeholders.
Secondly, financial institutions in Bangladesh comply with regulations and implement best
practices in governance, risk management, and compliance. This includes implementing policies and
procedures to identify, measure, monitor, and manage risks, conducting regular audits and assessments to
identify weaknesses or gaps in their governance structure, and ensuring that they have sufficient capital to
support their operations and manage risks.
Thirdly, financial institutions in Bangladesh engage in proactive risk management practices to
identify and mitigate risks that could affect their stakeholders. This includes establishing effective internal
controls, implementing measures to prevent money laundering and terrorist financing, and ensuring the
security of their customers' data and assets.
Overall, financial institutions in Bangladesh manage their relationships with regulators in the
context of stakeholder governance by maintaining transparency, complying with regulations, and engaging
in proactive risk management practices. By doing so, they can ensure that their operations are sustainable,
their stakeholders' interests are protected, and they maintain the trust and confidence of their stakeholders.
Question 52. What measures do financial institutions in Bangladesh take to ensure

transparency in their operations and decision-making processes?
Answer: Financial institutions in Bangladesh take several measures to ensure transparency in their
operations and decision-making processes. These measures include:
 Disclosure of financial information: Financial institutions are required to disclose their financial
information to stakeholders, including shareholders, regulators, and the public. This includes annual
reports, financial statements, and disclosures on significant events or developments that may impact
their operations or stakeholders.
 Disclosure of governance practices: Financial institutions are required to disclose their
governance practices, including the composition of the board of directors, the roles and
responsibilities of board members, and the policies and procedures in place to manage conflicts of
interest.
 Disclosure of risk management practices: Financial institutions are required to disclose their risk
management practices, including the risk appetite framework, the risk management structure, and
the policies and procedures in place to identify, measure, monitor, and manage risks.
 Stakeholder engagement: Financial institutions engage with stakeholders, including customers,
shareholders, regulators, and civil society organizations, to obtain feedback and input on their
operations and decision-making processes. This engagement can include public consultations, town
hall meetings, and surveys.
 Use of technology: Financial institutions use technology, such as online portals and mobile
applications, to provide stakeholders with access to information and services. This can include
providing account information, transaction history, and investment options.
 Compliance with regulations: Financial institutions comply with regulations on transparency and
disclosure, such as the Companies Act, 1994, and the Securities and Exchange Commission (SEC)
rules and regulations. These regulations require financial institutions to disclose relevant
information and ensure that their operations and decision-making processes are transparent and
accountable.
By implementing these measures, financial institutions in Bangladesh can ensure transparency in their
operations and decision-making processes, maintain the trust and confidence of their stakeholders, and
enhance their reputation and credibility.
Question 53. How do financial institutions in Bangladesh address complaints from

customers, and what role does complaint management play in stakeholder
governance?
Answer: Financial institutions in Bangladesh address complaints from customers through various channels
and processes, and complaint management plays a crucial role in stakeholder governance. Here are some
of the ways financial institutions in Bangladesh address complaints from customers:
 Complaint handling procedures: Financial institutions have established complaint handling
procedures to ensure that customer complaints are acknowledged, investigated, and resolved
promptly and fairly. These procedures are communicated to customers through various channels,
including the institution's website, customer service representatives, and branch offices.
 Customer service centers: Financial institutions have established customer service centers to
receive and address complaints from customers. These centers may have dedicated staff trained in
complaint handling, and they may use various communication channels, such as email, telephone,
and social media, to receive complaints.
 Ombudsman services: Financial institutions may also have an ombudsman service, which is an
independent dispute resolution mechanism to address complaints from customers that cannot be
resolved through normal complaint handling procedures.
 Regulatory oversight: Regulators, such as the Bangladesh Bank and the Securities and Exchange
Commission, oversee the complaint management practices of financial institutions and require them
to maintain a complaint register and provide regular reports on complaint handling.
Complaint management plays a crucial role in stakeholder governance by promoting customer satisfaction
and confidence, reducing reputational risk, and ensuring compliance with regulatory requirements. By
addressing complaints promptly and fairly, financial institutions can maintain their reputation, enhance
their credibility, and retain their customers' trust and loyalty. Additionally, an effective complaint
management system can provide valuable feedback to financial institutions on their products, services, and
processes, enabling them to make improvements and enhance their customer experience.
Question 54. What is the role of disclosure and transparency in stakeholder

