Compiled by: M. Jahed Ahsan.

Trust Bank Limited

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Governance in Financial Institutions

Table of Contents

Module Particulars Page

A Concepts and Pre-requisites 7 – 20
B Board and it’s Responsibilities 21 – 27
C CEO and Senior Management 28 – 31
D Capital, Liquidity and Asset 32 – 37
E Risk Management and Control 38 – 48
F Subsidiary and other Business Governance 49 – 54
G Stakeholder Governance 55 – 61
H Future Looking Organizations 62 – 67
96th BPE (JAIBB) Questions & Solution 68 – 69
Concept clearing Questions 70 – 76

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Module – A. Concepts and Pre-requisites

1 "Some directors think themselves as 'owner' of the bank, and some staffs
are also responsible for supporting them"-In the context of the statement,
7
please, discuss your assessment on Banks/Financial Institutions (FIS) in
Bangladesh.
2 Who is/are the real owner of the bank/FI? Please, justify your answer in
7
brief.
3 "Shareholders are the real owners of the bank, directors and managers are
7
responsible to oversee the affairs only.” Do you agree? Justify.
4 Briefly describe the corporate governance principles issued by BASEL
8
committee on banking supervision.
5 Why good governance is so important especially in the financial institutions? 9
6 Briefly describe the Supervisory Guidelines on corporate governance issued
9
by BASEL committee on banking supervision.
7 State the ways Corporate Governance to be administered by stakeholders
10
jointly and severally as recommended by the BASEL Committee.
8 Define Corporate Governance. 10
9 Discuss the historical perspective of corporate governance. 11
10 Describe various aspects of good governance. OR
With the rising number of banking frauds, what changes to corporate 12
governance structure of banks do you suggest to tackle it?
11 How good governance can be achieved in a business organization? 13
12 What are the benefits of good governance in the FIs? 14
13 What do we understand by Vision and Mission? What is the relation
between Vision and Mission? How Mission and Vision Statements help the 15
company?
14 What is the importance and benefits of Mission Statement? (Purpose) 16
15 State the process to be followed while drafting overall Mission and Vision
16
Statements.
16 Define Brand and Brand Promise. What are the elements of effective Brand
17
Promise?
17 “Although both Brand and Mission Statement are all about what the
organizations do, but their foundations and purposes are different” – please 17
explain.
18 Distinguish between Code of Conduct and Code of Ethics. 18
19 State the important factors need to be considered for inclusion in Code of
18
Conduct.
20 How does a well-constructed Code of Conduct benefit an organization and
18
its stakeholders?
21 Briefly describe the Code of Conduct specified by Bank for International
19
Settlements.
22 How Sir Adrian Cadbury defined Corporate Governance? State the stresses
20
put on by the definition.

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Module – B. Board and It’s Responsibilities

1 What are the responsibilities and authorities of the board of directors as per
21
BASEL committee?
2 What are the responsibilities and authorities of the board of directors as per
22
'prudential regulations for bank (2014)' issued by Bangladesh bank?
3 What are the committees prescribed by Bangladesh Bank each bank needs
to have to ensure the best practices of CG in Bank Management.? Specify 23
their organizational structure.
4 Define Strategic objectives. What is the strategic objectives of commercial
banks? Distinguish strategy and objectives. Distinguish between goals and 24
objectives.
5 What is governance framework and the purpose of the same? 24
6 “A governance framework consists of two distinct sides” – explain these two
25
sides.
7 How to make a strong governance framework? State the importance of
26
Governance frameworks and structures.
8 What is corporate culture? What is the importance of developing corporate
26
culture?
9 “Considering the growing complexities of business environment, board
performance measurement should encompass areas beyond corporate 27
financial data” – do you agree? Justify your standing.
10 State the recommendations of BASEL committee regarding guidelines for
27
performance assessment of the Board?
11 When and how the Board of an FI can be dissolved and when observer is
27
appointed?

Module – C. CEO and Senior Management

1 What do you mean by Senior Management Team (SMT)? Describe the role
28
of SMT in a business. What are the functions of MANCOM/SMT?
2 State the duties and responsibilities of Chief Executive Officer (CEO) of a
29
commercial bank as per BRPD circular letter no. 18, dated 27 October 2013.
3 Can Bangladesh Bank change the CEO? How? 29
4 What do you mean by Organizational Culture? In what ways organizational
30
culture impacts business strategy?
5 State some measures recommended by HR experts regarding CEO
31
succession Plan.
6 “There exists a connection between Organizational culture and Business
31
Strategy.” – do you agree? Justify your standing.

Module – D. Capital, Liquidity and Asset

1 Define CAR. What are the importance and implications of CAR? 32
2 State the Capital and Liquidity composition of a commercial bank as per
33
Bangladesh Bank guidelines.

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3 What are the most frequently used indicators mentioned by the European
33
Central Bank?
4 “Basel Committee in 2006 suggested a list of potential sources of funding
and maintaining liquidity which banks have to consider in their liquidity
management strategy” – what are the sources?
OR 34
“Inability to honor depositors’ demands due to liquidity problems may have
serious and negative impact on the entire financial system.” – State the
suggestions of BASEL committee in this regard.
5 What assets a commercial bank maintains? 34
6 What do we understand by problem asset? Classify the problem assets as
35
per existing regulations.
7 What are the steps to be followed to set up a Separate Special Asset
35
Management (SAM) or recovery unit? State the collection process of SAM.
8 What are the Best practices of problem asset management functions? 36
9 “The twin considerations of profitability and liquidity guide a bank in the
36
selection of its asset portfolio” – Explain.
10 Why balances with other banks are not included in cash reserves of banks? 36
11 State the collection process of SAM. 37
12 Define Risk Weighted Asset (RWA). Explain how to Assess Asset Risk? 37

Module – E. Risk Management and Control

1 What is Enterprise Risk Management (ERM)? Describe the components of

38
ERM.
2 What are the challenges to implement ERM pointed out by Seshagiri Rao
39
Vaidyula and Jayaprakash Kavala?
3 Describe the benefits of maintaining effective ERM. 39
4 What are the key requirements of ERM? 40
5 What is Horizon Scanning? “Horizon scanning works as an alerting and
40
creative activity” – please explain.
6 What is Emerging Risk (ER)? Narrate the characteristics of ER. Categorize the
41
Emerging Risk.
7 State the tools suggested by IRM which can help to understand and prepare
42
for future risks.
8 What is risk appetite? Describe the benefits of articulating risk appetite. 42
9 State the risk management objectives focused by risk appetite as per
43
Bangladesh Bank guidelines.
10 What are the criteria to be included in a Risk appetite framework? 43
11 Describe the steps in Developing Risk Appetite Statement. 43
12 What are the material risk which can be managed? 44

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13 What are the regulatory requirements and compliance challenges faced by

financial institutions? State three core principles to address these 45
challenges.
14 What do we understand by three lines of defense? Elaborate the lines. How
46
the 2nd line functions can be strength?
15 How the 2nd line functions can be strength? 47
16 State the overall benefits of implementing Three Line model. 47
17 Define Risk Culture. 47
18 State the critical elements which reinforce for creating strong risk culture. 48
19 Why the risk culture may be failed in an organization? 48

Module – F. Subsidiary and Other Business Governance

1 What are the services provided by Merchant Banking in Bangladesh? 49
2 Define Collateralized Debt Obligation (CDO) and Collateralized Bond
49
Obligation (CBO).
3 Define Mobile Financial Services (MFS). Describe the importance of MFS in
50
digital agenda.
4 Define Mobile Banking and Mobile Money. 50
5 State the categories of payment services provided by MFS providers as
permitted by Bangladesh Bank. Briefly discuss the Permissible model for 51
MFS providers.
6 What is the core philosophy of agent banking? Why has it become so
52
popular and preferred to traditional branch banking?
7 What are the services covered under agent banking? 52
8 What are the services agents are not allowed to provide? 53
9 What are the issues to be taken into consideration for selecting agents? 53
10 State the Customer protection policy under Agent Banking System. 53
11 State the Permissible activities and Limitations on activities of OBUs as
54
guided by Bangladesh Bank.
12 State the Limitations on activities of OBUs as guided by BB. 54

Module – G. Stakeholder Governance

1 How relationship with regulators can be maintained? 55
2 “Relationship with the shareholders is the cornerstone for the life of a bank”
55
– explain. State the value of communicating with the shareholders.
3 What are the principles of Shareholder Communication? 56
4 Why relationship with the competitors is so important? 56
5 "The relationship between banker and customer is not only that of a debtor
57
and creditor, they have other relationships too."-Describe the relationships.
6 How deeper relationship can be built with the customers? 58
7 State the Complaint Management procedure as mentioned by Bangladesh
58
Bank.
8 What are the benefits of relationship with Media? 59

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9 State Media relations strategy. 59

10 What are the importance of Community Relations? 60
11 State the critical role played by CSR in Community Development. 60
12 What are the BIS principles on disclosures? 61
13 State the importance of full disclosure in the corporate and financial world. 61

Module – H. Future Looking Organizations

1 Define Future looking organizations. What are the strategies/features of
62
Future Looking Organizations? Describe in brief.
2 Define Market Positioning. What are the steps to ensure effective market
63
positioning?
3 What do you mean by market repositioning? 63
4 What is meant by digital agenda? Describe the components of digital
64
agenda. What are the objectives of digitalization?
5 Define succession planning. What are the benefits of Succession Planning?
65
State the process of Succession Planning and Management.
6 What are the tips for a successful succession planning process of a
66
company?
7 What is People plan? State its objectives. 66
8 What does upskilling mean? State the benefits of employee upskilling. What
67
is the impact of losing and replacing experienced employees?

96th BPE (JAIBB) Questions & Solution 68 – 69

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Module – A
Concepts and Pre-requisites
Question – 1. "Some directors think themselves as 'owner' of the bank, and
some staffs are also responsible for supporting them"-In the context of the
statement, please, discuss your assessment on Banks/Financial Institutions
(FIS) in Bangladesh.
The statement highlights a potential lack of proper corporate governance and
accountability within some banks/FIs in Bangladesh. It indicates that certain directors
might have an attitude of ownership, which could lead to centralized decision-making and
potentially hinder transparency. Moreover, if staff members are involved in supporting
such directors, it might raise concerns about favoritism or unethical practices.

A healthy financial institution should prioritize collaboration, transparency, and ethical

leadership to ensure the best outcomes for all stakeholders, including customers and
investors. It's important for FIs to have proper governance structures and a culture that
encourages accountability and professionalism.

Question – 2. " Who is/are the real owner of the bank/FI? Please, justify your
answer in brief.
The real owners of a bank or financial institution are its shareholders. Because –

 Shareholders invest capital and hold ownership stakes through shares.

 They possess voting rights, enabling them to influence key decisions.
 Shareholders receive dividends from the company's profits based on their ownership.
 Shareholders' collective ownership defines the company's ownership structure.
 Ownership grants potential for capital appreciation as the company's value grows.
 Access to company information empowers shareholders to make informed choices.

Question – 3. "Shareholders are the real owners of the bank, directors and
managers are responsible to oversee the affairs only.” Do you agree? Justify.
Yes, I do agree with statement. Shareholders invest capital in the bank, and in return, they
hold ownership stakes in the form of shares. This ownership grants them certain rights,
such as voting on key decisions and receiving a portion of the institution's profits through
dividends. Directors and managers, on the other hand, are responsible for running the
bank's operations on behalf of the shareholders, ensuring compliance with regulations,
and maximizing value for the shareholders.

However, the roles of directors and managers go beyond just running operations. They
are responsible for strategic planning, risk management, regulatory compliance, and
ensuring the long-term success of the bank.

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Question – 4. Briefly describe the corporate governance principles issued by

BASEL committee on banking supervision.

Principle 1: Board ‘s overall responsibilities. The board holds overall responsibility for
the bank's strategic objectives, governance framework, and corporate culture.

Principle 2: Board qualifications and composition. Board members must be qualified,

understand their oversight role, and exercise objective judgment.

Principle 3: Board’s own structure and practices. The board establishes effective
governance structures, practices, and ongoing review mechanisms.

Principle 4: Senior management. Senior management executes bank activities aligned

with approved strategies, risk appetite, and policies.

Principle 5: Governance of group structures. Parent company's board oversees group

structures, governance, and risk awareness.

Principle 6: Risk management function. Banks need an independent risk management

function led by a chief risk officer.

Principle 7: Risk identification, monitoring and controlling. Ongoing identification,

monitoring, and control of risks on both bank-wide and entity-specific levels.

Principle 8: Risk communication. Robust risk communication across the bank,

including reporting to senior management and the board.

Principle 9: Compliance. The board manages compliance risk, establishes a

compliance function, and approves related policies.

Principle 10: Internal audit. Internal audit provides independent assurance and
supports effective governance.

Principle 11: Compensation. Remuneration structure aligns with sound corporate

governance and risk management.

Principle 12: Disclosure and transparency. Transparent governance practices benefit

shareholders, depositors, stakeholders, and market participants.

Principle 13: The role of supervisors. Supervisors guide and oversee corporate
governance through evaluations, interactions, and information sharing.

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Question – 5. Why good governance is so important especially in the financial

institutions?
1. Financial institutions play a significant role in driving economic growth, making good
governance essential for a stable banking system.
2. FIs operational integrity affects relationships with their stakeholders.
3. FIs act as intermediaries, managing risk and minimizing defaults on behalf of
depositors.
4. They facilitate domestic and international payments, requiring public trust and
confidence.
5. FIs influence the national economy through credit creation and monetary activities.
6. They must adhere to stringent corporate governance standards.
7. FIs in developing economies are vital for sustained growth.
8. Balancing risk-taking and financial stability requires effective governance.
9. FIs manage savings, channeling capital for industrialization and prosperity.
10. Instability in FIs can lead to contagion effects impacting the entire financial system.
11. FIs are subject to specific regulators and supervision, necessitating special corporate
compliance.

Question – 6. Briefly describe the Supervisory Guidelines on corporate

governance issued by BASEL committee on banking supervision.
Basel Committee on Banking Supervision issued Supervisory Guidelines on corporate
governance for financial institutions, focusing on effective oversight and risk
management. These guidelines include:

Establishing Robust Governance Policies. Supervisors should create rules or guidance to

ensure strong corporate governance practices in banks addressing the unique governance
needs of banks.

Comprehensive Evaluation. Supervisors need to establish processes for comprehensive

evaluation of how banks implement corporate governance practices. This involves
reviewing documents, reports, conducting interviews with board members and staff, and
using on-site and off-site monitoring methods.

Effective Oversight Mechanisms. Supervisors need to assess whether banks have

effective mechanisms in place for the board and senior management to execute their
respective oversight responsibilities, ensuring sound decision-making and risk
management.

Regular Interaction. Supervisors should maintain regular interactions with boards of

directors, individual board members, senior managers, as well as individuals responsible
for risk management, compliance, and internal audit functions.

