কুইক রিরিউ শীট

৯৯তম ব্যাংক াং কিপ্লযমযর সযপ্েশন কিকি সমযধযন-২০২৪

এ নেপ্র প্রস্তুকত মযত্র ৭ কিপ্ন

Paper-102
Governance in Financial Institutions
(English Version)

সহয োগিতোয়:
ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ
মমযোঃ রযপ্সল উকিন, সহ যরী অধ্যপ , মবগম মরযপ্ য়য কবশ্বকবি্যলয়, রাংপুর।
মযমুন মহযপ্সন, কসকনয়র কিন্যযকিয়যল অ্যনযকলস্ট, বযাংলযপ্িশ ৃকি ব্যাং , ঢয য।
৯৯তম ব্যাংক াং কিপ্লযমযর সযপ্েশন কিকি সমযধযন-২০২৪
এ নেপ্র প্রস্তুকত মযত্র ৭ কিপ্ন

ববকশষ্টসূমহোঃ
• সযপ্েশন-২০২৪ কিকি প্রপ্ের পপ্য়ন্ট সম্বকলত সাংকিপ্ত ও পকরমযকেিত সমযধযন।
• IBB কর্তসক প্রবর্র্সর্ নর্ুন র্র্যলবযযর্র (২০২৩) আযলযযক ৯৯র্ম ব্যাংর্কাং প্রযেশনযল
পরীক্ষয-২০২৪ এর অাংশগ্রহণকযরী পরীক্ষযর্সীযের জন্য র্হয়েক একর্ি মনযটবু ।
• IBB ব্যাংক াং প্রপ্িশনযল পরীিযর-২০২৪ এর JAIBB পপ্বির Governance in
Financial Institutions (GFI) সযবপ্েক্টর েন্য শতিযগ মপ্নর কনশ্চয়তয।

প্রথম সাংস্করণোঃ ১০ অপ্ক্টযবর, ২০২৪

Price: Tk. 110 (One Hundred Ten Taka Only)

(এ লযটিপ্মিই সব)
ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ
৯৯তম ব্যাংক াং কিপ্লযময সাংক্রযন্ত কবিয়কিকি সযপ্েশন ও সমযধযন
মপপ্ত ম যগযপ্ যগ রুন ০১৮৮৫৬০২০২২
  Governance in Financial Institutions  (Page-1)
Syllabus-2023
Paper-2: Governance in Financial Institutions (GFI) Full Marks: 100

