Importance of Good Governance in Banks
**The Importance of Good Governance in Banks**
Good governance refers to how public institutions manage public affairs and resources effectively. In the
banking sector, it is crucial, especially given the recent challenges facing the industry. Transparency and
accountability are key components of good governance, as they ensure that both public and private
entities manage banks responsibly.
The International Monetary Fund (IMF) defines transparency as a system where policy objectives, legal
and economic frameworks, and policy decisions are made accessible and understandable to the public in
a timely manner. Transparency in government operations is essential for maintaining macroeconomic
stability, good governance, and overall fiscal discipline.
Accountability, as explained by Messenger (1970), involves holding individuals or institutions responsible
for fulfilling their contractual obligations within a specific timeframe, using agreed-upon resources, and
meeting established performance standards. Transparency supports accountability by allowing easier
monitoring, while accountability encourages transparency by motivating agents to clearly communicate
their decisions.
A notable example of poor governance is the Hallmark scandal involving Sonali Bank Ltd., where a lack of
transparency and accountability led to the siphoning off of large amounts of public funds. Those
involved have not faced significant legal consequences, and honest workers have been demoralized,
reflecting the adage, "Bad money drives away good money."
Financial statement transparency is achieved through full disclosure and the fair presentation of
information necessary for informed decision-making. While providing more information is generally
beneficial, the costs and potential for misleading disclosures must be carefully managed. International
financial reporting standards play a vital role in ensuring transparency and helping users interpret
financial statements accurately.
To strengthen governance in Bangladesh’s banking sector, Bangladesh Bank has implemented several
reforms, including legal framework enhancements, extending central bank autonomy, combating money
laundering, and preventing terrorism financing. Key management reforms include the introduction of
the "fit and proper" test for CEOs and directors, restrictions on board composition, mandatory
independent directors, and audit committees with clear guidelines.
Despite these efforts, many banks still fail to comply with management norms. In some privately owned
banks, family members dominate the boards, undermining the principles of corporate governance.
Ensuring good governance in banks is essential for safeguarding depositors, borrowers, and investors,
expanding markets, increasing employment, and promoting economic growth.
To achieve this, three key steps are needed:
1. A strong and independent central bank focused on core banking issues.
2. A stable set of prudential and management norms that are not easily influenced by external
pressures.
3. A system of prompt corrective actions and legal consequences for those responsible for crises in
individual banks or the banking system as a whole.
Good governance is essential for the sustainable growth and stability of the banking sector and, by
extension, the economy.
Good governance is an indeterminate term used in the international development literature to
describe how public institutions conduct public affairs and manage public resources.
Governance is "the process of decision-making and the process by which decisions are
implemented (or not implemented)".
Good governance in the banking sector is an important agenda of our country, especially in the
present context of the crisis in the banking sector. Transparency and accountability have recently
become an issue of greater concern with revitalized importance in the context of public and
private responsibility of managing banks. The International Monetary Fund (IMF) has defined
transparency as "an environment in which the objectives of policy, its legal, institutional and
economic framework, policy decisions and their rationale, data and information related to
monetary and financial policies, and in terms of agencies' accountability, are provided to the
public on an understandable, accessible and timely basis" (IMF-1999). Transparency in
government operations is an important pre-condition for macro-economic fiscal sustainability
good governance, and overall fiscal discipline. Accountability, in the words of Messenger
(1970), "is the product of a process which means that an agent, public or private, entering into a
contractual agreement to perform a service will be held answerable to perform according to
agreed upon terms, within an established time period and with stipulated use of resources and
performance standard." Transparency is necessary to ensure accountability among the major
group of participants in financial markets: borrowers and lenders; issuers and investors; and
national authorities and international financial institutions. Transparency and accountability are
mutually reinforcing. Transparency enhances accountability by facilitating monitoring and
accountability enhances transparency by providing an incentive for agents to ensure that the
reasons for their actions are properly disseminated and understood. A perfect example is the
Hallmark scandal of the state-owned Sonali Bank Ltd. which occurred due to the lack of both
transparency and accountability. Both the borrowers and the officials colluded in a non-
transparent manner and siphoned off huge amounts of public money. The people who were
caught have not yet been subjected to administrative and legal actions, in fact they got "perverse
incentives" and the honest and dedicated people working in the same bank and elsewhere are
pushed back into inefficiency. As the saying goes, "Bad money drives away the good money."