Governance Improvement and Remedial Action. Supervisors should have a toolkit to

tackle governance issues in banks. They should be able to demand improvements and
corrective actions, ensuring accountability for the institution's corporate governance
practices.

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Question – 7. State the ways Corporate Governance to be administered by

stakeholders jointly and severally as recommended by the BASEL Committee.
The FIs have a unique nature among the other business enterprises and thus need to have
special types of CG culture because they have many stakeholders. Basel Committee also
identifies all such stakeholders of the banks and recommend that the CG to be
administered by them jointly and severally in the following way:

1. Shareholders by way of remaining active and informed exercise of their rights;

2. Depositors and other customers by not conducting business with banks that are not
operated in a sound manner;

3. Auditors by their audit standards and by keeping communications with boards of

directors, senior management and supervisors;

4. Banking industry associations through their initiatives related to voluntary industry

principles and agreement on and publication of sound practices;

5. Professional risk advisory firms and consultancies through assisting banks in

implementing sound Corporate Governance practices;

6. Governments through laws, regulations, enforcement and an effective judicial

framework;

7. Credit rating agencies through review and assessment of the impact of CG practices
on a bank ‘s risk profile;

8. Securities regulators, stock exchanges and other self-regulatory organizations

through disclosure and listing requirements; and

9. Employees through communication of concerns regarding illegal or unethical

practices or other CG weaknesses.

Question – 8. Define Corporate Governance.

Corporate governance is a combination of people, rules, processes and procedures to
manage the business of a company. It forms the basis for a company to make decisions
that consider different environments, like economic, social, regulatory and the market
scenario. CG gets its roots in ethical behavior and business principles, with the goal of
creating long-term value and sustainability for all stakeholders.

The corporate governance structure specifies the distribution of rights and responsibilities
among different participants in the corporation and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also provides the structure
through which the company objectives are set, and the means of attaining those
objectives and monitoring performance.

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Question – 9. Discuss the historical perspective of corporate governance.

Corporate governance has evolved over time, reflecting changes in business practices,
societal expectations, and regulatory environments. The historical perspective of
corporate governance can be divided into several key phases:

Early Forms of Governance (Pre-19th Century). In ancient Rome and Greece, merchants
followed informal conduct codes, while medieval European guilds established
rudimentary form of governance by creating rules and standards for their members.

Industrial Revolution and Rise of Joint-Stock Companies (19th Century). The industrial
revolution brought forth joint-stock companies with widespread ownership. But weak
corporate governance resulted in fraud and mismanagement, limiting shareholder rights
and influence.

Shareholder Activism and Regulatory Response (Early to Mid-20th Century). The early
20th century witnessed increasing shareholder activism and the need for better
governance. The Securities Act of 1933 and the Securities Exchange Act of 1934 in the U.S
laid the foundation and marked the beginning of formalizing governance practices.

Focus on Control and Agency Theory (1960s-1980s). As corporations grew larger and
more complex, the principal-agent dynamic gained attention. The agency theory
highlighted conflicts between shareholders (principals) and managers (agents), leading to
discussions on aligning interests and improving accountability.

Corporate Scandals and Global Reforms (Late 20th Century). High-profile scandals like
Enron and WorldCom exposed weaknesses in corporate governance practices.
Governments and regulatory bodies around the world responded with reforms like
Sarbanes-Oxley Act to enhance transparency, accountability, and oversight.

Rise of Institutional Investors and Shareholder Activism (2000s-2010s). Institutional

investors gained prominence, advocating improved governance. Proxy voting,
engagement with companies, and demands for board independence became common
approaches.

Focus on Sustainability and Stakeholder Capitalism (2010s-Present). Corporate

governance has shifted from purely shareholder value to embrace broader stakeholders.
Environmental, social, and governance (ESG) factors gained importance, highlighting
ethical conduct, social responsibility, and long-term sustainability.

Digital Transformation and Governance Challenges (Present and Beyond). The digital age
presents new governance challenges related to cybersecurity, data privacy, and the
impact of emerging technologies.

Throughout history, corporate governance has shifted from informal codes of conduct to
a structured framework with legal regulations, investor activism, and a focus on
responsible and sustainable business practices.

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Question – 10. Describe various aspects of good governance.

OR

With the rising number of banking frauds, what changes to corporate

governance structure of banks do you suggest to tackle it?

To address the issue of rising banking frauds, implementing the following changes to
the corporate governance structure of banks can be beneficial:

1. Proper Leadership. The board members must lead, guide, and control the bank's
strategic decisions, corporate culture, and risk management practices.

2. Risk Control. Boards need to comprehend the risks the bank faces. Past financial
crises have shown that inadequate understanding of risk management can lead to
significant problems.

3. Capabilities. Banks should possess the necessary technical capabilities and

qualified staff to ensure effective leadership and risk control. High-quality training
for board members is essential for them to take on responsibilities effectively.

4. Incentive Structure. Avoiding past mistakes, boards should design incentive

structures that align with the bank's best interests.

5. Seriousness. Transparency, well-documented decisions, and strict adherence to

regulations are crucial, especially in light of past financial scandals. Clear and
accountable decision-making by the board and senior managers is essential.

6. Role of Shareholders. Board members are responsible for safeguarding the bank's
interests and those of its shareholders. Regulators emphasize the need for
independent board members to enhance shareholder participation and reduce
concentration of power.

By implementing these changes, banks can strengthen their corporate governance

practices and significantly reduce the risk of banking frauds while enhancing their
overall integrity and trustworthiness.

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Question – 11. How good governance can be achieved in a business

organization?

Good governance can be achieved in a business organization through a combination

of principles, practices, and continuous efforts. Here's a detailed approach:

1. Diversified Board. Form a diverse board with varied experiences and skill sets to
ensure a wide range of perspectives during decision-making and strategy
formulation.

2. Regular Board Review. Conduct regular evaluations of the board's performance to

track progress, identify strengths, and areas for improvement, fostering a culture
of continuous enhancement.

3. Directors' Independence. Appoint independent directors who can provide fresh

insights, innovative thinking, and a different perspective to avoid stagnation and
encourage forward-looking strategies.

4. Auditor Independence. Ensure independence of audit committees and auditors to

maintain trust and accuracy in financial reporting, addressing concerns of undue
influence.

5. Transparency. Practice openness and share accurate, understandable information

with stakeholders to build trust and establish a strong reputation, vital for the
company's credibility.

6. Shareholder Rights. Ensure shareholders are aware of their rights as investors,

backed by legal documents like Articles of Association, constitution, and bylaws.

7. Risk Management. Develop an effective risk management process and internal

control framework tailored to your business needs, regularly reviewing its
efficiency and updating disaster recovery plans.

8. Adequate Disclosures. Transparently disclose related parties' transactions and

directors' external financial interests to prevent potential conflicts of interest that
could impact decision-making.

By following these steps, a company can enhance its corporate governance practices,
promote ethical conduct, and create a solid foundation for sustainable growth.

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Question – 12. What are the benefits of good governance in the FIs?

Good governance not only boosts the reputation of the bank but also has several benefits to
its progress. Such as:

1. Efficient Processes. Good governance ensures consistency and repeatability leading to

increased productivity and efficiency within the bank.

2. Reducing the Cost of Capital. Strong governance practices can lead to a reduction in the
cost of capital due to increased stability and risk mitigation.

3. Visibility of Errors. Transparency and accountability fostered by good governance allow

for quick identification and rectification of errors.

4. Improving Top-Level Decision-Making. Good governance leads to better decision-

making, improved performance, and better adaptation to economic crises.

5. Smoother Running Operations. Good governance leads to smoother operations and

faster decision-making contributing to overall efficiency.

6. Assuring Internal Controls. Good governance ensures that effective control processes are
in place, providing the board with the assurance to take action when necessary.

7. Good Reputation. Strong governance leads to better products and services, enhancing
business performance and reputation within the market.

8. Enabling Better Strategic Planning. Good governance provides access to information and
close communication, enabling boards to formulate successful strategies and allocate
resources effectively.

9. Clarity. Effective governance helps banks tackle issues efficiently, reducing market impact
and containing risks internally.

10. Financial Sustainability. Good governance reduces the threats allowing the bank to
allocate resources more wisely and secure stakeholders' financial interests.

11. Higher Staff Retention. Well-defined vision and commitment to responsible practices
improve staff retention and motivation.

12. Focus on Compliance. Governance policies ensure compliance with laws and regulations,
synchronizing risk management and compliance efforts.

13. Share Value. Good governance contributes to a robust, profitable, and sustainable
institution, increasing shareholder confidence and positively impacting share price.

14. Effective Response to External Environment. Strong governance equips institutions to

effectively respond to a dynamic business environment, ensuring adaptability to changes.

By embracing good governance principles, banking institutions can strengthen their position,
foster trust among stakeholders, and contribute positively to the broader financial ecosystem.

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Question – 13. What do we understand by Vision and Mission? What is the

relation between Vision and Mission? How Mission and Vision Statements
help the company?
“Vision" and "Mission" are two fundamental components of an organization's strategic
framework that define its purpose, values, and aspirations.

Vision. A vision statement outlines the long-term, aspirational goal or future state that an
organization aims to achieve. It serves as a guiding image of what the organization hopes
to become.

Mission. A mission statement defines the organization's reason for existence and its
primary objectives. It outlines what the organization does, whom it serves, and how it
goes about fulfilling its goals.

Relationship between a vision and a mission is provided below.

Alignment. Vision and mission are aligned together i.e. vision as the goal and mission as
the path to reach it.

Inspiration and Direction. The vision inspires with a vivid future image, while the mission
guides with strategies for achieving that future.

Context and Strategy. Vision provides context for strategic decision and mission outlines
strategic choices based on that context.

In essence, the vision sets the overarching destination, while the mission outlines the
organization's purpose and the path it takes to reach that destination. Together, they
provide a cohesive framework that guides the organization's strategy, decision-making,
and day-to-day operations.

Mission and Vision Statements help the company in the following ways:

1. Guide management’s thinking on strategic issues, especially during times of significant

change.

2. Help to define performance standards

3. Inspire employees to work more productively by providing focus and common goals

4. Guide employee decision making

5. Help establish a framework for ethical behavior

6. Attract external support

7. Create closer linkages and better communication among the stakeholders

8. Enhance public relations depth

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Question – 14. What is the importance and benefits of Mission Statement?

(Purpose)
Mission statement communicates the firm’s purpose and direction to its staff, customers,
vendors, and other investors. It is the roadmap for the organization’s vision statement.

1. Clarity: It articulates the organization's purpose, offering a clear understanding of its

goals and intentions.

2. Direction: Mission statements guide decision-making and strategy, ensuring

alignment with the company's objectives.

3. Focus: They help prioritize efforts by defining what's essential, improving resource
allocation.

4. Trust: A well-crafted mission statement builds trust among stakeholders, showcasing

the company's integrity.

5. Uniqueness: It highlights what distinguishes the company from competitors,

reinforcing its identity.
6. Motivation: Mission statements inspire employees, boosting morale and dedication
to shared goals.

7. Community: They rally people around a common cause, fostering support from
customers and investors.

8. Identity: Mission statements create a brand identity, shaping how the company is
perceived.

9. Cultural Guide. They shape organizational culture by reflecting values, impacting

behavior and initiatives.

10. Performance. Clear mission statements enhance employee performance by setting

clear expectations and motivating excellence.

Question – 15. State the process to be followed while drafting overall Mission
and Vision Statements.
The key steps involved in the process of crafting Mission and Vision Statements are as
follows:
 Clearly identify the corporate culture, values, strategy and view of the future by
interviewing employees, suppliers and customers
 Address the commitment of the company to its key stakeholders
 Ensure that the objectives are measurable, the approach is actionable and the vision
is achievable.
 Communicate the message in clear, simple and precise language.

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Question – 16. Define Brand and Brand Promise. What are the elements of
effective Brand Promise?

Brand: A brand is the unique combination of a company's name, logo, visual identity,
messaging, and overall reputation that distinguishes it from competitors and creates a
perception in the minds of consumers.

Brand Promise: The brand promise is a succinct statement that communicates the value,
benefits, and expectations a brand consistently delivers to its customers. It encapsulates
the essence of what customers can expect from their interactions with the brand.

Elements of an Effective Brand Promise

 Simple: A brand promise should be concise and easily understood, conveying the
company's mission in a clear and catchy manner.

 Credible: It must align with the actual customer experience, ensuring that the brand's
promise is backed by tangible actions.

 Different: The brand promise should set the company apart from competitors,
highlighting its unique value proposition.

 Memorable: An effective promise should be memorable for both employees and

customers, influencing decision-making and interactions.

 Inspiring: The promise should evoke emotional connection and inspiration, without
overpromising or being unrealistic, driving positive associations.

These elements collectively ensure that a brand promise resonates with stakeholders and
guides the brand's actions and perceptions effectively.

Question – 17. “Although both Brand and Mission Statement are all about
what the organizations do, but their foundations and purposes are different”
– please explain.

Both Brand and Mission Statement play crucial roles in shaping an organization, but their
origins and intentions set them apart.

The mission statement focuses on the internal purpose and motivation for the company,
while the brand promise is outward-facing, ensuring a consistent experience for
customers.

Brands are promises that establish predictable consistency over the long term, serving
external audiences, while mission statements guide internal management and employee
inspiration.

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Question – 18. Distinguish between Code of Conduct and Code of Ethics.

A Code of Ethics focuses on broader principles that guide employee mindset and decision-
making, while a Code of Conduct outlines both the ethical values of the business and
specific rules for employee behavior. Typically, these two are combined into a single
document to provide a comprehensive guide for ethical behavior within the organization.

Question – 19. State the important factors need to be considered for inclusion
in Code of Conduct.
A well-structured Code of Conduct (CoC) encompasses essential elements to guide an
organization and its employees effectively:

 Company Values. A CoC should reflect the organization's values, covering ethics, social
responsibility, environmental awareness, employee rights, and a sense of
commitment.

 Employee Behavior. It outlines expected behavior, professionalism standards, anti-

discrimination policies, asset use, social media guidelines, communication rules, and
the disciplinary process.

 Internal Practices. CoC should clarify day-to-day business practices such as dress code,
leave policies, break rules, onboarding, job responsibilities, training guidelines,
attendance, phone use, and the chain of command.

 External Practices. It defines expectations for interactions with external parties,

emphasizing confidentiality, privacy, intellectual property, customer communication
standards, and conflict of interest guidelines.

A comprehensive CoC not only sets clear expectations but also aligns the organization's
values with employee behavior, internal procedures, and external interactions, fostering
a harmonious and ethical workplace environment.

Question – 20. How does a well-constructed Code of Conduct benefit an

organization and its stakeholders?

 It provides employees with a clear understanding of management's rules and

expectations, guiding their conduct, communication, and success within the company.

 The CoC establishes concrete company policies, aiding in regulatory compliance and
ensuring a consistent approach to ethical behavior.