governance for financial institutions in Bangladesh?
Answer: Disclosure and transparency play a critical role in stakeholder governance for financial
institutions in Bangladesh. Here are some ways disclosure and transparency are important:
 Building Trust: Disclosure and transparency create trust and confidence among stakeholders,
including customers, regulators, shareholders, and the general public. When financial institutions
are transparent about their operations and decision-making processes, stakeholders can have greater
confidence in their ability to manage risks and maintain their financial health.
 Improving decision-making: Disclosure and transparency enable stakeholders to make informed
decisions about their interactions with financial institutions. For example, if customers have access
to transparent information about the products and services offered by financial institutions, they can
make better decisions about how to manage their finances.
 Compliance with Regulations: Financial institutions are required by law to disclose certain
information and follow certain regulations on transparency and disclosure. Compliance with these
regulations ensures that financial institutions are accountable to their stakeholders and operate in a
fair and ethical manner.
 Mitigating Risks: Disclosure and transparency can help financial institutions identify and mitigate
risks, such as reputational risks, legal risks, and operational risks. By being transparent about their
risk management practices, financial institutions can demonstrate their commitment to responsible
and sustainable business practices.
 Enhancing Reputation: Financial institutions with a reputation for transparency and disclosure
can attract new customers and investors, as well as retain existing ones. This can result in increased
profitability and improved financial performance.
Overall, disclosure and transparency are essential elements of stakeholder governance for financial
institutions in Bangladesh. By promoting transparency, financial institutions can build trust, mitigate risks,
and enhance their reputation, thereby improving their overall performance and contributing to the
sustainable development of the financial sector.
Question 55. How do financial institutions in Bangladesh engage with civil society
organizations in stakeholder governance?
Answer: Financial institutions in Bangladesh engage with civil society organizations (CSOs) in
stakeholder governance through various channels and mechanisms. Here are some of the ways they engage
with CSOs:
 Partnerships: Financial institutions may partner with CSOs to undertake social and environmental
initiatives, such as supporting education, healthcare, and environmental conservation. These
partnerships can promote sustainable development and help build positive relationships with the
local community.
 Dialogues and consultations: Financial institutions may engage with CSOs through dialogues and
consultations on various issues, such as social and environmental impacts of their operations,
customer protection, and financial inclusion. These dialogues and consultations can help financial
institutions understand the concerns and perspectives of CSOs and incorporate them into their
decision-making processes.
 Reporting and disclosure: Financial institutions may disclose information about their social and
environmental impacts and initiatives through sustainability reports, annual reports, and other
public documents. This can provide CSOs with valuable information on the institution's
performance and contribute to greater transparency and accountability.
 Advocacy and lobbying: CSOs may advocate for policies and regulations that promote greater
social and environmental responsibility by financial institutions. Financial institutions may engage
with these CSOs to understand their concerns and perspectives and work towards mutually
beneficial outcomes.
 Stakeholder engagement frameworks: Some financial institutions have established stakeholder
engagement frameworks that provide guidelines and principles for engaging with stakeholders,
including CSOs. These frameworks can ensure that engagement is consistent, transparent, and
effective.
Overall, engagement with CSOs is an important aspect of stakeholder governance for financial institutions
in Bangladesh. By collaborating with CSOs, financial institutions can build trust and credibility, promote
sustainable development, and contribute to the overall well-being of society.
Question 56. What strategies do financial institutions in Bangladesh use to build strong
relationships with their customers and enhance customer satisfaction?
Answer: Financial institutions in Bangladesh use a variety of strategies to build strong relationships with