The transparency of financial statements of banks is secured through full disclosure and by
providing fair presentation of useful information necessary for making economic decisions to a
wide range of users. In the context of public disclosures, financial statements should be easy for
users to interpret. Whereas more information is better than less, the provision of information is
costly. Therefore the net benefits of providing more transparency should be carefully evaluated
by standard setters. The adoption of internationally accepted financial reporting standards is
necessary to facilitate transparency and contribute to proper interpretation of financial
statements. In the context of fair presentation, no disclosure is probably better than disclosure of
misleading information. Left to themselves, markets cannot generate a sufficient level of
disclosure (). Here is the vital role of the accountants, as the bulk portion of useful financial
information used by the market participants are provided by the accounting information systems,
where the preparers (the employed accountants) provide information which is authenticated by
external accountants on the basis of International Accounting Standards (IAS) and International
Standards of Auditing (ISA). An accountant should not depend on numbers only; one should
engage one's own logic and judgment to analyze a set of numbers.
With the view of strengthening good governance in the financial sector, especially in the banking
sector, Bangladesh Bank embarked (GGC) on several financial sector reforms over the years. A
large number of home grown reforms have already been taken and some are underway.
Bangladesh Bank attempted to strengthen the legal framework of the financial sector, bring in
dynamism, extend autonomy to the central bank, combat money laundering offences, and stop
financing for terrorism. There are several other prudential norms already discussed in the
previous section in relation to the Basel Guidelines and the guidelines of various Acts of
Bangladesh. One important aspect is the management norms, which concern the fit and proper
test for CEOs and directors of a bank, restrictions on the composition and functions of the Board
of Directors. Banks have been directed by Bangladesh Bank to include one independent director
in the Board of Directors. Audit Committees for all banks were mandated with clear guidelines,
and TORS and an early warning system (EWS) were introduced. The Core Risk Management
Guidelines on five major risks were introduced quite some time back and credit risk assessment
by External Credit Assessment Institutions (ECAI) have been recommended for all commercial
banks. However, in recent times we have seen that many of these management norms are not
followed by banks. There are several privately owned banks where a number of family members
are on the Board of Directors, which is contrary to the notion of good corporate governance.
Therefore one of the main challenges for the banking sector is to ensure good corporate
governance which will benefit the depositors, borrowers and investors; expand potential markets;
broaden ownership; create alternative financing options; accelerate growth; increase employment
and help reduce poverty in Bangladesh.
To balance the objectives of good governance and ensure compliance of regulations, three major
steps are necessary:
a strong and independent central bank with more focus on core banking issues,
a well thought out set of prudential and management norms of the central bank that are not
subject to frequent changes due to external political/administrative pressure, and
a system of prompt corrective actions for management of crises and for legal/administrative
actions against persons responsible for crises in a particular bank or in the banking 'system' as a
whole.
Communal harmony is prerequisite for the economic development of a country. Discuss the extent to
which you agree or disagree with the opinion stated above. Support your views with reasons.
The notion that communal harmony is a prerequisite for the economic development of a country is a
multifaceted one, encompassing social, political, and economic dimensions. While I do agree that
communal harmony can significantly contribute to economic progress, the extent to which it is a
prerequisite depends on various factors and contexts.
Firstly, communal harmony fosters stability and social cohesion within a society. In a harmonious
environment, people are more likely to trust each other, cooperate, and work towards common goals.
This social cohesion can create a conducive atmosphere for investment, entrepreneurship, and
innovation, thus driving economic growth. Additionally, when different communities peacefully coexist,
it reduces the likelihood of social unrest, which can disrupt economic activities and deter investors.