 It communicates the organization's values to potential customers and business

partners.
 The CoC's alignment with the organization's values attracts new customers who
resonate with those values.

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Question – 21. Briefly describe the Code of Conduct specified by Bank for
International Settlements.
The Bank for International Settlements (BIS) has formulated a comprehensive Code of
Conduct for its staff, last revised on 1 June 2015. The key aspects of this Code are as
follows:

1. Basic Principles.
 Staff members must perform their duties honestly, impartially, and diligently.
 Dedication to the Bank's interests during working hours is expected, and personal
activities that interfere with responsibilities are to be avoided.
 Engaging the Bank in commitments within their scope of responsibility should benefit the
Bank's interests.
 A respectful and harassment-free work environment is promoted, and discrimination is
strictly prohibited.

2. Avoidance of Conflicts of Interest.

 Staff members must prevent situations where personal interests conflict with their duties.
 Using their position for personal gain is prohibited, and family members' employment
must not influence negotiations.
 Personal financial transactions must comply with the Bank's policy.

3. External Activities.
 Staff members are discouraged from engaging in concurrent employment, public office,
or external roles conflicting with their BIS duties.
 Participation in political activities that hinder professional responsibilities is discouraged.
 Involvement in activities that might pose financial difficulties or misuse of insider
information is not allowed.

4. Contacts with the Media and Publications.

 Authorized personnel are responsible for media contact and public statements.
 Public statements must not imply the Bank's endorsement and should not harm its
reputation.
 The Bank retains copyright for staff-produced work and can publish it.
 Accepting third-party remuneration for work during employment is prohibited.
 Participation in relevant events requires prior approval.

Duty of Confidentiality:
 Staff members are bound by strict confidentiality regarding non-public information,
whether within or outside the Bank.
 Information related to banking transactions, security measures, personnel details, and
unpublished statistical data is subject to confidentiality.
 Exceptions apply for official duties and legal obligations, but confidentiality persists even
after employment ends.

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Question – 22. How Sir Adrian Cadbury defined Corporate Governance? State
the stresses put on by the definition.

Sir Adrian Cadbury, the pioneer in raising the awareness and stimulating the debate
on CG gave a refined definition of the term which was adopted by the World Bank.
According to him CG 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 corporate governance
framework is there to encourage the efficient use of resources and equally to require
accountability for the stewardship of those resources. The aim is to align as nearly as
possible the interests of individuals, corporations and society.”

This definition stresses:

 on the importance of CG to provide the incentives and performance measures to

achieve business success

 to provide the accountability and transparency to ensure equitable distribution of

the resulting income and

 the significance of CG to enhance stability and equity of society that calls for a more
positive and proactive role for business.

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Module – B
Board and It’s Responsibilities

Question – 1. What are the responsibilities and authorities of the board of

directors as per BASEL committee?
According to the Basel Committee on Banking Supervision (BCBS), the responsibilities and
authorities of the board of directors in a banking institution should include:

1. Active Engagement. Actively engage in the bank's affairs and protect its long-term
interests by staying informed about material changes.

2. Business Objectives & Strategy. Oversee the development and implementation of the
bank's business objectives and strategy.

3. Corporate Culture. Play a lead role in establishing the bank's corporate culture and
values.

4. Governance Framework. Oversee the bank's governance framework and adapt it to

changes in size, complexity, and regulatory requirements.

5. Risk Appetite. Collaborate with senior management and the CRO to establish the
bank's risk appetite.

6. Risk Management. Ensure adherence to the Risk Appetite Statement, risk policy, and
limits.

7. Key policies. Approve key policies related to capital adequacy, compliance, and
internal controls.

8. Finance Function. Ensure the existence of a robust finance function for accounting and
financial data.

9. Financial Statements. Approve annual financial statements and independent reviews

of critical areas.

10. Senior Management. Select and oversee the CEO, senior management, and control
function heads.

11. Compensation. Monitor and review executive compensation for alignment with the
bank's risk culture.

12. Whistleblowing. Oversee the effectiveness of the bank's whistleblowing policies and
procedures.

Therefore, BASEL guidelines highlight the board of directors' crucial role in overseeing the
bank's operations, risk management, corporate culture, and governance to safeguard the
institution's stability and protect the interests of shareholders and stakeholders.

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Question – 2. What are the responsibilities and authorities of the board of

directors as per 'prudential regulations for bank (2014)' issued by Bangladesh
bank?
The responsibilities and authorities of the Board of Directors of banks in Bangladesh, as
outlined in the 'Prudential Regulations for Banks (2014)' issued by Bangladesh Bank are:

1. Work-Planning and Strategic Management:

 Determine annual objectives, goals, and strategies.
 Focus on strategies consistent with objectives and structural changes for
efficiency.
 Monitor and analyze progress quarterly and report in the Annual Report.
 Establish Key Performance Indicators (KPIs) for CEO and officers below the CEO.

2. Credit and Risk Management:

 Approve loan/investment policies, procedures, and proposals.
 Distribute loan/investment sanction power among executives, minimizing director
involvement.
 Frame risk management policies and ensure compliance, monitoring quarterly.

3. Internal Control Management:

 Oversee the bank's internal control system to maintain loan/investment portfolio
quality.
 Ensure independence of the internal audit process.
 Review audit committee reports on compliance with recommendations.

4. Human Resources Management and Development:

 Frame and approve policies for recruitment, promotion, transfer, and disciplinary
measures.
 Avoid director involvement in administrative affairs.
 Focus on staff skill development and technology adoption, promoting a compliance
culture and developing a Code of Ethics for all tiers.

5. Financial Management:
 Finalize the annual budget and statutory financial statements.
 Monitor bank financials quarterly, including income, expenditure, liquidity, and
capital adequacy.
 Establish procurement policies and approve expenditure distribution.
 Review the formation and functioning of the Asset-Liability Committee (ALCO).

6. Appointment of CEO: Appoint a suitable CEO or Managing Director with the approval
of Bangladesh Bank.

7. Other Responsibilities: Comply with responsibilities assigned by Bangladesh Bank.

8. Meeting of Board: Board of directors may meet once or more than once in a month if
necessary. But Board of directors shall meet at least once in every three months.

These responsibilities aim to ensure effective governance and management of the bank
while aligning with regulatory guidelines and the Bank Company Act.

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Question – 3. What are the committees prescribed by Bangladesh Bank each

bank needs to have to ensure the best practices of CG in Bank Management.?
Specify their organizational structure.
As per 'Prudential Regulations for Banks (2014)' of Bangladesh Bank, each bank needs to
have Executive Committee, Audit Committee and Risk Management Committee to ensure
the best practices of CG in Bank Management. Their organizational structure are as
follows:

Executive Committee. The Executive Committee, comprised of members selected from

the board of directors, is responsible for handling urgent and routine matters in between
regular board meetings. Here is an overview of the structure and key points:

 Members of the committee will be nominated by the board of directors from

themselves;
 The executive committee will comprise of maximum 07 (seven) members;
 Members may be appointed for a 03 (three)-year term of office;
 Chairman of the Board of Directors can be the chairman of executive committee;
 Company secretary of the bank will be the secretary of the executive committee.

Audit Committee. The Audit Committee plays a vital role in assisting the board of
directors in fulfilling its oversight responsibilities related to financial matters and
compliance. Here is an overview of the structure and key points:

 Members of the committee will be nominated by the board of directors from

themselves;
 The audit committee will comprise of maximum 05 (five) members, with minimum 2
(two) independent directors;
 Audit committee will comprise with directors who are not executive committee
members;
 Members may be appointed for a 03 (three) year term of office;
 Company secretary of the bank will be the secretary of the audit committee.

Risk Management Committee. The Risk Management Committee is established to

effectively address and mitigate risks arising from the board's strategies and policies,
encompassing various risk factors such as credit, foreign exchange, internal control,
compliance, money laundering, information, communication, management, interest, and
liquidity risks. Here is an overview of the structure and key points:

 Members of the committee will be nominated by the board of directors from

themselves;
 The Risk Management Committee will comprise of maximum 05 (five) members;
 Members may be appointed for a 03 (three) year term of office;
 Company secretary of the bank will be the secretary of the Risk Management
Committee.

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Question – 4. Define Strategic objectives. What is the strategic objectives of

commercial banks? Distinguish strategy and objectives. Distinguish between
goals and objectives.

Strategic Objectives.
Strategic objectives are the overarching performance goals of a banking company that
determine how it will fulfill its mission, often involving actions like launching new
products, increasing profitability, or growing market share.

Strategic Objectives of Commercial Banks.

The strategic objective of commercial banks is to enhance long-term profitability through
the effective allocation of resources in profitable ventures while managing an acceptable
level of risk. This involves serving stakeholders, ensuring the efficiency and effectiveness
of the internal control system, and maintaining a conservative approach against
surroundings conditions and economic cycles.

Distinguishing Objectives and Strategy.

An objective is a measurable, specific action an employee or team needs to take to meet
the needs of a larger company goal. A strategy, on the other hand, defines how each
employee or team will accomplish the objective. A strategy can change throughout the
course of a campaign, while an objective should remain the same.

Distinguishing Goals and Objectives.

Goals are broad, long-term outcomes that provide direction to a business, often aligning
with its vision and mission. Objectives, on the other hand, are specific, measurable actions
that individuals or teams must undertake to achieve the overall goal. The key difference
is that goals offer direction, while objectives outline how to follow that direction.

Question – 5. What is governance framework and the purpose of the same?

Governance framework is a combination of standard management practices designed to
suit the requirement and objectives of an organization. with organization's goals The
governance framework acts as an essential supporting structure, a framework of rules and
practices by which the board ensures accountability, fairness and transparency in both
how the company runs and how it communicates with its stakeholders.

The purpose of Governance Framework is to:

 set out the principles of good governance that underpin our operations; and
 outline corporate governance structure to ensure consistency across the organization.

The Framework covers:

 compliance with the statutory and regulatory framework (including the Code)
 the relevant constitutions of the group companies;
 the Group Financial Standing Orders;
 the Group Delegation Framework;
 Risk Management Policy

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Question – 6. “A governance framework consists of two distinct sides” –

explain these two sides.

A governance framework consists of two distinct sides: governance and management

(as shown in the following figure).

A governance framework recognizes the critical distinction between governance and

management. Governance, led by executive management, sets the strategic direction,
defines the vision, and ensures compliance with laws and regulations. Management,
on the other hand, is responsible for implementing the strategy, managing day-to-day
operations, and making sure that the organization's goals are effectively realized.

In essence, governance sets the vision and regulatory framework, while management
ensures strategy implementation and operational effectiveness.

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Question – 7. How to make a strong governance framework? State the

importance of Governance frameworks and structures.
Creating a strong governance framework involves organizing operational, risk
management, reporting, and financial processes to continually update the board. It
provides a structured approach for governance, ensuring that rules and systems are in
place to drive the strategic plan. A strong governance framework is crucial for
organizational success as it helps boards make informed, data-based decisions, exposes
any gaps or weaknesses within the board or management, and connects leadership with
operations effectively. It brings authority, accountability, and effective decision-making to
an organization.

Importance of Governance Frameworks and structures.

 Corporate governance is essential for displaying a company's positive traits and
promoting honesty and transparency.
 Governance frameworks provide a framework for performance, relationships,
appointments, ethical conduct, risk management, compliance, communication, and
financial reporting.
 A well-structured governance framework builds trust and credibility with
stakeholders.
 Governance frameworks help boards make informed, data-based decisions.
 They expose gaps or weaknesses within the board or management.

Question – 8. What is corporate culture? What is the importance of developing

corporate culture?
Corporate culture represents an organization's collective personality formed by the
shared beliefs, values, behaviors, and attitudes of its people. It influences how employees
interact and conduct business, encompassing elements like work environment, HR
practices, and the importance given to factors like innovation and collaboration.

Importance of developing corporate culture.

 Corporate culture significantly impacts every aspect of an organization, from its
effectiveness to financial performance.
 Well-defined cultures and appealing policies attract committed and productive
employees.
 Positive corporate cultures earn trust and support from partners, customers, and the
public.
 Organizations with strong cultures are more resilient and tend to achieve long-term
success.
 Ethical and compliant cultures reduce the risk of legal issues and reputational harm.

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Question – 9. “Considering the growing complexities of business environment,

board performance measurement should encompass areas beyond corporate
financial data” – do you agree? Justify your standing.
Yes, I do. Justifications are as follows:

Firstly, financial data can be misleading and there is a risk of bias in a singular performance
concept approach.

Secondly, Financial accounting indicators like debt, cash conversion rate, and dividend
affordability can be misleading, especially when net debt figures don't reflect the full
extent of indebtedness due to variations in credit classifications among creditors.

Question – 10. State the recommendations of BASEL committee regarding

guidelines for performance assessment of the Board?

 Review of Structure, Size, and Composition: Periodically review the board's structure,
size, and composition, as well as committee structures and coordination.

 Suitability of Board Members: Assess the ongoing suitability of each board member
at least annually, taking into account their performance on the board.

 Review of Governance Practices: Periodically review the effectiveness of its own

governance practices and procedures, identifying areas where improvements may be
needed, and making necessary changes.

 Use Assessment Results: Utilize the results of these assessments as part of the
ongoing improvement efforts of the board.

 Share Results with Supervisor: Share the results of these assessments with the
supervisor, as required by regulatory authorities.

Question – 11. When and how the Board of an FI can be dissolved and when
observer is appointed?

Dissolution of Board
Bank Company Act, 1991 has given absolute power to Bangladesh Bank to dissolve the
entire board of a bank in case it appears to the regulator that the Board is failing to secure
the interest of the depositors or the banking company. [Section 47]

Appointment of observer
In order to elevate good corporate governance, endorse proper credit disciplines and
most importantly to protect depositors (people) interest, Bangladesh Bank can appoint, if
required, an observer in the board of any bank and financial institution according to the
Bank Company Act, 1991. [Section 49]

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Module – C
CEO and Senior Management

Question – 1. What do you mean by Senior Management Team (SMT)?

Describe the role of SMT in a business. What are the functions of
MANCOM/SMT?

The term "Senior Management Team" (SMT) refers to a group of top-level executives
and leaders within an organization who collectively hold significant responsibility for
making strategic decisions and overseeing various aspects of the business.

The role of SMT in a Business.

 Devising an appropriate strategy and ensuring it is implemented effectively;

 Setting ambitious yet achievable goals, then managing teams to work towards
them;
 Coordinating activities in functional departments (i.e. finance and HR);
 Organizing the management of resources within the firm;
 Managing the demands of stakeholders through the board of directors.

Functions of MANCOM/SMT.

 Responsibilities of the SMT should include monitoring the adequacy and

effectiveness of the Internal Control System based on the bank’s established policy
and procedure.

 The SMT will review on a yearly basis the overall effectiveness of the control system
of the organization and provide a certification on a yearly basis to the Board of
Directors on the effectiveness of Internal Control policy, practice and procedure.