their customers and enhance customer satisfaction. Here are some of the key strategies they use:
 Personalized service: Financial institutions may provide personalized services to customers, such
as tailored financial advice, customized products, and personalized communication. This can help
build a strong relationship with customers and enhance their overall satisfaction.
 Accessibility and convenience: Financial institutions may offer a range of channels and options
for customers to access their services, such as online banking, mobile banking, and ATMs. This
can enhance the convenience and accessibility of their services, thereby improving customer
satisfaction.
 Customer education: Financial institutions may provide educational materials and resources to
customers, such as financial literacy programs and workshops. This can help customers better
understand financial products and services, which can lead to more informed decision-making and
greater satisfaction.
 Complaint management: Financial institutions may have effective complaint management
systems in place to address customer concerns and grievances in a timely and efficient manner.
This can enhance customer satisfaction and help build trust with customers.
 Rewards and loyalty programs: Financial institutions may offer rewards and loyalty programs to
customers, such as cashback offers, discounts, and loyalty points. This can incentivize customers
to use their services more frequently and can enhance their overall satisfaction.
 Transparent pricing and fees: Financial institutions may be transparent about their pricing and
fees, ensuring that customers understand the costs associated with their products and services. This
can help build trust with customers and enhance their overall satisfaction.
Overall, financial institutions in Bangladesh focus on building strong relationships with their customers by
providing personalized services, enhancing accessibility and convenience, providing customer education,
implementing effective complaint management systems, offering rewards and loyalty programs, and being
transparent about their pricing and fees. These strategies can lead to higher customer satisfaction and
retention, which can ultimately contribute to the financial institution's success.
Question 57. What is the relationship between financial institutions and their
shareholders in the context of stakeholder governance in Bangladesh?
Answer: In Bangladesh, financial institutions have a close relationship with their shareholders in the
context of stakeholder governance. Shareholders are a key stakeholder group for financial institutions, as
they provide capital and have a significant influence on the institution's decision-making processes. Here
are some of the key aspects of the relationship between financial institutions and their shareholders in the
context of stakeholder governance:
 Annual general meetings: Financial institutions hold annual general meetings where shareholders
can elect board members, approve financial statements, and ask questions about the institution's
performance and strategy.
 Investor relations: Financial institutions may have dedicated investor relations teams that provide
information and updates to shareholders on the institution's performance, strategy, and financial
results.
 Shareholder engagement: Financial institutions may engage with shareholders on various issues,
such as executive compensation, dividends, and governance practices. This can help build a strong
relationship with shareholders and address any concerns or issues they may have.
 Disclosure and transparency: Financial institutions may disclose information to shareholders on
various aspects of their operations, such as financial performance, risk management, and corporate
governance practices. This can help build trust with shareholders and enhance their overall
confidence in the institution.
 Dividend payments: Financial institutions may pay dividends to shareholders as a way of
distributing profits and rewarding them for their investment. Dividend payments can help maintain
a positive relationship with shareholders and demonstrate the institution's commitment to
generating value for its investors.
Overall, the relationship between financial institutions and their shareholders in the context of stakeholder
governance is critical for maintaining trust and confidence in the institution. By engaging with
shareholders, providing information and updates, and being transparent about their operations, financial
institutions can build a strong relationship with their shareholders and contribute to their overall success.
Question 58. How do financial institutions in Bangladesh ensure ethical market