Module-A: Concept and pre-requisites

• Basic Concept and Historical Perspective of Governance - Need & Importance of Corporate
Governance. Benefit of Good Governance in Banks. BASEL’s Principles on Corporate Governance
for Banks. Vision, Mission, Purpose, Brand Promise, Code of Conduct.
Module-B: Board and its Responsibilities
• Overall responsibility of Board, Board Members, Independent Members, Various Committees,
Setting strategic objectives, governance framework and corporate culture, BB’s Guidelines for
Measuring Board Performance, Board Dissolve and Appointment of Observer
Module-C: CEO and Senior Management
• Tone from the top; Composition and qualification of CEO and other senior managers; Senior
Management Committees; Business strategy; Management Culture; Organization Culture; Changing
CEO and Senior Management
Module-D: Capital, Liquidity and Assets
• Capital Adequacy, Liquidity Profile, Asset Composition, RWA, Liability and Asset Drives,
Managing Problem Assets
Module-E: Risk Management and Controls
• ERMF, Risk Scanning and emerging Risks, Risk Appetite, Risk Culture, Managing Material Risks,
Appropriate implementation of 03 (three) lines of defense, Strength and Independent functioning of
2nd line functions and Internal Audit, Regulatory compliance,
Module-F: Subsidiary and other business governance
• Brokerage, Merchant Banking, Custodial Services, OBU, Islamic Window, MFS, Agent Banking.
Module-G: Stakeholder Governance
• Relationship with Regulators, Local Government Agencies; Regulations on Corporate
Governance; Relationship with Shareholders; Relationship with Competitors and Market Conduct;
Relationship with Customer, Complaint Management; Relationship with Media; Relationship with
Civil Society; Relationship with Community and CSR. Disclosure and Transparency.
Module-H: Future Outlook of the Organization
• Market Positioning, New Business initiatives, Digital Agenda, Systems and infrastructure
capabilities, People Plan, Succession Plan, Recruiting and upscaling employees of future.
References:
1. G. N. Bajpai ―The Essential Book of Corporate Governance‖., SAGE Publications
2. Corporate Governance: Robert A. G. Monks, Nell Minow, Malden, Mass. : Blackwell Pub., 2004.
3. Robert Ian Tricker: Corporate Governance 4e: Principles, Policies, and Practices., Oxford
University Press, 2019
4. Zabihollah Rezaee : Criminal and Civil Investigation Handbook, Wiley
5. Carol Padgett: Corporate Governance: Theory and Practice, Springer Publications
6. Cornelis A De Kluyer: A Primer on Corporate Governance, Business Expert Press, 2013
7. Chris A. Mallin: A Primer on Corporate Governance, Published by OUP Oxford (2012)
8. Hester PaanakkerAdam MastersLeo Huberts, Quality of Governance
9. Mark Bevir, Governance: A Very Short Introduction Zabihollah Rezaee, Corporate Governance
and Ethics

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-2)

Suggestion for 99th Banking Professional Eaxam

Module-A: Concept and pre-requisites ..............................................................................5

Module-B: Board and its Responsibilities .........................................................................8

Module C: CEO and Senior Management .......................................................................12

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-3)

Module-D: Capital, Liquidity and Assets ........................................................................19

Module-E: Risk Management and Controls ....................................................................23

Module-F: Subsidiary and other business governance ...................................................31

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-4)

Module-G: Stakeholder Governance ...............................................................................34

Module-H: Future Outlook of the Organization .............................................................39

Short Notes ..........................................................................................................................40

Short Questions: Answer in one sentence ........................................................................43

Previous Exam Questions ..................................................................................................44

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-5)

Module-A: Concept and pre-requisites

Syllabus: Basic Concept and Historical Perspective of Governance - Need & Importance of
Corporate Governance. Benefit of Good Governance in Banks. BASEL’s Principles on Corporate
Governance for Banks. Vision, Mission, Purpose, Brand Promise, Code of Conduct,

What do you mean by corporate governance? [IBB SMQ, BPE-97th]***

Corporate governance refers to the set of processes, principles, and values that guide and control how
a company is managed and operated. It is the system by which companies are directed and controlled,
and encompasses the relationships between a company’s management, its board of directors, its
shareholders, and other stakeholders. Here are some definitions of corporate governance from
different writers:
According to OECD, "Corporate governance refers to the processes and structures by which the
business and affairs of a corporation are directed and managed."
According to Sir Adrian Cadbury, "Corporate governance is the framework of rules, relationships,
systems, and processes within and by which authority is exercised and controlled in corporations."