 The management will enrich audit teams with adequate skilled manpower and
proper IT support as per requisition of the Audit Committee of the Board (ACB) for
purposeful and effective audit.

 The management will ensure compliance of all laws and regulations that are
circulated by various regulatory authorities such as, Bangladesh Bank, Ministry of
Finance, Bangladesh Securities and Exchange Commission, etc.

 During the audit period, if the present audit team finds any lapse or irregularity
which was not detected or identified by the previous auditor, then that will be
reported to the Audit Committee.

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Question – 2. State the duties and responsibilities of Chief Executive Officer

(CEO) of a commercial bank as per BRPD circular letter no. 18, dated 27
October 2013.

The CEO of the bank, whatever name called, shall discharge the responsibilities and
affect the authorities as follows:

a. In terms of the financial, business and administrative authorities vested upon him by
the board, the CEO shall discharge his own responsibilities. He shall remain
accountable for achievement of financial and other business targets by means of
business plan, efficient implementation thereof and prudent administrative and
financial management.

b. The CEO shall ensure compliance of the Bank Company Act, 1991 and other relevant
laws and regulations in discharging routine functions of the bank.

c. At the time of presenting any memorandum in the Board Meeting or Board Committee
Meeting, the CEO must point out if there is any deviation from the Bank Company Act,
1991 and other relevant laws and regulations.

d. The CEO shall report to Bangladesh Bank any violation of the Bank Company Act, 1991
or of other laws/regulations.

e. The recruitment and promotion of all staff of the bank except those in the two tiers
below him shall rest on the CEO. He shall act in such cases in accordance with the
approved service rules on the basis of the human resources policy and sanctioned
strength of employees as approved by the board.

f. The authority relating to transfer of and disciplinary measures against the staff, except
those at two tiers below the CEO, shall rest on him, which he shall apply in accordance
with the approved service rules. Besides, under the purview of the human resources
policy as approved by the board, he shall nominate officers for training etc.

Question – 3. Can Bangladesh Bank change the CEO? How?

Yes, Bangladesh Bank has the authority to change or remove the CEO of a bank in
accordance with the provisions of section 46 of the Bank Company Act 1991.

Satisfaction of necessity. Bangladesh Bank must be satisfied that it is necessary to

prevent the affairs of the financial institution from being conducted in a manner
prejudicial to the interests of the institution, its depositors or to secure the proper
management of the financial institution in the public interest.

Written direction. The decision is made by issuing a written directive with reasons
provided for the removal.

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Question – 4. What do you mean by Organizational Culture? In what ways

organizational culture impacts business strategy?

Organizational culture can be defined as its own traditions, values, policies and
attitudes in business operation. It represents an organization's collective personality
formed by the shared beliefs, values, behaviors, and attitudes of its people. It
influences how employees interact and conduct business, encompassing elements like
work environment, HR practices, and the importance given to factors like innovation
and collaboration.

Ways organizational culture impacts business strategy.

Treatment of Employees. A positive culture that treats employees with dignity,

empathy, and respect can attract and retain talent, which ultimately benefits the
company.

Innovation and Creativity. A positive work culture fosters a positive attitude among
employees, leading to increased creativity and innovation enhancing profitability.

Company Values. Company values are integral to organizational culture and should
guide various aspects of operations including recruitment, performance reviews, and
decision-making.

Culture as a Business Strategy. Organizational culture is not just an influence on

business strategy; it is a business strategy itself. Clearly stated mission, vision, values,
and actions are essential components of a successful organization's structure.

Culture Over Strategy. In cases of conflict between culture and strategy, culture often
prevails because it can be challenging to change deeply ingrained values and beliefs. A
mismatch can result in loss of support from stakeholders.

Diverse Teams. Building a diverse team from the beginning enables better-informed
decisions, product direction, and market planning, contributing to overall growth and
success.

Empowering Employees. Prioritizing transparency and employee feedback creates a

more connected environment where employee goals align with the organizational
culture.

Unique Hiring Criteria. Strategizing continuous learning and skill development within
the organization's culture can foster loyalty and help the company become an industry
leader.

Integration of Culture and Strategy. Culture and strategy should work hand in hand.
Strategy helps break down goals into achievable steps, and culture ensures that values
and beliefs are integrated into these goals and strategies.

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Question – 5. State some measures recommended by HR experts regarding

CEO succession Plan.

The CEO succession plan measures recommended by HR experts are focused on

identifying and preparing potential successors within an organization. Here's a
summary of these key measures:

Creating a future CEO criterion. The board and current CEO should decide essential
capabilities and qualifications for a future CEO considering future revenue, market
position, customer base, size, and culture. This plan should also examine the potentials
of an internal successor or an external candidate

Building a Talent Pipeline. Once the CEO criteria are established, the organization
should identify potential internal CEO candidates and provide them with the necessary
training and development. This includes on-the-job learning, relationship building, and
formal training to groom them for the CEO role.

Assessing internal candidates. Irrespective of experience of an internal candidate,

becoming a CEO increases the complexity of their work. Thorough evaluations should
be conducted to assess their readiness and suitability for the CEO role. This evaluation
should include a comparison of internal candidates and consideration of their
strengths and weaknesses.

Benchmarking Against External Talent. To ensure a comprehensive succession plan,

organizations should benchmark internal candidates against potential external
candidates. This benchmarking process should be conducted discreetly without
notifying candidates to maintain neutrality.

Therefore, by defining criteria, building a talent pipeline, assessing internal candidates,

and benchmarking against external talent, organizations can better prepare for the
transition of leadership and ensure a smooth and successful CEO succession process.

Question – 6. “There exists a connection between Organizational culture and

Business Strategy.” – do you agree? Justify your standing.

Yes, I do agree that there is a strong connection between organizational culture and
business strategy. Organizational culture not only shapes the execution of strategy but
also influences strategic decision-making, adaptability, and employee empowerment.
Consequently, considering culture as an integral part of the strategic planning process
is essential for achieving successful outcomes.

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Module – D
Capital, Liquidity and Asset

Question – 1. Define CAR. What are the importance and implications of CAR?

Capital adequacy refers to a bank's ability to maintain an adequate amount of capital

as a safety cushion to absorb losses and mitigate risks. Capital Adequacy Ratio (CAR) is
the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.
CAR indicates the ratio of a banks' capital to its risk or credit exposures.

The importance and implications of CAR

1. Loss Absorption Cushion. CAR ensures that banks have enough cushion to absorb
reasonable amounts of losses before they become insolvent and consequently lose
depositors’ funds.

2. Financial Stability. CAR is a crucial measure to ensure the stability of individual

banks and the broader financial system. It acts as a safeguard against bank
insolvency, reducing the risk of financial crises.

3. Depositor Protection. CAR is instrumental in protecting depositors' funds. It

ensures that banks have sufficient capital to absorb losses, minimizing the risk of
depositors losing their savings.

4. Off-balance sheet exposure. CAR takes into account not only on-balance sheet
credit exposures but also off-balance sheet items (such as letters of credit,
guarantees, commitments, and contracts) and weighted similarly to on-balance
sheet exposures, contributing to a more comprehensive assessment of risk-
weighted credit exposures.

5. Risk Management. CAR encourages banks to manage and mitigate risks effectively.
Banks with higher CARs tend to adopt more prudent risk management practices.

All things considered, a bank with a high capital adequacy ratio (CAR) is perceived as
healthy and in good shape to meet its financial obligations

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Question – 2. State the Capital and Liquidity composition of a commercial bank

as per Bangladesh Bank guidelines.

1. Tier – 1 Capital (going concern capital)

A. Common Equity Tier I (CET I)

a. Paid up capital
b. Non- repayable share premium account
c. Statutory reserve
d. General reserve
e. Retained earnings
f. Dividend equalization reserve
g. Minority interest in subsidiaries

B. Additional Tier I (AT I)

Perpetual Bond

2. Tier – 2Capital (gone-concern capital)

A. General provisions
B. Subordinated Bond

Question – 3. What are the most frequently used indicators mentioned by the
European Central Bank?

Liquidity risk indicators are quantitative measures used by financial institutions to

assess and manage their exposure to liquidity risk. European Central Bank has
mentioned the most frequently used indicators as follows:

1. cash outflows for different maturity buckets, flows that are known as well as can
be expected (e.g. on the basis of statistical estimates or scenarios) may be included
as well;
2. the level of unsecured funding;
3. the ratio of liquid assets to total assets;
4. the ratio of liquid assets to contingent liabilities;
5. the ratio of liquid assets to customers' CASA deposits;
6. unused capacity in short-term borrowing;
7. large depositor concentration;
8. the ratio of term liabilities to illiquid assets;
9. intra-group exposures

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Question – 4. “Basel Committee in 2006 suggested a list of potential sources of

funding and maintaining liquidity which banks have to consider in their liquidity
management strategy” – what are the sources?
OR
“Inability to honor depositors’ demands due to liquidity problems may have
serious and negative impact on the entire financial system.” – State the
suggestions of BASEL committee in this regard.

Basel Committee in 2006 suggested a list of potential sources of funding and

maintaining liquidity which banks have to consider in their liquidity management
strategy. These funding sources include the following:

1. Deposit growth.
2. Lengthening of maturities of liabilities.
3. New issues of short and long-term debt instruments.
4. Inter-group funds transfer, new capital issues and the sale of subsidiaries lines of
business.
5. Asset securitization.
6. Sales of repo of unencumbered, highly liquid assets.
7. Drawing-down committed facilities.
8. Borrowing from the Central Bank’s managed lending facilities.

Question – 5. What assets a commercial bank maintains?

Cash: This encompasses cash in hand and balances with other banks, including
statutory reserves (CRR) held with the central bank. Banks also voluntarily hold extra
cash to address day-to-day withdrawals by depositors.

Money at Call at Short Notice: Banks lend surplus cash to other financial institutions
for short durations, typically 1 to 14 days, to earn interest without compromising
liquidity.

Investments: These include government securities, approved securities, and other

securities. Banks invest in these assets to comply with statutory liquidity requirements
and ensure they can access cash when needed.

Loans, Advances, and Bills Discounted or Purchased: These are the core assets of
banks and a primary source of income. They comprise various forms of credit, including
cash credit, overdrafts, demand loans, time loans, and term loans.

Fixed Assets: These are tangible assets like land, buildings, software, vehicles,
furniture, and office equipment that banks acquire for long-term use. While they are
not easily convertible to cash, they are essential for the bank's operations.

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Question – 6. What do we understand by problem asset? Classify the problem

assets as per existing regulations.
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. Problem assets are classified as follows:

Special Mention: This category refers to credits with potential weaknesses that require
close attention from management. While they are not classified as high-risk loans, these
potential weaknesses could lead to repayment issues or negatively impact the institution's
credit position if left unaddressed.

Substandard: Substandard credits are loans where specific weaknesses are clearly
identified and defined. These weaknesses could jeopardize repayment, especially of
interest. While these loans do pose a risk, they are not yet at a level where they are
considered uncollectible.

Doubtful, where the situation has deteriorated to such a degree that collection of the
facility amount in full is improbable and the licensee expects to sustain a loss.

Bad and Loss, this is the most severe classification, reserved for loans that are considered
uncollectible and of very little value. These loans are not practical to keep as bankable
assets, even though there may be some minimal potential for recovery in the future.

Question – 7. What are the steps to be followed to set up a Separate Special

Asset Management (SAM) or recovery unit? State the collection process of
SAM.

A separate Special Asset Management unit or recovery unit is required to be formed, for
which the following steps are required to be taken into consideration:

Collection process. The key responsibility of the recovery unit is the collection, which
includes all processes related to managing loans that are in default. The collection process
starts at the time of default and ends with the settlement and asset liquidation. It consists
of NPL transfer, management, and asset liquidation.

Structure. A recovery unit should be established as a dedicated NPL unit, with its
structure tailored to the bank's specific context and target customer base. Typically, this
organizational structure includes three key components: NPL management, asset
liquidation, and support functions

Governance. The recovery unit may either be centralized or decentralized. In the

centralized form, the unit is located in one location (usually the head office) and handles
all NPL cases. Conversely, in a decentralized approach, multiple units are established in
various geographical locations. Decentralization is often chosen when banks serve
extensive geographic areas or encounter complex legal issues due to regional regulations.

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Question – 8. What are the Best practices of problem asset management

functions?

1. Implement an independent SAM unit reporting directly to CRO/CFO and informing

the risk function.

2. Allocate each case to one collection officer, responsible for the case from start to
final settlement.

3. Assign all cases of a single debtor to one person.

4. Review and adjust collection officers’ portfolios based on workload and number.

5. Invest in improving collection officers’ negotiation skills and legal knowledge.

6. Design a specific collection path for complex cases or cases with high exposure.

7. Link collection officers’ compensation package to their individual performance.

8. Do not design an aggressive incentive scheme as it might foster unethical activities

that may harm the bank’s image.

Question – 9. “The twin considerations of profitability and liquidity guide a

bank in the selection of its asset portfolio” – Explain.

The challenge for banks is to strike the right balance between profitability and liquidity.
While assets like loans and investments can be profitable, they are not always readily
convertible into cash. On the other hand, holding too much cash or highly liquid assets
may lead to missed profit opportunities. Therefore, banks aim to create a diversified
and balanced asset portfolio that considers both factors:

 They allocate a portion of their assets to income-generating assets like loans and
investments to maximize profitability.

 Simultaneously, they maintain a portion of highly liquid assets, such as cash or

easily marketable securities, to ensure they can meet short-term cash demands
and regulatory requirements.

Question – 10. Why balances with other banks are not included in cash
reserves of banks?

Inter-bank balances are not a part of the monetary liabilities of the monetary
authority, rather these balances are only the liabilities of banks to each other. So, they
are not included in cash reserves.

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Question – 11. State the collection process of SAM.

The key responsibility of a SAM unit is collection, which includes all processes related
to managing loans that are in default. The collection process consists of three steps:

Step 1: NPL transfer. According to Basel III guidelines, loans become non-performing
after being in default for 90 days, after which the loans should be transferred to a
centralized collection unit.

Step 2: NPL management. NPL management is core to the workout unit and involves
activities such as forbearance, cash collection, and asset foreclosure.

Step 3: Asset liquidation. In the case of asset foreclosure, the bank must liquidate the
foreclosed assets as soon as possible to recover lost resources.

Question – 12. Define Risk Weighted Asset (RWA). Explain how to Assess Asset
Risk?

Risk-weighted assets (RWA) refer to the method of evaluating and quantifying the
assets based on their inherent risk levels. These risk weights are used to determine the
minimum amount of capital that a bank is required to maintain as a financial cushion
to mitigate potential losses and reduce the risk of insolvency.

How to Assess Asset Risk?

The assessment of asset risk involves categorizing assets, analyzing collateral and
credit quality, considering market and liquidity risks, examining sensitivity to interest
rates, and evaluating operational and regulatory compliance risks. Stress testing and
assigning risk weights to different asset categories based on their risk profiles are
essential steps. The total risk weighted assets reflect the bank's overall risk exposure
and help in regulatory compliance and prudent risk management.