conduct and manage their relationships with competitors?
Answer: Financial institutions in Bangladesh ensure ethical market conduct and manage their relationships
with competitors by adopting various measures. Here are some of the key strategies:
 Compliance with regulations: Financial institutions in Bangladesh must comply with various
regulations and guidelines that govern their market conduct, such as anti-money laundering (AML)
and know-your-customer (KYC) regulations. Compliance with these regulations ensures that
financial institutions operate ethically and with integrity.
 Fair competition: Financial institutions in Bangladesh compete with each other in a fair and
transparent manner. This involves avoiding anti-competitive behavior, such as price-fixing, bid-
rigging, and market-sharing agreements.
 Information sharing: Financial institutions may share information with competitors on issues of
mutual interest, such as industry trends and best practices. However, they must ensure that such
information sharing does not violate any antitrust laws or regulations.
 Stakeholder engagement: Financial institutions may engage with various stakeholders, including
customers, regulators, and civil society organizations, to promote ethical market conduct and
prevent anti-competitive behavior.
 Codes of conduct: Financial institutions may adopt codes of conduct that set out ethical standards
and guidelines for their operations. These codes may cover issues such as fair competition, conflicts
of interest, and insider trading.
 Ethics training: Financial institutions may provide ethics training to their employees to ensure that
they understand the importance of ethical conduct and how to identify and address ethical issues.
Overall, financial institutions in Bangladesh ensure ethical market conduct and manage their relationships
with competitors by complying with regulations, promoting fair competition, engaging with stakeholders,
adopting codes of conduct, and providing ethics training to employees. By adopting these measures,
financial institutions can maintain their reputation and credibility, and contribute to the overall growth and
development of the financial sector in Bangladesh.
Question 59. What is the role of community engagement and corporate social
responsibility in stakeholder governance for financial institutions in Bangladesh?
Answer: Community engagement and corporate social responsibility (CSR) play an important role in
stakeholder governance for financial institutions in Bangladesh. Here are some key aspects of their role:
 Building trust: By engaging with local communities and demonstrating a commitment to social
responsibility, financial institutions can build trust and goodwill among stakeholders, including
customers, regulators, and civil society organizations.
 Enhancing reputation: A positive reputation for social responsibility can help financial
institutions attract and retain customers, employees, and investors. It can also help them
differentiate themselves from competitors and improve their brand image.
 Contributing to social and economic development: Financial institutions can contribute to social
and economic development in Bangladesh by supporting initiatives that promote education, health,
and financial literacy. This can help improve the overall well-being of communities and contribute
to the country's sustainable development goals.
 Compliance with regulations: In Bangladesh, financial institutions are required to engage in CSR
activities and report on their social and environmental performance. Compliance with these
regulations can help financial institutions demonstrate their commitment to ethical and responsible
business practices.
 Strengthening stakeholder relationships: Community engagement and CSR can help financial
institutions build strong relationships with stakeholders, including customers, regulators, and civil
society organizations. This can help ensure that stakeholders have a positive perception of the
institution and are supportive of its operations.
Overall, community engagement and CSR are important aspects of stakeholder governance for financial
institutions in Bangladesh. By demonstrating a commitment to social responsibility, financial institutions
can build trust, enhance their reputation, contribute to social and economic development, comply with
regulations, and strengthen stakeholder relationships.
Module H
Question 60. What is meant by market positioning and repositioning?
Answer: Market positioning refers to the process of defining how a brand, product or service is observed
in the minds of the target market relative to competitors. The objective of market positioning is to establish
the image or identity of a brand or product so that consumers see it in a certain way.
Repositioning, on the other hand, involves changing the current observation of a product or brand in
the market in order to improve its competitive position. Repositioning is usually done due to declining
performance or major shifts in the environment.
Question 61. What are the steps to ensure effective market positioning?
Answer: Effective market positioning is the process of creating a unique identity for a product or brand in
the minds of consumers, in order to differentiate it from competitors and appeal to the target audience. Here
are some key elements of effective market positioning:
 Conduct market research: This involves understanding the needs, wants and preferences of the
target market, as well as identifying the strengths and weaknesses of the competition.
 Define the target market: This involves identifying the specific group of people that the brand,
product or service is intended for.
 Develop a unique selling proposition (USP): This is a statement that highlights the unique benefits
that the brand, product or service offers to the target market that competitors do not.
 Communicate the USP: This involves developing marketing messages that effectively
communicate the USP to the target market through various marketing channels such as advertising,
PR, social media, and other marketing initiatives.
 Monitor and evaluate: It is important to track the success of the positioning strategy over time and
make changes if necessary.
Repositioning involves the following steps:
 Identify the need for repositioning: This involves identifying the specific reasons why the brand,
product or service needs to be repositioned, such as changes in the market, competition or consumer
preferences.
 Conduct market research: This involves understanding the needs, wants and preferences of the
target market and identifying areas where the brand, product or service needs to be improved in
order to better meet these needs.
 Develop a new positioning strategy: This involves developing a new USP that effectively
communicates the new benefits and value proposition that the brand, product or service offers.
 Communicate the new positioning: This involves developing marketing messages that effectively
communicate the new USP to the target market through various marketing channels such as
advertising, PR, social media, and other marketing initiatives.
 Monitor and evaluate: It is important to track the success of the repositioning strategy over time
and make changes if necessary.
Overall, effective market positioning is critical for creating a strong brand identity and building a loyal
customer base. By understanding your target market, competition, and unique value proposition, and
communicating it effectively to your audience, you can differentiate your product or brand in the market
and achieve long-term success.
Question 62. What is meant by digital agenda? What are its' components?
Answer: A digital agenda refers to a set of policies, strategies, and initiatives aimed at promoting and
leveraging digital technologies to drive economic growth, enhance public services, and improve the quality
of life of citizens. It encompasses a wide range of digital initiatives, including the development of digital
infrastructure, the promotion of digital skills and literacy, the creation of digital content, and the
implementation of digital policies and regulations.
The components of a digital agenda can vary, but typically include the following:
 Digital infrastructure: This includes the development of high-speed broadband networks, mobile
networks, cloud computing, and other digital infrastructure.
 Digital skills and literacy: This involves promoting the development of digital skills and literacy
among the general population, as well as providing training and education to individuals and
businesses.
 Digital content: This involves the creation and distribution of digital content, such as online
services, digital media, and e-commerce platforms.
 Digital policies and regulations: This includes the development of policies and regulations that
promote innovation and competition in the digital economy, while also protecting the privacy and
security of citizens.
Overall, a digital agenda is a broad and multifaceted approach to promoting the use of digital technologies
in society, with the goal of creating a more connected, innovative, and prosperous future.
Question 63. What are the objectives of digitalization?