Briefly describe the corporate governance principles issued by Basel committee on banking
supervision. [BPE-96th] ***
The Basel Committee has formulated 13 principles for corporate governance in banks and financial
institutions to prevent failures due to weak governance:
1. Board’s Overall Responsibilities: The board is responsible for approving and overseeing the
bank’s strategy, governance, and culture.
2. Board Qualifications and Composition: Board members must be qualified to oversee corporate
governance and exercise sound judgment.
3. Board’s Own Structure and Practices: The board should establish governance structures and
periodically review them for effectiveness.
4. Senior Management: Senior management should operate the bank’s activities in line with the
board-approved strategy and policies.
5. Governance of Group Structures: In group structures, the parent company’s board ensures the
governance framework is appropriate for the group’s structure and risks.
6. Risk Management Function: Banks must have an independent risk management function led by
a Chief Risk Officer (CRO) with access to the board.
7. Risk Identification, Monitoring, and Controlling: Risks should be identified and managed at
all levels, with the infrastructure evolving as the bank’s risk profile changes.
8. Risk Communication: Robust internal communication and reporting about risks are necessary
for effective governance.
9. Compliance: The board is responsible for overseeing compliance risk and establishing a
compliance function to manage it.
10. Internal Audit: The internal audit provides independent assurance to the board and supports
governance and bank soundness.
11. Compensation: Remuneration structures should promote sound corporate governance and risk
management.
12. Disclosure and Transparency: The bank’s governance must be transparent to stakeholders such
as shareholders and market participants.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-6)
13. Role of Supervisors: Supervisors should guide, evaluate, and ensure corporate governance
practices in banks, taking corrective actions when necessary.

What do we understand by vision and mission statement? [IBB SMQ] **

A vision statement is a concise and inspirational declaration that describes an organization or
individual's desired future. It outlines long-term goals and aspirations, serving as a guiding principle
for decision-making and strategy. A vision statement should be clear, memorable, reflect core values,
and inspire stakeholders. For example, a bank's vision might be "to be a leading bank in supporting
small businesses and financial inclusion."
A mission statement defines an organization’s core purpose, outlining its primary goals, target
customers, and values. It provides a sense of direction and helps guide strategies. A mission statement
should be concise, memorable, and reflect the organization's core values. For example, LinkedIn’s
mission is “to connect the world’s professionals to make them more productive and successful.”

What is the importance/purpose of mission statement? [IBB SMQ] **

A well-crafted mission statement can provide the following benefits:
1. Clarity and focus: A mission statement helps to define the organization’s purpose and priorities,
providing a clear sense of direction and focus for all activities and initiatives.
2. Communication: A mission statement communicates the organization’s purpose, values, and
goals to stakeholders, including employees, customers, investors, and partners.
3. Differentiation: A mission statement can help to differentiate the organization from its
competitors by highlighting its unique strengths, values, and offerings.
4. Motivation: A well-crafted mission statement can inspire and motivate employees, customers,
and other stakeholders, creating a sense of purpose and commitment to the organization’s goals.
5. Accountability: A mission statement provides a standard against which the organization’s
performance can be measured and evaluated, helping to ensure accountability and alignment with its
core purpose and values.
6. Direction: A mission statement provides direction by clearly defining the goals, values, and scope of
a new venture, guiding its implementation. It helps answer key questions like how the business wants to
be perceived, which values to emphasize, how to stand out from competitors, and what long-term goals
to aim for, shaping the strategic approach and future path.
7. Trust: A mission statement builds trust by providing a clear and trustworthy path, making it easier
to attract employees, target audiences, and investors.
8. Uniqueness: Crafting a mission statement forces deep thinking about the brand, revealing insights
that help differentiate the company from competitors.
9. Motivation: A clear mission and vision motivate the organization, reducing wastage and driving
growth, which attracts investors and consumers to the brand.
10. Support/Building Community: A mission statement helps build a community around the brand
by championing a cause, appealing to emotions, or solving problems, gaining support from investors,
consumers, and the public.

What do you understand by brand promise? ***

A brand promise is a statement or commitment made by a company or organization to its customers
that articulates what they can expect from the brand’s products or services. It is a pledge to deliver a
certain level of quality, value, or experience to customers consistently. A well-crafted brand promise
can differentiate a brand from its competitors, build trust and loyalty with customers, and create a

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-7)
positive brand reputation. A brand promise should be simple, memorable, and reflective of the
brand’s values and personality. It should also be authentic and achievable, based on the brand’s
capabilities and resources. A brand promise can serve as a guide for the brand’s communication and
marketing efforts and should be reinforced in all customer interactions and touchpoints.