Risk-weighted assets (RWA) are calculated by categorizing assets into different risk
classes based on their level of risk and probability of incurring losses. This classification
allows banks to assign risk weights accordingly, with riskier assets assigned higher
weights.

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Module – E
Risk Management and Control

Question – 1. What is Enterprise Risk Management (ERM)? Describe the

components of ERM.

Enterprise Risk Management (ERM) is a systematic and comprehensive approach to

managing risks across an organization by utilizing a common risk management
framework. It involves assigning clear responsibilities to individuals, implementing
repeatable processes, and leveraging suitable technology to mitigate risks in order to
protect profitability, ensure competitiveness, and enhance regulatory compliance.

Components of ERM

Code of conduct. An organization’s core values and code of conduct play a major role
in defining risk aptitude. A sound work culture sets the tone for employees’ work
standards and the ability to deal with risks.

Setting Objectives and Goals. Organizations set a mission and vision to ensure that
everyone works towards a common Goal.

Identify. Reviewing the entire portfolio to identify areas of risk through stress tests,
disaster tests, risk modeling, risk ownership, and strategic plan.

Assess. Mitigating loss begins with a robust risk assessment, evaluating inherent and
residual risk levels to determine steps needed to reduce risks.

Response. Implementing appropriate control mechanisms to mitigate high-risk areas

through credit risk policies, loan origination standards, and loan administration &
investment portfolio management.

Checks and balances. Checks and balances are necessary to ensure that the response
activities are carried out according to the policies.

Information and Communication. Effective risk management relies on every

employee's ability to identify and communicate potential risks to managers and
stakeholders.

Monitoring. Given the dynamic nature of risks in a volatile market, organizations must
regularly monitor and review their risk management strategies to adapt to changing
trends.

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Question – 2. What are the challenges to implement ERM pointed out by

Seshagiri Rao Vaidyula and Jayaprakash Kavala?

Improving efficiency. Achieving greater efficiencies in the risk and control processes,
improving coordination, unifying and streamlining approaches.

Challenging regulatory environment. Ever changing regulatory demands, high degree

of regulatory scrutiny, variation of regulations across jurisdictions, preparing to
Operationalize / compliance with Basel III.

Keeping pace with business growth and complexity. Rapid business growth,
competitive intensity, M&A activity, global expansion, increasing product complexity,
increasing customer expectations.

Attracting and retaining talent. Shortage of good talent in competitive markets,

especially in specialized areas or emerging geographies.

Managing Change. Dealing with people and organizational issues as new processes
demand new methods of work.

Fear of compliance failures and emerging risks. Fear of compliance failures despite
best efforts, due to human error or unanticipated events; identifying and preparing for
future risks.

Question – 3. Describe the benefits of maintaining effective ERM.

Ensures Compliance. ERM helps organizations remain compliant with regulations

while mitigating loss, supporting growth, and improving profitability. It fosters a
proactive risk management culture.

Sees Risk as Opportunity. ERM takes a holistic approach to risk, viewing it as an

opportunity for competitive advantage and market exploitation. It helps identify risks
in advance, preventing blindsides.

Informs Better Decisions. ERM provides essential risk data for management-level
decision-making, including risk status, emerging risks, and strategies to address or
capitalize on risks.

Cultivates Risk-Aware Culture. The process of considering potential risks fosters a risk-
aware culture within the organization, encouraging open discussions on risk
mitigation.

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Question – 4. What are the key requirements of ERM?

The key requirements for successful implementation of ERM highlighted by International
management consultancy firm McKinsey & Company are as follows:

Risk Insight and Transparency. The organization should strive for proactive risk
management by considering potential future risks, including market threats, operational
crises, and legal issues, in addition to current and past risks.

Risk Appetite and Strategy. Establishing a certain risk appetite and strategy which is
incorporated into every level of the organization. It can help to set the strategy, guiding
the business as a whole.

Risk-Related Decisions and Processes. ERM should be integrated into all aspects of the
organization, influencing processes and decisions such as mergers and acquisitions,
compliance, conduct, and performance management.

Risk Organization and Governance. Identifying financial responsibility for risk and
structuring the risk organization are crucial. This may involve appointing a chief risk officer
and departmental leaders with risk ownership.

Risk Culture and Performance Transformation. Initiatives should be introduced to

strengthen the organization's risk culture, including specific actions, team assignments,
and milestones for managing and monitoring risk effectively.

Question – 5. What is Horizon Scanning? “Horizon scanning works as an

alerting and creative activity” – please explain.

Horizon scanning is a strategic process used by organizations to systematically and

proactively monitor the external environment for potential changes, emerging trends,
and risks that could impact their operations and objectives. It involves looking beyond
the immediate present to identify factors that might come into play in the future.

The statement, "Horizon scanning works as an alerting and creative activity," means
that this process serves two key functions:

Alerting: It acts as an early warning system. By scanning the horizon for emerging
issues and risks, organizations can detect signals and indicators of potential threats or
opportunities well before they become immediate concerns. This early alerting helps
organizations prepare and respond effectively.

Creative: It encourages organizations to think creatively and imaginatively about

possible future scenarios. Instead of simply reacting to known risks, It fosters a
mindset of proactive risk management and innovation.

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Question – 6. What is Emerging Risk (ER)? Narrate the characteristics of ER.

Categorize the Emerging Risk.

Emerging risk (ER) refers to a novel or unforeseen risk that has not been previously
anticipated or exist in radar posing potential harm or loss with unknown magnitude.
In other words, emerging risks are risks which may develop or which already exist that
are difficult to quantify and may have a detrimental impact on an organization in the
future.

The Institute of Risk Management (IRM) has identified the following characteristics
of emerging risks:

1. Ambiguous. These risks are hard to define clearly.

2. Chaotic. Emerging risks are constantly changing.

3. Complex. T Emerging risks can affect a large number of factors simultaneously.

4. Changing Time-Horizon. While they may seem distant, the time frame for
emerging risks can shift.

5. Uncertain. Limited knowledge about the development and outcomes of emerging

risks makes them uncertain.

6. Uncontrollable. Often external to the organization and beyond direct control,

requiring adaptation and response.

7. Volatile. Significant changes in the risk within a short time.

The IRM identifies three categories of emerging risks

 A new risk in a known context: Risks that emerge in the external environment and
impact the organization’s existing activities. For example, if it is known that
regulations under which a bank is operating will change next year.

 A known risk in a new context: The management of a risk may need to change if a
new venture is started. For example, a commercial bank is going for an investment
banking and brokerage wing.

 A new risk in a new context: Risks not previously considered because the risk is new
to the organization.

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Question – 7. State the tools suggested by IRM which can help to understand
and prepare for future risks.

 Horizon scanning. A strategic process used by organizations to systematically and

proactively monitor the external environment for potential changes, emerging
trends, and risks that could impact their operations and objectives.

 Forecasting. using qualitative and quantitative techniques, including historical data

and statistics; individual and collective judgement; and environmental monitoring.

 Driver mapping. using an analytical tool such as STEEPLE (societal, technological,

economic, environmental, political, legal, ethical) or PESTLE (political, economic,
societal, technological and legal) to consider a wide range of potential sources of
future risk.

 Trend analysis. using mathematical techniques on historical data to predict

potential trends.

 Scenario planning. looking at possible future states on the basis of different

starting states.

 Stress testing. testing how the organization copes in the face of a range of potential
Situations.

Question – 8. What is risk appetite? Describe the benefits of articulating risk

appetite.

Risk appetite is the level and type of risk a bank is able and willing to assume in its
exposures and business activities, given its business objectives and obligations to
stakeholders (depositors, creditors, shareholders, borrowers, regulators). Risk
appetite is generally expressed through both quantitative and qualitative means and
should consider extreme conditions, events, and outcomes. It should be stated in
terms of the potential impact on profitability, capital and liquidity.

Benefits of Articulating Risk Appetite

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.

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Question – 9. State the risk management objectives focused by risk appetite

as per Bangladesh Bank guidelines.

As per Bangladesh Bank guidelines the risk appetite focuses mainly on the following
five risk management objectives:
 Upholding the highest ethical standards of conduct;
 Preserving the long-term financial resilience of the bank;
 Avoiding losses when investing public money;
 Ensuring compliance with legal and regulatory obligations;
 Maintaining a robust internal control environment and safeguarding operational
continuity

Question – 10. What are the criteria to be included in a Risk appetite

framework?

 The framework must be reviewed and endorsed by the board of directors annually.
 It should align with the organization's strategy, objectives, and the expectations of
key stakeholders.
 Cover all key risks discussing risk preferences both in terms of risks that are sought
out and risks that should be minimized;
 Risks should be meticulously documented in a risk register, including definitions,
risk owners, measurement methods, assumptions, severity and likelihood
judgments, and the speed of risk manifestation.
 Recognize that losses are a part of business, and set loss tolerances reflective of
overall business objectives.
 Reflect the human and technological resources necessary to measure and manage
the bank's risks in a timely manner.

Question – 11. Describe the steps in Developing Risk Appetite Statement.

 Start with the bank’s overall strategic and financial objectives.

 Consider annual reports and financial statements, regulatory requirements, Peer
group and industry-wise growth, bank’s own portfolio growth, trend of NPL,
profitability and capital, liquidity position, risk management culture and practices etc.
 Determine the bank’s risk profile.
 Set tolerances for exposures and potential losses in consultation with the business
line and related departments.
 Get board approval and communicate it throughout the organization.

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Question – 12. What are the material risk which can be managed?

Material risks are those risks that are recognized by management as having the
potential to materially impact the company's business performance. The followings
are the material risks which can be managed or minimized adopting various measures:

1. Credit Risk. The risk of loss due to a borrower's failure to repay debts. This is
managed by assessing customers' credit risk thoroughly and ensuring adequate
capital and reserves.

2. Market Risk. Arises from capital market activities and can be mitigated through
diversification and hedging investments.

3. Liquidity Risk. Inability to meet funding obligations can lead to a bank run. It's
mitigated through financial planning, cash flow forecasting, and managing credit
facilities.

4. Interest Rate Risk. The risk of decline in asset value due to unexpected interest
rate fluctuations. Diversification and hedging using derivatives can help mitigate
this risk.

5. Operational Risk. Losses due to errors, interruptions, or damages in processes.

Mitigated by strong internal auditing procedures and insurance against potential
losses.

6. Information Technology Risk. Risk arising from faulty or obsolete technology

choices. Mitigated by investing in a robust IT infrastructure and implementing
effective IT risk management practices.

7. Legal Risk. Risk of financial or reputational loss due to legal issues. Reduced by
employing legal experts to review regulatory and litigation risks.

8. Compliance Risk. Risk from non-adherence to regulatory requirements. Managed

through strict adherence to regulations and monitoring changes in regulatory
environments.

9. Reputation Risk. Risk arising from negative publicity or public sanctions. Mitigated
by adhering to legal and ethical standards and maintaining good relationships with
stakeholders.

10. Strategic Risk. Risks that could prevent the organization from achieving its goals.
Managed through clear strategic decisions, adaptability, and staying informed
about market changes.

Effectively managing these material risks involves a proactive approach, thorough

analysis, strategic planning, and continuous monitoring to ensure the organization's
resilience and success.

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Question – 13. What are the regulatory requirements and compliance

challenges faced by financial institutions? State three core principles to
address these challenges.

Banking industry faces regulatory requirements and compliance challenges like:

 Evolving Regulations. The banking industry faces challenges with continuously
evolving and demanding global regulations, necessitating enhanced compliance
skills

 BASEL III Compliance. Basel III requirements drive the need for innovative and cost-
effective changes in risk management functions to detect, measure, and report
emerging risks effectively.

 Money Laundering. Money laundering scandals can emerge without the banks'
knowledge. Mitigating this risk necessitates stringent anti-money laundering
measures and robust compliance protocols.

 Complex Reporting standards. Proper reporting is a demanding requirement for

banks and each field of reporting has different reporting standards, which makes
the reporting projects more complicated and challenging.

 Data Management and Privacy. Safeguarding vast amounts of personal data

necessitates meticulous data storage, management, and secrecy measures.

Three core principles to address the challenges.

1. Role of compliance and active ownership of the risk-and-control framework.

Banks should evolve their compliance departments from advisors to active risk
managers. This transformation involves moving beyond providing advice on
regulatory matters and assuming a role as active co-owners of risks.

2. Transparency in Residual Risk and Control Effectiveness. Achieve a

comprehensive view of material risk exposures and control effectiveness by:
a. Defining objective criteria for identifying "high-risk processes" to avoid
discrepancies.
b. Focusing on material risk exposures rather than exhaustive documentation of
all risks and controls.

3. Integration for Comprehensive Risk Management. To effectively manage

compliance risks, integration with overall risk management, regulatory affairs, and
issue management is crucial. Compliance risks share common underlying factors
with other banking risks, but the stakes are higher in adverse outcomes.

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Question – 14. What do we understand by three lines of defense? Elaborate

the lines. How the 2nd line functions can be strength?

The concept of "three lines of defense" is a widely recognized risk management

framework used by organizations to effectively manage risks and ensure strong
internal controls. Each line represents a distinct level of defense to mitigate risks and
achieve compliance.

First Line of Defense: Business Operations.

 Leads and directs actions to achieve organizational objectives.

 Manages risks and allocates resources effectively.
 Maintains continuous dialogue with the governing body.
 Reports on planned, actual, and expected outcomes related to organizational
objectives and risks.
 Establishes and maintains appropriate operational and risk management
structures and processes.
 Ensures compliance with legal, regulatory, and ethical expectations.

Second Line of Defense: Risk and Control Functions.

 Provides complementary expertise, support, monitoring, and challenge related to

the management of risk, including:
 The development, implementation, and continuous improvement of risk
management practices
 The achievement of risk management objectives, such as: compliance with

 Provides analysis and reports on the adequacy and effectiveness of risk

management

Third Line of Defense: Internal Audit.

 Maintains primary accountability to the Board of Directors or Audit Committee,

ensuring independence from management responsibilities.

 Communicates independent, objective assurance, and advice on governance and

risk management effectiveness to facilitate organizational objectives and
continuous improvement to management and the Audit Committee.

 Reports any impairments to independence and objectivity to the Audit Committee

and implements necessary safeguards.

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Question – 15. How the 2nd line functions can be strength?

Strengthening the Second Line Functions as mentioned by the Institute of Internal

Auditors in their global document are depicted 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 emerging 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
remediation of deficiencies.

Question – 16. State the overall benefits of implementing Three Line model.

 Enhanced Risk Coverage: Comprehensive identification and allocation of risks and

controls across the organization.
 Improved Control Culture: A deeper understanding of risks and controls, leading to
a culture of accountability and risk awareness.
 Efficient Reporting: Coordinated reporting, providing timely and insightful
information to the board and top management.

Question – 17. Define Risk Culture.