Furthermore, communal harmony promotes inclusivity and diversity, which are essential ingredients for
a thriving economy. In a harmonious society, individuals from diverse backgrounds have equal
opportunities to participate in economic activities, contribute their skills and talents, and benefit from
the fruits of development. This inclusivity can lead to a more dynamic and resilient economy, as it
harnesses the full potential of all segments of the population.
However, it is crucial to recognize that communal harmony alone may not guarantee economic
development. Economic progress also depends on various other factors such as good governance, sound
economic policies, infrastructure development, access to education and healthcare, and global
economic conditions. In some cases, countries with significant economic growth have experienced
periods of communal tensions or conflicts, indicating that economic development can sometimes occur
despite social discord.
Moreover, the relationship between communal harmony and economic development can be complex
and nuanced. While communal harmony can create a favorable environment for economic growth,
economic disparities and inequalities can, in turn, exacerbate tensions and undermine social cohesion.
Therefore, addressing socio-economic inequalities and promoting inclusive development are also
essential for sustaining communal harmony in the long run.
In conclusion, while communal harmony can indeed play a significant role in fostering economic
development, it is not the sole determinant. It is part of a broader set of conditions that contribute to
economic progress. Therefore, while striving for communal harmony is undoubtedly valuable,
policymakers should also focus on addressing structural barriers to development and promoting
inclusive growth to ensure sustainable and equitable economic development.
'' Progress depends on those who refuse to conform and who actively resist the status quo '' Discuss.
The idea that progress depends on those who refuse to conform and resist the status quo emphasizes
the importance of challenging existing norms to drive societal change. Non-conformists naturally
question established systems, often leading to innovation, social reform, and resilience.
Innovation thrives when people think differently, question common beliefs, and explore new
possibilities. By challenging conventional wisdom, individuals can create groundbreaking inventions,
discoveries, and solutions that push the limits of knowledge and human potential.
Social progress often relies on those who stand against unjust systems and fight for equality, justice, and
human rights. History is full of examples of people who resisted oppression and discrimination, leading
to transformative movements that changed societies.
Intellectual and cultural growth also benefits from diverse ideas and perspectives. Non-conformists
contribute by challenging traditional beliefs, encouraging critical thinking, and expanding knowledge and
creativity.
However, while dissent is key to progress, lasting advancement requires a balance between new ideas
and tradition, as well as dissent and cooperation. Constructive dissent, rooted in ethical values and
aimed at the common good, can drive positive change by fostering dialogue, innovation, and unity.
In summary, progress depends on those who resist conformity and challenge the status quo, but it also
requires collective effort, cooperation, and a shared vision. By embracing diverse perspectives and
encouraging healthy dissent, societies can achieve progress while maintaining inclusivity, stability, and
resilience.
The assertion that progress relies on individuals who refuse to conform and actively resist the status quo
underscores the vital role of dissent in driving societal advancement. Non-conformists, by their very
nature, challenge existing norms, ideologies, and systems, often paving the way for innovation, social
change, and resilience.
Innovation flourishes when individuals dare to think differently, question prevailing paradigms, and
explore uncharted territories. It is through the courage to challenge conventional wisdom that
groundbreaking inventions, discoveries, and solutions emerge, pushing the boundaries of knowledge
and human potential.
Moreover, social progress often hinges on the efforts of those who challenge unjust structures and
advocate for equality, justice, and human rights. From civil rights activists to environmental advocates,
history is replete with examples of individuals who have courageously resisted oppression,
discrimination, and exploitation, sparking transformative movements and shaping the course of
societies.
Additionally, intellectual and cultural advancement thrives on the clash of ideas and the diversity of
perspectives. Non-conformists contribute to the richness of intellectual discourse by challenging
orthodoxies, fostering critical thinking, and expanding the horizons of knowledge and creativity.
However, while dissent plays a crucial role in driving progress, it is essential to recognize that sustainable
advancement requires a balance between innovation and tradition, dissent and cooperation.
Constructive dissent, grounded in ethical principles and a commitment to the common good, can serve
as a catalyst for positive change, fostering dialogue, innovation, and social cohesion.