What is Code of conduct? [SN-97th] ***

A code of conduct (CoC) is a set of values, rules, standards, and principles outlining what employers
expect from staff within an organization. It typically outlines the values, beliefs, and standards of
behavior that are expected of employees or members, and provides guidance on how to act in various
situations. A well-crafted code of conduct can help to establish a positive organizational culture,
build trust and credibility with stakeholders, and promote compliance with legal and regulatory
requirements. It can also serve as a basis for performance evaluation and disciplinary action. A code
of conduct may cover a range of topics, including conflicts of interest, confidentiality, respect for
diversity, fairness and impartiality, and ethical decision-making. It should be easily accessible and
communicated to all relevant stakeholders, and reviewed periodically to ensure its continued
relevance and effectiveness.

What factors need to be considered for inclusion in Code of conduct? **

When developing a code of conduct, several factors need to be considered to ensure its effectiveness
and relevance. These factors include:
1. Purpose and scope: The code of conduct should clearly define its purpose, scope, and intended
audience. It should be aligned with the organization’s values and goals and reflect its culture and
operating environment.
2. Legal and regulatory requirements: The code of conduct should comply with relevant laws,
regulations, and industry standards, and address any specific legal and compliance issues that are
relevant to the organization’s operations.
3. Organizational culture and values: The code of conduct should reflect the organization’s
culture, values, and expectations, and should be consistent with its brand and reputation.
4. Stakeholder engagement: The code of conduct should involve input and feedback from relevant
stakeholders, including employees, customers, suppliers, and partners.
5. Clarity and simplicity: The code of conduct should be written in clear and simple language that
is easily understood by all stakeholders. It should be concise, specific, and actionable, and avoid
vague or ambiguous language.
6. Accountability and enforcement: The code of conduct should establish clear accountability and
enforcement mechanisms, including reporting channels and consequences for non-compliance.
7. Values: Emphasize business ethics, social and environmental responsibility, employee rights, and
organizational commitment.
8. Employee Behavior: Detailed explanation of expected employee behavior and performance standards.
9. Internal Practices: Define clear rules for daily business operations, such as dress code, leave
policies, and job duties.
10. External Practices: Set expectations for interactions with external parties, covering
confidentiality, privacy, and conflicts of interest.

What are the principles of Bank of International Settlement on Code of conduct? [BPE-97th] **
Bank for International Settlements has formulated Special Staff Rule in their September 1997 (last
revised 1 June 2015) edition which is quoted below:

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-8)
Standard of conduct: In the interests of their professional standing, and to protect the reputation of the
Bank, Members of Staff shall maintain the highest standards of conduct both at and outside the Bank.
1. Basic Principles: Staff members must act honestly and diligently, focusing solely on the Bank's
interests during working hours. They should avoid committing the Bank to engagements that could harm
its interests, and treat colleagues with respect, avoiding discrimination, harassment, or abusive behavior.
They must also ensure Bank resources are used only for business purposes.
2. Avoiding Conflicts of Interest: Staff should avoid situations where personal interests conflict with
Bank duties. They must not accept significant gifts or engage in job negotiations without integrity, and
always maintain the Bank’s best interests.
3. External Activities: Staff should not engage in outside employment, business activities, or public
office without approval. They must avoid financial risk and not use inside information or make improper
payments to influence others.
4. Media and Publications: Only authorized personnel may communicate with the media about Bank
activities. Staff-produced work belongs to the Bank, and they cannot accept external payment for it.
Participation in conferences is permitted with prior approval.
5. Confidentiality: Staff must keep non-public information confidential, including details on banking
transactions and internal matters. This duty applies even after employment ends, except where legal
obligations require disclosure.