Risk culture refers to the collective values, beliefs, knowledge, attitudes, and behaviors
within an organization that shape its approach to risks, risk-taking, and risk
management. Basel's Principles describe risk culture as the collective values, attitudes,
competencies, and behavior determining a firm's commitment to and style of
operational risk management.

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Question – 18. State the critical elements which reinforce for creating strong
risk culture.

 A clear and well communicated risk strategy.

 High standard of analytical rigor and information sharing across the organization.
 Rapid escalation of threats or concerns to the appropriate authority.
 Visible and consistent role-modelling of desired behaviors and standards by senior
managers.
 Incentive that encourages people to do the right thing and think about the overall
health of the whole organization.
 Continuous and constructive challenging of actions and preconceptions at all levels
of the organization.

Question – 19. Why the risk culture may be failed in an organization?

1. Transparency.
a. Poor Communication. Failure to effectively communicate risk-related
information and warning signs within the organization.
b. Unclear Tolerance. Lack of a clearly communicated risk appetite or inconsistent
approach to risk strategy.
c. Lack of Insight. Inadequate understanding of risks or over-reliance on risk
specialists for risk comprehension.

2. Acknowledgment of Risk.
a. Overconfidence. Belief in organizational invincibility, leading to
underestimation or neglect of potential risks.
b. No Challenge Culture. Absence of a culture that encourages individuals to
challenge prevailing attitudes and decisions regarding risks.
c. Fear of Reporting Bad News. Fear of reporting bad news hampers risk
management and learning from mistakes.

3. Responsiveness to Risk.
a. Indifference. Indifference in culture discourages responding to risks and
recognizing their potential impact on the organization.
b. Slow Response. Delayed or inadequate response to changes or emerging risks.

4. Respect for Risks.

a. Co-operation. Lack of cooperation
b. Adherence to Rules. Lack of adherence to established rules and procedures.

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Module – F
Subsidiary and Other Business Governance

Question – 1. What are the services provided by Merchant Banking in

Bangladesh?

 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. In case of new issue or right issue, 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. Merchant bank acts as the custodian of shares of

the clients, provides them information and helps them constricting a portfolio that
minimizes risk and maximizes return. Merchant Bank provides its clients financing
facility against their investment known as margin loan through Bank Discretionary
Account and Investor’s Discretionary Account.

 Structured Finance. Structured finance is a form of financial intermediation for

complex financing needs that cannot be met with conventional financing. Usually
syndicated loans are arranged under this sort of financing in Bangladesh.
Structured financing like CDO and CBO are still not available in Bangladesh.

Question – 2. Define Collateralized Debt Obligation (CDO) and Collateralized

Bond Obligation (CBO).

 Collateralized Debt Obligation (CDO) is a complex structured finance product that

is backed by a pool of loans and other assets and sold to institutional investors. It
functions as a derivative, deriving its value from an underlying asset. If a loan
defaults, these assets serve as collateral.

 Collateralized Bond Obligation (CBO) is a structured finance product that

consolidates multiple junk bonds to form an investment-grade security. This
pooling reduces risk through diversification making the pooled security less risky
for investors.

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Question – 3. Define Mobile Financial Services (MFS). Describe the importance

of MFS in digital agenda.

Mobile Financial Services (MFS) refer to financial services that integrate banking with
mobile wireless networks, enabling customers to conduct banking and financial
transactions using their mobile phones. Transactions can be conducted via
Unstructured Supplementary Service Data (USSD), SMS, or specific mobile apps.

Importance of MFS in digital agenda.

 Financial Inclusion. MFS enables access to financial services for the unbanked and
underbanked.

 Convenience and Access. It provides easy, anytime access to a range of financial

services using mobile devices enhancing accessibility for all.

 Cost-Efficiency. MFS reduces transaction costs, making financial transactions more

affordable and viable.

 Diverse Services. MFS covers a broad spectrum of payment services, catering to

various financial needs and preferences, from person-to-person transfers to bill
payments.

 Government and Business Transactions. MFS streamlines transactions with

governments and businesses, making payments like taxes, pensions, and salaries
more efficient.

Question – 4. Define Mobile Banking and Mobile Money.

Mobile banking.
The use of a mobile phone to access banking services encompassing both transactional
activities and non-transactional services. It is part of electronic banking (e-banking)
and operates through various electronic channels i.e. internet, point-of-sale (POS)
terminals, and ATMs.

Mobile Money.
Mobile money is a transactional service facilitated through mobile networks, allowing
electronic transfer of funds. The service can be provided by a mobile network operator
(MNO) or a third party like a bank, depending on local regulations

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Question – 5. State the categories of payment services provided by MFS

providers as permitted by Bangladesh Bank. Briefly discuss the Permissible
model for MFS providers.

Categories of Payment Services provided by MFS providers.

 Cash-in and Cash-out through agents, branch, ATM, Cards, Linked bank accounts.
 Person to Business Payments: utility bills, merchant payments, mobile top-up.
 Business to Person Payments: salary disbursements, dividend/refund warrant.
 Person to Person Payments.
 Business to Business Payments: vendor payment, supply chain management
payments.
 Online and E-commerce Payments.
 Government to Person Payments: pension, subsidies and various allowances.
 Person to Government Payments: tax, fee, levy payments, toll charge, fine etc.
 Disbursement of Inward Foreign Remittances
 Loan Disbursements and Other Approved Payments

Permissible Model for MFS Providers.

 MFS providers in Bangladesh are led by scheduled commercial banks or financial

institutions licensed by Bangladesh Bank or a Government Entity. Scheduled
commercial banks that are already operating in the MFS sector can continue with
their existing license or may choose to form a subsidiary.

 In case of new applicants, scheduled commercial bank(s) or financial institution(s)

or Government Entity shall have to form a subsidiary. The scheduled
bank(s)/FI(s)/Government Entity interested to form a subsidiary, for the purpose
of providing MFS, shall focus entirely on providing mobile financial services. In case
of a subsidiary following models are permitted:

 Parent entity must hold at least 51% of the subsidiary's equity capital

 Equity partnerships allowed with specified business entities:

 Bank(s), financial institution(s) and Government Entity;

 NGOs, investment and fintech

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Question – 6. What is the core philosophy of agent banking? Why has it

become so popular and preferred to traditional branch banking?

The core philosophy of agent banking revolves around enhancing financial inclusion
and accessibility. It is designed to bring formal banking services directly to the
doorsteps of underserved and unbanked populations, especially in rural or remote
areas. Therefore, it bridges the gap between the bank and the unbanked people.

Reasons for Popularity and Preference over Traditional Branch Banking:

 Accessibility. Ensuring that banking services are available and easily reachable for
all, irrespective of geographic location.

 Affordability. Offering cost-effective solutions, reducing the financial burden on

both customers and banks, especially in terms of establishing and maintaining
physical branches.

 Financial Inclusion. Agent banking promotes financial inclusion by reaching

previously underserved and unbanked populations.

 Simplicity. Simplifying the banking process, making it user-friendly and easy to

understand, thus encouraging more people to use banking services.

 Customer Engagement. Local agents establish direct relationships with customers,

fostering trust and encouraging banking service usage within communities.

 Customization. Tailoring services to meet the specific needs and preferences of the
local population and understanding of their unique requirements.

Question – 7. What are the services covered under agent banking?

 Collection of small value cash deposits and cash withdrawals

 Inward foreign remittance disbursement
 Facilitating small value loan disbursement and loan recovery
 Utility bill payments
 Cash payments under social safety net programs
 Facilitating fund transfers
 Balance inquiries
 Collection and processing of forms/documents related to account opening, loan
application, etc.
 Post sanction monitoring of loans and advances.

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Question – 8. What are the services agents are not allowed to provide?
 Final approval of opening of bank accounts and issuance of bank cards/cheques;
 Dealing with loan/ financial appraisal
 Encashment of cheques and
 Dealing in Foreign currency

Question – 9. What are the issues to be taken into consideration for selecting
agents?

 Competence to implement and support the proposed activities;

 Financial soundness and cash handling capability;
 Ability to meet commitments under adverse conditions;
 Business reputation;
 Ability to offer technology based financial services;
 Security and internal control, audit coverage, reporting and monitoring capacity.
 Loan defaulter or the convicted person cannot apply for agency ship.

Question – 10. State the Customer protection policy under Agent Banking
System.

 Banks must offer approved products and services in line with guidelines.
 Visible display of the bank's identification/logo, name, contact address, and
telephone number is mandatory at agent service premises.
 Banks should introduce agents to the public, elucidating their activities, limitations,
and ensuring agents are well-known in specific areas.
 Fees and charges for services are transparently published in brochures at agent
outlets for client information.
 Banks create customer awareness in the local language regarding agent banking,
covering customer rights and transaction safety measures.
 Banks develop a business continuity plan to ensure uninterrupted services for
customers in case of agent failure or termination.
 Termination notices for agents are published within the agent's operating locality
upon contract termination.
 Agents managing multiple banks ensure no amalgamation or overlapping in
customer databases across different banks.
 Customers can lodge complaints regarding agent banking with the Customers'
Interests Protection Centre (CIPC) of Bangladesh Bank.

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Question – 11. State the Permissible activities and Limitations on activities of

OBUs as guided by Bangladesh Bank.

1. Operations/Transactions with Enterprises in EPZs, PEPZs, EZs and Hi-tech Parks

a. Fully Foreign-Owned Enterprises. Limited to accepting deposits, short-term
loans, investments, bill discounting, bill negotiation, issuing letters of credit,
and guarantees. Medium and long-term financing require prior permission
from Bangladesh Bank.
b. Enterprises Other Than Fully Foreign-Owned. Allowed to make loans/advances
with prior permission from Bangladesh Bank.

2. Operations/Transactions with Juristic Persons Not Resident in Bangladesh.

a. Limited to accepting deposits and borrowings.
b. Exceptions possible with prior permission, ensuring the loan/advance is
covered by a guarantee/letter of credit from a licensed foreign bank or foreign
exchange brought into Bangladesh.

3. Operations/Transactions with Natural Persons Not Resident in Bangladesh.

Limited to accepting deposits.

4. Operations/Transactions with Persons Resident in Bangladesh.

Discounting bills accepted by Authorized Dealers (ADs) in Bangladesh against
import Letters of Credit (L/Cs) opened on deferred/Usance basis.

Question – 12. State the Limitations on activities of OBUs as guided by BB.

1. Banks cannot engage in any transactions beyond those specified in BB guidelines.

2. Banks are prohibited from accepting deposits or loans that are repayable on
demand through instruments like cheques, drafts, or pay orders.

3. Banks cannot place funds in the Domestic Banking Unit (DBU).

4. Any transactions using the NOSTRO Account of the domestic banking operation.

5. Banks cannot remit money to any overseas destinations other than for the
specified operation/transactions in BB guidelines.

6. Banks cannot grant credit facilities exceeding the prescribed quota by Bangladesh
Bank to their 'Bank Related Persons’ even if any of them are NRBs.

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Module – G
Stakeholder Governance
Question – 1. How relationship with regulators can be maintained?
Maintaining a constructive engagement strategy with regulators is crucial for businesses
and avoiding or opposing regulators is often misguided. There are four phases of desired
relationship with regulators:
1. During quiet periods.
2. During industry-wide regulatory changes.
3. During regulatory examinations.
4. During investigations.

In each phase, building and maintaining a cooperative relationship with regulators is

critical as it can lead to better compliance, smoother regulatory interactions, and a more
favorable outcome.

Relationship with the regulators can be strengthened in the following way:

 Regular meetings
 By creating workgroups to keep rapport with Bangladesh Bank on regulatory
guidelines, new legislations, laws and other matters
 Written communication
 Proper submission of regulatory returns

Question – 2. “Relationship with the shareholders is the cornerstone for the

life of a bank” – explain. State the value of communicating with the
shareholders.

A strong and transparent relationship with shareholders is crucial for a bank's

sustainability. Open and transparent communication is essential to fulfill promises made
to shareholders at the time of their investment, fostering trust and commitment to the
company's vision, ultimately facilitating long-term growth.

The benefits of effective shareholder communication include:

 Strengthening Relationships. Improved communication fosters stronger bonds with

shareholders attracting more funding and networking opportunities.

 Boosting Shareholder Trust. Frequent, honest and clear communication helps them
understand the value of their investment and prevents perceived risks.

 Mitigating Risks. Regular communication provides shareholders with insight into

company affairs, reducing the likelihood of them seeking alternative means to voice
their concerns.

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Question – 3. What are the principles of Shareholder Communication?

The principles of shareholder communication encompass the fundamental guidelines and

practices that companies follow to effectively engage and communicate with their
shareholders.

 Focus on Business Strategy. Communicating the company's plans and business

strategy to boost shareholders' confidence in their investments and safety.

 Timely and Relevant Updates. Sharing important and relevant information to ensure
that shareholders stay informed and engaged.

 Plan on Full Disclosure. Being transparent about both positive and negative news to
maintain credibility and trust among shareholders.

 Updates of Company Performance. Providing clear, data-backed updates on the

company's performance and key indicators helping shareholders understand progress
and results.

 Build Shareholder Relationships. Tailor communications to different shareholder

groups based on their interests and relationships with the company, aiming to build
strong relationships and ensure effective communication.

 Crisis Communication Plan. Establish a crisis communication plan to respond

effectively to unexpected events that may impact the company, ensuring consistent
messaging and minimizing negative speculation.

Question – 4. Why relationship with the competitors is so important?

A strong relationship with competitors in the banking industry is crucial due to several
reasons:

 Facilitating improvement. Collaboration with competitors can lead to improved

business practices and performance.

 Fostering focus. Competitors keep organizations focused, driving them to maintain

their competitive edge.

 Sustaining success. Sustainable success is ensured through competition, preventing

monopolies and promoting industry evolution.

 Preventing acquisitions. Strategic alliances with competitors can safeguard

organizations from acquisition by stronger players.

 Mutual benefits. Collaborative information sharing with competitors can result in

mutual benefits and business growth.

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Question – 5. "The relationship between banker and customer is not only that
of a debtor and creditor, they have other relationships too."-Describe the
relationships.

The basic relationship between a banker and his customer is that of debtor and creditor.
Besides, there are numerous kinds of relationship between the bank and the customer. In
fact, the relationship between banker and customer is contractual in nature. Since bank
offers the variety of services to the customer, the relationship between the bank and the
customer vary according to the type of service rendered by the bank. Banker customer
relationship may be divided into followings:
1. General/Contractual Relationship
2. Special Relationship

1. General/Contractual Relationship.

 Relationship of Debtor and Creditor. Deposits made by customers are essentially

loans to the bank, making customers creditors and the bank the debtor. Conversely,
when the bank lends money to a customer, the bank becomes the creditor, and the
customer becomes the debtor.

 Relationship of Trustee and Beneficiary. When a bank holds securities or documents

in safe custody for a customer.

 Relationship of Lessor and Lessee. Renting a safe deposit locker from the bank
establishes a lessor-lessee relationship.