Answer: The objectives of digitalization can vary depending on the specific context and goals of a given
digital agenda. However, some common objectives of digitalization include:
 Improving economic competitiveness: Digital technologies can help businesses to innovate,
streamline their operations, and reach new markets, thus driving economic growth and job creation.
 Enhancing public services: Digital technologies can help to improve the efficiency and
effectiveness of public services, such as healthcare, education, and transportation.
 Increasing social inclusion: Digital technologies can help to bridge the digital divide and provide
access to information and services to marginalized and underserved communities.
 Driving sustainable development: Digital technologies can help to promote sustainable
development by reducing resource consumption, improving energy efficiency, and enabling the
transition to a circular economy.
Overall, the objectives of digitalization are to leverage the power of technology to improve organizational
performance, customer experience, and social and environmental sustainability.
Question 64. What are the benefits of succession planning?

Answer: Succession planning refers to the process of identifying and developing internal employees who
have the potential to fill key leadership positions within an organization in the future. The benefits of
succession planning include:
 Ensuring continuity of leadership: Succession planning ensures that the organization has a
pipeline of qualified and trained candidates ready to fill key leadership positions when vacancies
arise.
 Reducing the risk of leadership gaps: Succession planning reduces the risk of leadership gaps by
identifying and developing potential leaders early on.
 Improving employee morale and retention: Succession planning demonstrates to employees that
the organization values their development and growth and is committed to their long-term success.
 Promoting diversity and inclusion: Succession planning can promote diversity and inclusion by
identifying and developing a diverse group of potential leaders.
 Improving organizational performance: Succession planning can improve organizational
performance by ensuring that the organization has the right people in the right positions at the right
time.
Overall, succession planning is a critical process that can help organizations to build a strong leadership
pipeline, reduce risk, and improve employee morale, diversity, and organizational performance.

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Corporate Governance

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Corporate Governance

MD SAIDUL ALAM RAJAN

Module-B: Board and its Responsibilities

Module-C: CEO and Senior Management

Module-D: Capital, Liquidity and Assets

Module-E: Risk Management and Controls

Module-F: Subsidiary and other business governance

Module-G: Stakeholder Governance

 Relationship with Regulators, Local Government Agencies; Regulations on Corporate Governance;

Module-H: Future Outlook of the Organization

Question 2. Why good governance is so important especially in the financial

Question 3. How good governance can be achieved in a business organization?

Question 4. What are the benefits of good governance in the FIs?

 Efficient Processes: Good governance ensures reliability and repeatability in a financial

 Smoother Running Operations: Good governance guarantees time saving in director’s

Question 5. What do we understand by vision and mission?

Question 6. What is the importance of mission statement?

Question 7. Discuss the Basel principles on Corporate Governance of FIs.

 Work-planning and strategic management:

 Credit and risk management:

 Internal control management:

 Human resources management and development:

 Appointment of Chief Executive Officer (CEO):

 Other responsibilities of the Board:

Question 9. What is governance framework and the importance of the governance

The importance of a governance framework can be summarized in the following points:

 Enhances transparency: A good governance framework promotes transparency, which

In summary, a governance framework is important because it helps to promote accountability,

Question 10. What is corporate culture? What is the importance of developing

Developing a positive corporate culture is important for several reasons:

 Chief Executive Officer (CEO):

below him shall rest on the CEO.

any memorandum in the board meeting.

 Senior Management Team (SMT):

Question 13. In what ways organizational culture impacts business strategy?

TIER 1 CAPITAL + TIER 2 CAPITAL

Question 16. What assets a commercial bank maintain?

Question 17. What do we understand by problem asset? How problem asset

RISK-WEIGHTED ASSETS (RWA)

LIABILITY AND ASSET DRIVES

MANAGING PROBLEM ASSETS

Code of conduct Setting objective and goals Identify Assess

Question 19. Describe the benefits of maintaining effective ERM.

Question 20. What are the key requirements of ERM?

Question 22. What are the material risks?

Question 23. Define the importance of three line of Defense of an organization.

1st line of 2nd line of 3rd line of

 1st Line of defense:

 3rd Line of defense:

Benefits of Three Lines Defense Model:

As per Institute of Internal Auditors some benefits are mentioned below:

Question 26. What is the significance of ERMF (Enterprise Risk Management

 Establish a risk governance framework: Banks in Bangladesh should establish a risk

OFFSHORE BANKING UNIT (OBU)

MOBILE FINANCIAL SERVICES (MFS)

 Service of Mobile Banking :

 Small value cash deposits and cash withdrawals

Question 35. Describe the importance of MFS in digital agenda.

The regulatory requirements for establishing a subsidiary in Bangladesh include:

Merchant banks in Bangladesh typically offer the following services:

Benefits of establishing an OBU in Bangladesh:

Risks of establishing an OBU in Bangladesh:

Comparing Bangladesh to other offshore jurisdictions:

 Shariah-compliant products: Islamic banks in Bangladesh offer a range of Shariah-compliant