Module-B: Board and its Responsibilities

Syllabus: Overall responsibility of Board, Board Members, Independent Members, Various
Committees, Setting strategic objectives, governance framework and corporate culture, BB’s
Guidelines for Measuring Board Performance, Board Dissolve and Appointment of Observer

What do you mean by Board of Directors (BoDs)? ***

A board of directors is a group of individuals who are elected by the shareholders of a company to
oversee and make decisions regarding the management and direction of the company. The board
typically consists of a mix of executives and non-executives, with the non-executives often including
individuals with expertise in finance, law, marketing, or other relevant fields. The board of directors
is responsible for setting company strategy, approving major decisions, and providing oversight to
ensure that the company is run in the best interests of its shareholders.
In the words of Dehaene et al. “The board of directors is an important entity in a company, creating a link
between shareholders and managers and therefore playing an important role in the governance of a firm.”

Describe the responsibilities and authorities of the Board of Directors as per Bangladesh Bank
guidelines. [IBB SMQ] [BPE-96th] ***
Or, State the responsibilities and authorities of the board of directors regarding human resources
management of a bank. [BPE-97th]
Or, Briefly discuss the responsibilities and authorities of the Board of Directors regarding banking
operation and risk management. [BPE-98th]
Bangladesh Bank's BRPD Circular No. 11 (2013) outlines the board of directors' responsibilities for
ensuring good governance in banks:

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-9)
1. Work-planning and Strategic Management: The board sets objectives, creates annual strategies,
and monitors implementation. It evaluates performance and sets KPIs for the CEO and senior officers.
2. Credit and Risk Management: The board approves loan policies and delegates loan sanctioning
powers, ensuring compliance with risk management guidelines.
3. Internal Control Management: The board ensures strong internal controls, overseeing
independent audits and reviewing reports quarterly.
4. Human Resources Management: The board frames policies on recruitment, promotions, and
skill development, avoiding interference in day-to-day administration.
5. Financial Management: The board approves the budget, monitors financial performance, and
oversees asset-liability management.
6. CEO Appointment: The board appoints a competent CEO with Bangladesh Bank’s approval to
ensure the bank's stability.
7. Compliance: The board follows Bangladesh Bank's guidelines and responsibilities.
8. Board Meetings: Meetings should occur at least quarterly, with more frequent meetings
discouraged unless necessary.

Define independent director with their appointment, qualifications and disqualifications. [SN-97th]
Or, What are the criteria for appointing an independent director as per the instructions of BSEC
Notifications, 2018 and Bangladesh Bank Guidelines? [BPE-98th] **
Independent Director: Independent members/directors of the board of directors are individuals who
are not employed by the company and do not have any significant business or personal relationships
with the company’s executives or major shareholders. Their primary role is to provide an objective
perspective on the company’s operations and to ensure that the company is being run in the best
interests of all stakeholders, including shareholders, employees, customers, and suppliers. He is
neither part of its executive team nor involved in the day-to-day operations of the company.
Independent directors are generally desirable to be appointed to the board of directors and are key to
good corporate governance.
The Bangladesh Securities and Exchange Commission (BSEC) issued a Corporate Governance Code
in 2018 to enhance governance in listed companies. This code outlines the requirements for
independent directors to safeguard investor and capital market interests.
1. Criteria for Independent Directors: To qualify as an independent director, a person must hold
less than 1% of the company's shares, have no recent executive role, no financial relationships with
the company, and must not be connected with the company’s sponsors or major shareholders. Other
restrictions include not being affiliated with stock exchanges or audit firms, and not having a history
of loan default or criminal conviction.
2. Qualities and Experience: Independent directors must have integrity and a strong understanding
of financial, regulatory, and corporate laws, with at least 10 years of experience in a relevant field.
They must be capable of making valuable contributions to the business, especially in the case of
young companies. Special cases may allow for experience or qualifications to be relaxed with
approval from the Commission.
3. Tenure and Appointment: Independent directors are appointed by the board and approved by
shareholders at the Annual General Meeting. Their term lasts three years, with a possible extension
for another term. After completing two terms, they can be reappointed after a three-year gap. They
do not retire by rotation, and the position cannot remain vacant for more than 90 days.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-10)
What do you understand by Strategic objectives? *
Strategic objectives are the big-picture goals for a banking company as they ascertain what the
company will do to fulfill its mission. Strategic objectives are usually some sort of performance goal—
for example, launching a new product, increase profitability, or grow market share for the it’s product.
Once a strategic analysis is completed, the next step in the strategy process is to establish strategic
objectives. At this point, the managers decide why the company exists and how it will try to fulfill
its mission. Strategic analysis has provided information about customer preferences, competitors,
and the firm’s resources and capabilities to start planning for success.