 Relationship of Principal and Agent. Banks act as agents for customers in various
transactions, such as collecting cheques, bills, and making regular payments.

 Relationship of Assigner and Assignee. Assigning security rights or transferring assets

(e.g., insurance policies) to the bank as collateral for borrowed money.

 Relationship of Bailor and Bailee. Bailment of goods/products by customer to secure

money lent by bank.

2. Special Relationship:

 Rights of a Banker.
 Banker’s Right to Lien
 Banker’s Right to Set-Off
 Banker’s Right to appropriate payment
 Right to Charge Interest and Commission
 Right under Garnishee order
 Obligations of a Banker.
 Obligation to honour the customer’s cheques.
 Obligation to maintain secrecy of customer’s account.
 Obligation to maintain proper records.

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Question – 6. How deeper relationship can be built with the customers?

To deepen relationships with modern banking customers and meet their evolving
expectations in this digital age, banks should:

Offer timely and efficient services. Providing seamless and efficient mobile banking
services tailored to the on-the-go lifestyle of modern customers through user friendly
interface.

Remove unnecessary friction. Guiding customers through regulatory changes and new
laws and minimizing unnecessary friction in the process.

Personalize interactions. Personalizing interactions by understanding individual

preferences and behaviors to enhance service and communication.

Prioritize Customer Experience. Enhancing the overall customer experience by providing

relevant and personal services and connect with customers.

Fostering trust. Enhancing customer trust through continuous investment in security

measures and providing educational content on safe financial practices.

Prioritize customer needs. Aligning the bank's mission with helping customers achieve
their financial goals and projects while providing assistance to overcome challenges.

Question – 7. State the Complaint Management procedure as mentioned by

Bangladesh Bank.
Complaints Lodgment.
 Banks/FIs may facilitate the customers to lodge complaints by any available means:
letter, telephone, facsimile, email, or in person.
 Electronic complaints lodgment system can be produced in the web portal.
 Customers are allowed to register complaints at any branch, and banks must accept
complaints from both customers and their authorized representatives
 A description of the complaints handling system should be accessible/available to
customers

Complaints Recording. Banks/FIs maintain Complaints Registers, recording details such

as date of complaints, complainant's contact information, brief description of the
complaints, officials handling the complaints, resolution status, and settlement date.

Complaints Prioritization. Complaints are categorized based on gravity and sensitivity,

marked as Highly Sensitive (H.S.), Sensitive (S), or General (G) to prioritize handling.

Complaints Resolution. The Complaint Management Team follows a systematic

resolution procedure involving acknowledgment, screening, departmental actions, appeal
and review, and response and closure.

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Question – 8. What are the benefits of relationship with Media?

 Trust Development. Media endorsement builds credibility and trust, influencing

potential customers more than direct brand messaging.

 Brand Reach. Media coverage expands brand exposure beyond existing audiences,
attracting new customers and boosting sales opportunities.

 Authority Establishment. Media relations help position a company as an industry

authority through stringent editorial guidelines and credible reporting.

 Talent Attraction and Retention. Positive media coverage enhances employee

morale and attracts prospective talent and vendors seeking reputable and credible
employers.

 Crisis Management Support. A strong media relationship aids in effective

communication and damage control during crises or challenging situations.

 Improved Investor Relations. Positive media exposure attracts investors and

strengthens relationships with existing ones, showcasing the company's growth.

Question – 9. State Media relations strategy.

Building an effective media relations strategy requires a strategic and systematic

approach. Here are the steps to create a robust media relations strategy:

 Target audience. Defining the target audience will give a better insight into who a
company is trying to connect with via media relationships. For instance, if the
target audience are younger people, then it might make more sense to use social
media as a media outlet than newspapers or television.

 Location of audience. If most of the target customers are online, then digital
forms of media. This may include blogs, and even dedicated industry forums.

 People having influence over customers. It is important to ensure to build

relationships with the media experts that can really drive a message home. That is
to assess as to who is more likely to appeal to the target customers, social media,
or a journalist.

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Question – 10. What are the importance of Community Relations?

Giving Back to the Community. Businesses engaging in community relations

contribute to the community's welfare through donations and services benefiting the
recipients.

Enhancing Credibility and Personal Connection. Community relations builds

credibility for businesses, creating a personal connection with customers through a
solid strategy.

Attracting Attention. Combining community relations with public relations attracts

more attention and generates positive sentiment, drawing locals to the business.

Growing Networks. Investing time in community relations helps expand networks,

retain employees, and form partnerships with local businesses, enhancing credibility.

Question – 11. State the critical role played by CSR in Community

Development.

Corporate Social Responsibility (CSR) involves businesses adopting ethical and socially
responsible strategies. The implications of CSR on the community and its development
are significant:

 Enhanced Branding and Value Proposition. CSR elevates a company's image

beyond just profit-making, enhancing its brand value and market standing.

 Attractive Employer Image. Organizations known for CSR can improve their appeal
as employers, attracting talent and fostering a positive work environment.

 Positive Employee Attitudes and Performance. Employees view socially

responsible organizations more favorably, leading to positive attitudes and
improved performance.

 Technology Transfer and Community Ties. Closer relationships between

businesses engaged in CSR and the community facilitate technology transfer,
supporting sustainable development.

 Promoting Sustainable Development. CSR fosters a sustainable partnership

between large corporations and communities, aiding long-term development.

 Various Community Contributions. CSR extends to community education,

healthcare, disaster relief, cultural welfare, infrastructure development, and
income-generating activities, enriching the community.

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Question – 12. What are the BIS principles on disclosures?

BIS has outlined fundamental principles for effective Pillar 3 disclosures by banks aiming
to enhance market discipline which are as follows:

Principle 1: Clarity of Disclosures. Disclosures should be clear and easily understandable

to key stakeholders, with important messages highlighted and complex issues explained
simply.

Principle 2: Comprehensive Disclosures. Disclosures should comprehensively describe a

bank's main activities and significant risks supported by relevant data and information.

Principle 3: Meaningful Information for Users. Disclosures should emphasize a bank's

most significant current and emerging risks along with their management strategies.

Principle 4: Consistency Over Time. Disclosures should maintain consistency over time to
identify trends in a bank's risk profile, while highlighting important changes.

Principle 5: Comparability Across Banks. Disclosures should enable meaningful

comparisons of business activities, risks, and risk management across banks and
jurisdictions through consistent formatting and detailed information.

Question – 13. State the importance of full disclosure in the corporate and
financial world.
 Ensures Transparency. Full disclosure enhances transparency, aiding stakeholders in
making informed decisions and preventing misuse of funds.

 Prevents Financial Crises. Increased transparency helps avoid financial and economic
crises by minimizing mishandling of funds and promoting market accountability.

 Mitigates Unethical Practices. Full disclosure prevents insider trading and window
dressing, promoting fair market practices and integrity.

 Informs Depositor Decisions. Provides depositors with relevant information to make

informed decisions, fostering confidence and reducing mistrust.

 Reduces Market Uncertainty. Decreases market volatility and uncertainty by offering

comprehensive information, ensuring stability and investor confidence.

 Boosts Stock Value. Enhances the stock value of transparent banking companies, as
investors gain confidence in their financial stability and performance.

 Minimizes Legal Issues. Reduces the likelihood of legal problems through

comprehensive disclosure, saving time and money associated with legal battles.

 Facilitates Error Rectification. Simplifies the process of correcting mistakes or errors

in financial statements by disclosing all relevant information upfront.

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Module – H
Future Looking Organizations

Question – 1. Define Future looking organizations. What are the

strategies/features of Future Looking Organizations? Describe in brief.

Future-looking organization is one that takes a proactive and forward-thinking

approach to remain competitive and relevant in a rapidly changing world. It actively
anticipates and prepares for future trends, challenges, and opportunities for staying
ahead of the curve and adapting to changing circumstances.

Strategies/Features of Future Looking Organizations

 Partnering with Competitors. Active collaboration with competitors and industry

counterparts to share knowledge, technology, and drive innovation together.

 Explore Early-to-Exploit Know-How Sooner. Exploring new areas while exploiting

existing opportunities instead of focusing largely on short-term exploitation.

 Digitalization of the entire process. Comprehensive digitalization optimizing all

aspects of the operation to ensure personalized customer services across all
products.

 Clear with decision to move quickly. Streamlined decision-making process that

enables rapid choices and identifying decisions that can be reversed to maintain
agility and speed.

 Prioritizing Consumer experience. Prioritizing the customer experience and focus

on understanding and meeting consumer needs and expectations.

 Building digital workforce. Investing in workforce, optimizing existing systems,

automating tasks and recruiting tech talent as needed to stay competitive.

 Reconsidering outdated procedures. Modernize and revamp outdated systems

and processes that act as obstacles to growth and innovation.

 Technological readiness. Embracing technology and digital transformation

ensuring the availability of tools and infrastructure to thrive in an increasingly
digital world.

In summary, future-looking organizations prioritize agility, innovation, customer-

centricity, and strategic partnerships while embracing digitalization and efficient
decision-making to thrive in a rapidly evolving business landscape.

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Question – 2. Define Market Positioning. What are the steps to ensure

effective market positioning?

Market Positioning refers to the ability to influence consumer perception about a

brand or product in relation to other competitors. The objective of market positioning
is to establish the image or identity of a brand or product so that consumers perceive
it in a certain way.

Step – 1. Determine company uniqueness by comparing to competitors. Compare

and contrast differences between a company and its' competitors to identify
opportunities. Focus to be put on strengths and the ways how they can exploit these
opportunities.

Step – 2. Identify current market position. Identifying existing market position and
assessing how the new positioning will be beneficial in setting the company apart from
competitors.

Step – 3. Competitor positioning analysis. Identifying the conditions of the

marketplace and the amount of influence each competitor can have on each other.

Step – 4. Develop a positioning strategy. A clear and compelling positioning strategy

should be crafted based on the insights gained from the previous steps, defining how
the brand or product is to be perceived by consumers, differentiating it from
competitors, aligning with the company's strengths, and capitalizing on market
opportunities.

In summary, effective market positioning involves a strategic process of understanding

your uniqueness, assessing your current position, analyzing competitors and crafting
a positioning strategy.

Question – 3. What do you mean by market repositioning?

Market Repositioning is a strategy that is used to change the way that a product or
company is perceived by consumers. It can involve changing the marketing message,
the target market, or the product itself.

Repositioning can be a good way to revitalize a brand or product that is struggling or

to attract new customers who may not have been interested in the product before.

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Question – 4. What is meant by digital agenda? Describe the components of

digital agenda. What are the objectives of digitalization?

A "digital agenda" refers to a strategic plan or framework that outlines the specific
measures and actions required to drive the digital transformation of a particular entity.
It is a comprehensive approach to leverage digital technologies to achieve specific
objectives, enhance efficiency, and stay competitive.

Components of Digital Agenda

 Customer Relationship. Enhancing customer interactions and experiences through

digital channels such as websites, mobile apps, and social media to improve
customer satisfaction and loyalty.

 Omni-channel experiences. Ensuring a seamless and delightful experience for

customers across various channels including offline, online, mobile, and other
relevant platforms.

 Process Optimization. Improving core business processes by applying

harmonization and digital tools to eliminate unnecessary steps or dependencies.

 Marketing. Leveraging digital marketing channels to align digital marketing

strategies, communications, content creation, sales funnels, and customer
journeys.

 Commercialization. Embracing digital offerings and selling them through digital

channels while utilizing digital tools.

 Technology. Exploring new global digital opportunities, identifying emerging

trends, assessing competitors' innovations, leveraging valuable academic
contributions, and developing relevant technologies to enhance digital assets.

Objectives of Digitalization.

 Revenue Growth. Digitalization introduces new digital products, services and

channels to boost revenue. It enhances customer experiences leading to increased
income.

 Transformation. It transforms the business, attracting digital talent and opening

doors to new industries or segments.

 Competitiveness. Digitalization improves competitiveness by offering higher

quality, faster delivery and reduced environmental impact.

 Cost Reduction. Automation and optimization through digitalization reduce

operational costs and enhance efficiency.

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Question – 5. Define succession planning. What are the benefits of Succession

Planning? State the process of Succession Planning and Management.
Succession planning is a strategic business approach where companies prepare for the
transfer of leadership roles to other employees or a group of individuals. The process
involves identifying and grooming potential successors, either from within the
organization or externally, through assessments and training.

Benefits of Succession planning

 It empowers employees with the prospect of advancement and ownership, leading to

increased job satisfaction.
 A clear plan reinforces employees' career development and growth opportunities.
 Commitment to succession planning encourages mentoring and knowledge transfer
from supervisors.
 Effective tracking of employee skills ensures internal filling of positions when needed.
 It aligns leadership and employees with company values and vision.
 Succession planning prepares for leadership transitions due to retirements or
departures.
 Shareholders benefit from transparency in leadership transitions, helping to retain
stock value and investor confidence in public companies.

Process of Succession planning

1. Identify Key Areas and Positions. Determine which roles are critical to the organization's
operations and strategic goals, focusing on positions essential for achieving business
objectives and ensuring public safety and security.

2. Identify Capabilities for Key Areas and Positions. Define the necessary knowledge, skills,
abilities, and competencies required for key positions, aligning them with the
organization's leadership competencies and informing employees about these
requirements.

3. Identify Interested Employees and Assess Them Against Capabilities. Identify employees
who express interest and have the potential to fill key positions. Discuss career plans,
match candidates with vulnerable positions, and ensure diversity representation.

4. Develop and Implement Succession and Knowledge Transfer Plans. Incorporate learning,
training, development, and knowledge transfer strategies into succession planning.
Define required experiences, link learning plans to role requirements, and facilitate
knowledge sharing among employees.

5. Evaluate Effectiveness. Continuously monitor the succession planning process to ensure

the development of succession plans for all key positions, prompt filling of vacancies,
effective performance of new appointees, and adequate representation of designated
groups in feeder groups for critical roles.

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Question – 6. What are the tips for a successful succession planning process of
a company?

1. Be Proactive with a Plan. Implement a planned retirement policy to anticipate

departures of hard-to-replace team members and avoid unexpected disruptions.

2. Pinpoint Succession Candidates. Identify potential successors for critical positions,

considering not only immediate candidates but also those with the skills required
for higher roles.

3. Let Them Know. Communicate with prospective successors privately, informing

them of their selection for positions of increasing importance while emphasizing
that there are no guarantees.

4. Step Up Professional Development Efforts. Invest in the professional development

of potential successors, including job rotation and the development of
communication and interpersonal skills.

5. A Trial Run for the Successor. Assign responsibilities of a manager to potential

successors during absences or vacations to test their readiness and provide
opportunities for growth.

6. Integrate Succession Plan into Hiring Strategy. Consider talent gaps left by
identified successors when making future hiring decisions.

7. Think about own Successor. For top leadership positions like the CEO, plan for your
own successor, identifying and preparing an employee for a smooth transition.