In conclusion, while progress depends on individuals who refuse to conform and actively resist the
status quo, it also necessitates collective efforts, cooperation, and a shared vision for a better future. By
embracing diversity of thought, encouraging dissent, and upholding shared values, societies can
navigate the complexities of progress while ensuring inclusivity, stability, and resilience.
ABC Bank Limited
Karwan Bazar Branch
Telephone:02-957653 Fax: 02-957643
Email: abcbank@gmail.com
Ref: ABC Bank/ Karwan Bazar/ Overdue Payment/ 40/ 2024
Mr. Karim Hasan
152/2, Tilpapara
Khilgaon- 1219.
Subject: Gentle Reminder Regarding Overdue Payment
We hope this letter finds you well. We greatly appreciate your continued partnership with ABC
Bank Limited. However, we have noticed that there is an outstanding balance on your account in
the amount of 80000 Taka which was due on 26th May, 2024.
We understand that unforeseen circumstances may arise, and we are here to assist you in any
way possible to resolve this matter promptly. As a valued customer, we want to ensure that your
account remains in good standing.It is important to note that failure to settle this overdue amount
may result in further action being taken by our financial institution, including but not limited to,
additional fees, suspension of services, or reporting to credit agencies. We genuinely hope to
avoid such measures and work together towards a mutually beneficial solution.
We kindly request that you prioritize the settlement of this outstanding balance at your earliest
convenience. If you require any assistance or wish to discuss alternative payment arrangements,
you will contact our dedicated customer service team at 16521.
Thank you for your attention to this matter. We value your business and look forward to
resolving this issue swiftly.
Warm regards,
Rahim Uddin
The Manager
ABC Bank Limited
some argue that Bangladesh should reduce its dependency on foreign debt and internally finance its
infrastructural projects , whereas, others argue that internal financing of significant volume shall put
great stress on our economy and adversely affect our financial system. which of the opinion above you
agree with? discuss the matter with examples from your observations, experiences.
social networking sites have increased the productivity of employees in a business organization. Do you
agree or not. justified the answer with explanation
The assertion that social networking sites have increased the productivity of employees in
business organizations is debatable and largely dependent on various factors. While there are
instances where social networking sites can enhance productivity, such as facilitating
communication, collaboration, and knowledge sharing among employees, it's essential to
consider the potential drawbacks and distractions associated with their use.
Proponents of the argument may point to several ways in which social networking sites
contribute to productivity. For example, platforms like LinkedIn offer opportunities for
professional networking and skill development, enabling employees to connect with industry
peers, seek advice, and access learning resources. Similarly, internal social networks or
collaboration tools can streamline communication within teams, making it easier for employees
to share information, coordinate tasks, and work together efficiently. Additionally, social media
platforms can serve as valuable marketing and customer engagement channels for businesses,
driving brand awareness and sales.
However, it's crucial to acknowledge the potential downsides of unrestricted access to social
networking sites in the workplace. Excessive time spent on these platforms can lead to
distractions, procrastination, and a decline in overall productivity. Studies have shown that
frequent interruptions from social media notifications can disrupt workflow and reduce
concentration, ultimately affecting job performance. Moreover, the dissemination of inaccurate
or inappropriate information on social networks can harm employee morale, damage the
company's reputation, and even lead to legal or compliance issues.
Furthermore, the impact of social networking sites on productivity can vary depending on the
nature of the job and the organizational culture. While certain roles may benefit from increased
connectivity and information sharing facilitated by social media, others may require focused
attention and minimal distractions to complete tasks effectively. Additionally, organizational
policies and guidelines regarding the use of social networking sites can influence their impact on
productivity, with clear boundaries and expectations helping to mitigate potential drawbacks.
In conclusion, while social networking sites can offer opportunities for increased productivity in
business organizations, their impact is nuanced and contingent on various factors. While they can
facilitate communication, collaboration, and professional development, excessive use can lead to
distractions and reduced efficiency. Therefore, organizations must carefully assess the benefits
and risks of social media use in the workplace and implement strategies to maximize
productivity while minimizing potential drawbacks.