Question – 7. What is People plan? State its objectives.

People plan is a document that spells out how an organization will manage and
develop its workforce. It includes policies and procedures for hiring, firing, training,
and compensating employees. The objectives are stated below:

 to help an organization attract and retain top talent.

 to ensure that employees get treated fairly and per the law.
 employee empowerment, increasing productivity and engagement.

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Question – 8. What does upskilling mean? State the benefits of employee

upskilling. What is the impact of losing and replacing experienced employees?

Upskilling refers to the process of teaching current employee’s new skills, allowing
them to acquire additional knowledge and competencies that enable them to take on
more significant roles within an organization. It involves training and development
initiatives designed to enhance employees' abilities and expand their skill sets.

Benefits of Employee Upskilling

 Improved Employee Retention. Employees who are continuously challenged and

provided with opportunities for growth are more likely to remain satisfied and
engaged in their current roles, reducing turnover rates.

 Enhanced Customer Satisfaction. Content and motivated employees are more

likely to provide excellent customer service, leading to higher levels of customer
satisfaction and loyalty.

Impact of losing and replacing experienced employees.

Losing an employee is costly for a company as it entails not only the financial
investment in talent development but also the loss of valuable knowledge and
experience when employees depart.

Replacing employees involves expenses for advertising, recruitment, hiring bonuses,

and the time it takes for the new hire to become fully productive

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THE INSTITUTE OF BANKERS, BANGLADESH (IBB)

96th Banking Professional Examination, 2023
JAIBB
Governance in Financial Institutions (GFI)
Time-3 hours
Full marks-100
Pass marks 45
[N.B. The figures in the right margin indicate full marks. Answer any five questions.]

Q. No. Question Page

Marks
no.
01. a. "Some directors think themselves as 'owner' of the bank, and some staffs are
also responsible for supporting them"-In the context of the statement, please, 4 7
discuss your assessment on Banks/Financial Institutions (FIS) in Bangladesh.
b. Who is/are the real owner of the bank/FI? Please, justify your answer in brief. 4 7
c. Why good governance is so important especially in the financial institutions? 6 9
d. Briefly describe the corporate governance principles issued by Basel committee
6 8
on banking supervision.

02. a. What are the responsibilities and authorities of the board of directors as per
10 22
'prudential regulations for bank (2014)' issued by Bangladesh bank?
b. With the rising number of banking frauds, what changes to corporate
10 12
governance structure of banks do you suggest to tackle it?

03. a. What do you mean by Senior Management Team (SMT)? Describe the role of
2+6 28
SMT in a business.
b. State the duties and responsibilities of Chief Executive Officer (CEO) of a
8 29
commercial bank as per BRPD circular letter no. 18, dated 27 October 2013.
c. Can Bangladesh Bank change the CEO? How? 4 29

04. a. What is Capital Adequacy Ratio (CAR)? Describe the importance and implications
3+5 32
of CAR.
b. What are the components of Tier-I capital? 7 33
c. State the indicators of liquidity risk. 5 33

05. a. What is Enterprise Risk Management (ERM)? Describe the components of ERM. 2+6 38
b. What is Emerging Risk (ER)? Narrate the characteristics of ER. 2+5 41
c. What are the regulatory requirements and compliance challenges faced by
5 45
financial institutions?

06. a. Which one is the most disastrous risk for a bank/FI? Please, justify your answer. 5
b. Please, briefly discuss five other important risks for Banks/FIs. 5
c. Please, discuss the risks and benefits of letting a distressed Bank/FI die. 10

07. a. Why relationship with the competitors is so important? 5 56

b. "The relationship between banker and customer is not only that of a debtor and
7 57
creditor, they have other relationships too."-Describe the relationships.
c. Describe the importance of full disclosure in corporate and financial world. 8 61

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Governance in Financial Institutions

08. a. What do you mean by market repositioning? 4 63

b. What is meant by digital agenda? Describe the components of digital agenda. 2+6 64
c. What does upskilling mean? State the benefits of employee upskilling. 2+6 67

09. Please write short notes on any five: 4x5

a. Risk Appetite
b. Central Bank Digital Currency (CBDC)
c. Stewardship Theory
d. CEO Succession Plan
e. Problem Asset Management
f. Business Continuity Plan (BCP)
g. Legal Protection of Whistle Blowers
h. Cashless Bangladesh

10. Answer the following questions. Answer is preferable in one sentence. 2x10

a. According to the companies Act, 1994, what is the minimum number of directors of
3
a public limited company?
b. Under which section of the Bank Companies Act, 1991, Bangladesh Bank is
46
empowered to remove a director of a bank company?
c. What is the minimum number of meetings of a Board to be held in a year as per
Bangladesh Bank's instruction? 4
At least once in every three months
d. Can a bank directly engage in the business of stock dealing?
No
Through separate subsidiary companies
e. What is the minimum number of independent director in the Board of a bank
company as per Bangladesh Bank directives? 2
One fifth of total no. of directors
f. What is the alternative name of Tier-1 capital?
Going concern capital
g. How many principles are there in the Basel Corporate Governance Principles for
13
Banks?
h. What is the age limit for CEO of a bank? 65
i. Can an agent of a bank encash cheques on behalf of the bank? No
j. Who are the secondary regulators of a bank/financial institutions? SEC
Securities and Exchange Commission. Insurance Development and Regulatory IDRA
Authority (IDRA) RJSC

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Governance in Financial Institutions

What is the origin of the word "governance," and what does it mean in Latin?
"Governance" originates from the Latin word "gubarnare". It means "to steer."

Who are the legal owners/owners of companies?

Shareholders/Stockholders.

What is the basis of ownership in corporations or companies?

Purchase of shares.

Why do stockholders in a company elect a board of directors?

To represent their interests and govern the operation of the company

Who runs the operation of a company?

CEO on behalf of the Board of Directors.

What did Adam Smith identify as an insurmountable dilemma for efficient company
operation in "The Wealth of Nations"?
Differing interests between managers and shareholders.

What was the primary form of ownership for business firms before the 17th century?
Partnerships.

Which notable joint-stock company was established in the late 16th century?
British East India Company (Royal Charter by Queen Elizabeth).

How many shareholders did the British East India Company have?
125 shareholders.

What was the capital of the British East India Company?

72,000 Pound Sterling.

What is believed to be the largest company to ever have existed in recorded history?
Dutch East India Company (1602).

What significant event or economic situation contributed to the growing importance

of corporate governance in the US post-World War II?
The boom in war economy and rapid growth of companies.

When did the concept of Corporate Governance begin to be implemented in the

USA?
Answer: Mid-1970s.

What event in the mid-1970s highlighted the need for corporate governance in the
US?
Allegations against the outside directors of Penn Central.

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Governance in Financial Institutions

When did the term "corporate governance" first appear in the official books of the
US SEC?
1976

When did the Basel Committee on Banking Supervision first issue governance
principles for banking institutions?
OR
when did the banking industry receive its code of conduct for corporate governance?
1999

How many principles are there in the Basel Corporate Governance Principles for
Banks?
13 Principles.

What is the primary source of funding for financial institutions (FIs)?

Deposit.

Vision Big picture of what you want to achieve.

Mission General statement of how you will achieve the vision.
Brand can be defined as a name, term, design, symbol.
KPIs Key Performance Indicators
BIS code of conduct 1997 (revised 2015)

Basel Committee, in its' Guidelines (2015) have given a very detailed and elaborate
recommendations about responsibilities of the board

Which section of the Bank Company Act, 1991 underscore the board's role in
ensuring policy compliance within bank companies?
Section 15 (kha) & (ga).

Who is responsible for appointing CEO?

Board of Directors.

How many years of experience does an independent director typically have

according to the Bangladesh Securities and Exchange Commission's guidelines?
10 years

What percentage of shares does an individual need to hold to qualify as an

independent director?
Less than 1%

How long is the tenure of office for an independent director?

3 years extendable for one (1) additional tenure.

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Governance in Financial Institutions

What is the minimum number of independent directors required in a company's

board according to the Bangladesh Securities and Exchange Commission?
At least one-fifth (1/5) of the total directors.

How many days can the post of an independent director remain vacant?
90 days

What is the minimum and maximum limit for the total number of members on a
company's Board of Directors?
Minimums five (5), while the maximum limit is twenty (20).

What is the maximum number of listed companies in which a person can discharge
functions as an independent director?
Maximum of five (5) listed companies.

After how many years can a former independent director be considered for
reappointment?
After one tenure (three years).

Are independent directors subject to retirement by rotation?

No.

What is the maximum number of members of the executive committee?

Maximum of 07 (seven) member.

How many members can the audit committee comprise, and how many of them
must be independent directors at a minimum?
Maximum of 05 (five) members with a minimum of 2 (two) independent directors.

How often should the board of directors meet, as per Bangladesh Bank's guidelines?
The board of directors should meet at least once every three months.

Who will be the secretary of the Executive Committee, Audit Committee and Risk
Management Committee?
Company Secretary of the Bank.

What is the tenure of the Executive Committee, Audit Committee and Risk
Management Committee?
Three years.

Under which act Bangladesh Bank can appoint a person for proper management of
FIs upon its inability to meet demands or is detrimental to depositors' interests?
Financial Institutions Act, 1993

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Governance in Financial Institutions

Which act gives absolute power to Bangladesh Bank to dissolve the entire board of
a bank?
Section 47 of Bank Company Act, 1991.

Under which section of the Bank Companies Act, 1991, Bangladesh Bank is
empowered to remove a director of a bank company?
Section 46 of Bank Company Act, 1991.

Under which section of the Bank Companies Act, 1991, Bangladesh Bank is
empowered to appoint observer for a bank company?
Section 49 of Bank Company Act, 1991.

How often does the Senior Management Team (SMT) review the overall
effectiveness of the control system in the organization?
On yearly basis.

To whom does the Senior Management Team (SMT) provide a certification on the
effectiveness of the Internal Control policy, practice, and procedure?
To the Board of Directors on a yearly basis.

What is the age limit for CEO of a bank?

65 years.

What legislation grants Bangladesh Bank the authority to intervene in the

appointment or dismissal of a financial institution's CEO?
Financial Institution Act 1993.

CRAR Capital-to-risk weighted assets ratio.

CAR Capital Adequacy Ratio
SLR Statutory Liquidity Ratio)
CRR Cash Reserve Ratio)

What is the alternative name of Tier-2 capital?

Gone-concern capital.

What is the main source of funds for a bank's asset composition?

Deposits.

What percentage of the total sources of funds do deposits constitute for banks?
Deposits constitute 80 percent.

What proportion of the total deposits do term deposits typically constitute for
commercial banks?
Term deposits typically constitute above 50 percent of the total deposits.

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Governance in Financial Institutions

Approximately what percentage of the total liabilities do borrowings usually

represent for banks?
Borrowings usually represent around 5 percent of the total liabilities for banks.

What is the typical duration of money lent in interbank transactions?

1 to 14 days.

What are the three main classifications of investments in securities?

Government securities, other approved securities and other securities.

Give two examples of Government securities.

Treasury bills and National savings certificates.

“Problem asset" is mentioned in the Basel framework under which principle?

Principle-18 of Core Principles for Effective Banking Supervision.

How are problem assets classified as per existing regulations?

SMA, SS, DF & BL.

Name tools which can help to understand and prepare for future risks?
Forecasting, Driver mapping, Trend analysis, Stress testing.

How often risk appetite framework shall be be reviewed and approved by the board?
At least annually.

Give an example of reputational risk.

Risk associated with filtering customer data.

What is the first line of defense in the Three Lines Model?

Operational management.

What is the focus of the second line of defense?

Risk management and compliance.

What is the role of the third line of defense?

Internal audit.

What are the two types of accounts for brokerage services?

Non Margin Account and Margin Account.

How does a Margin Account differ from a Non Margin Account?

Margin Account allows loan facility for share trading.

Who Trades shares on behalf of clients for a commission?

Brokerage Houses.

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Governance in Financial Institutions

What does a bank need to do to engage in brokerage business?

Purchase brokerage license from stock exchanges and become a member.

What activities are performed by a merchant banker?

Portfolio Management, Issue Management, Underwriting, and Advisory services.

Who issues the license for merchant banking operations in Bangladesh?

Bangladesh Securities and Exchange Commission (BSEC).

What types of accounts are provided for portfolio management services?

Bank Discretionary A/C and Investors Discretionary A/C.

What is the maximum commission allowed for issue management by a merchant

bank?
Tk. 20.00 lac per issue.

What is CDO in structured finance?

Collateralized Debt Obligation backed by a pool of loans and assets.

What becomes collateral in a CDO if the loan defaults?

The underlying assets in the pool.

In Bangladesh, who provides custodial services for stocks and securities?

Central Depository Bangladesh Ltd.

In which locations can an OBU be established as per Bangladesh Bank policy?

In EPZs, PEPZs, Economic Zones, or any convenient location in Bangladesh.

What kinds of enterprises can OBUs transact with according to Bangladesh Bank
policy?
Enterprises in designated zones and fully foreign-owned enterprises.

Can OBUs accept deposits or loans repayable on demand by check or draft?

No, OBUs are prohibited from accepting such deposits or loans.

Is there any restriction on the physical location of the OBUs?

As per BRPD Circular No: 0225 February 2019) there is no restriction.

Under which Act OBUs are established and operated in Bangladesh?

The Bangladesh Export Processing Zones Authority Act, 1980.

Why is separate reporting required for Islamic windows within their parent bank's
accounts?
Shariah rules necessitate distinct reporting for Shariah-compliant activities and to
prevent intermixing of funds.

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Governance in Financial Institutions

MFS Mobile Financial Services.

What percentage of equity must be hold by parent company of MFS?

51%

What is the minimum paid-up capital requirement for a subsidiary model-based MFS
provider?
Taka Forty-five Crore.

What percentage of annual profit after tax shall be built as capital reserve by MFS?
At a rate not less than ten percent (10%)

Name two leading MFS operators that started in Bangladesh in 2011.

Rocket and bKash.

In which country did the concept of agent banking originate?

Brazil.

When did Bangladesh Bank issue the initial guideline for agent banking?
Bangladesh Bank issued the initial guideline for agent banking in 2013.

Name a service that agents are not allowed to provide on behalf of banks.
Dealing in Foreign currency.

Which entities can bank engage as their agents?

NGOs, post offices, mobile network operators.

Can an agent represent multiple banks simultaneously?

Yes, an agent can represent multiple banks simultaneously, but at the customer
endpoint, they can offer banking services for only one bank.

Can agents bankers introduce financial products or services at their discretion?

No.

What is the primary relationship of a banker and customer?

Debtor-Creditor.

What is a primary obligation of a banker regarding a customer's check/cheque?

Honor the check/cheque if conditions are met.

How should banks mark complaints for prioritization?

Highly Sensitive (H.S.), Sensitive (S), or General (G) categories.

When did the term "civil society" gain prominence?

In the 1980s.

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