What do you mean corporate governance framework? [IBB SMQ] ***

A governance framework, or structure, is crucial for guiding and monitoring an organization’s
operations. It defines decision-making authority, accountability, and communication with
stakeholders, ensuring fairness, transparency, and alignment with objectives, policies, and values.
This framework helps the board uphold accountability and transparency in the company’s operations
and interactions with stakeholders.

Describe the contents of corporate Governance Framework.

Or, What does governance framework cover? [BPE-98th]
Or, Name the distinct sides of a corporate governance framework. Write down the main functions of
these sides. [BPE-97th] ***
A governance framework consists of two distinct sides: governance and management (as shown in
the following figure ), each with its own main functions:
Governance Side: The governance side
directly involves the executive management’s
function, as well as the direction of the
organization. The main responsibilities of the
governance side are business and
legal/regulatory aspects, involving the vision,
mission and strategy of the organization. The
governance side strongly involves all strategy
decisions, and regulates the overall direction
of the organization. The governance side
directs the management aspects.
Management Side: The management side is
more concerned with the implementation and
execution of the organizational strategy, as
well as the functional and operational
management levels. This involves risk
management, policy and procedure
development and implementation. Successful management requires the commitment from various
managers within the organization. This side can also be referred to as the tactical or operational role
of the executive management. The management side controls the governance aspects.
The governance side directs and controls the management side, while the management side
implements and executes the strategies and policies set by the governance side. This
interconnectedness ensures that the organization operates efficiently and effectively, aligning with
its strategic goals and complying with legal and regulatory requirements.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-11)
What do you understand by Board Evaluation? ***
A board evaluation is a process that measures the accountability, transparency, and effectiveness of
board members. It provides a valuable tool for all types of organizations, helping to hold board
members accountable and ensure they are dedicated and driven toward effective corporate
governance. A successful board evaluation requires detailed logistics and planning.

Describe the Bangladesh Bank guidelines for measuring board performance. ***
Performance evaluation of bank boards, though not directly mentioned in Bangladesh Bank’s
guidelines, is implied through conditions on board structure, functions, and reporting. These
guidelines include the formation of various committees, member qualifications, and meeting
frequencies.
The Basel Committee recommends regular board assessments to review structure, size, and
governance practices, making necessary improvements. Individual board members should be
evaluated at least annually.
Bangladesh Bank, under the Financial Institutions Act, 1993, may intervene in a bank’s management
if it fails to meet depositor demands or comply with licensing conditions. This could involve
appointing new management or assuming control of the bank’s operations. The bank must facilitate
this control and bear any related expenses, including remuneration for appointed persons. The
Bangladesh Bank has the authority to modify or withdraw its interventions and may even petition for
the winding up of a financial institution if deemed necessary. These measures ensure the protection
of depositor interests and adherence to regulatory standards.

Who is an observer? When and how the board of a bank can be dissolved and an observer is
appointed? [BPE-97th]
Observer: An observer who evaluates good corporate governance can be anyone with an interest in
the company’s operations and performance. This can include shareholders, regulators, industry
experts, analysts, customers, and employees, among others. 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. The observer may have the power to:
• suspend or remove any director, officer or employee of the Bank;
• to take any other steps necessary to protect the interests of the partners.
Dissolution of the Board: The Bank Company Act, 1991 empowers Bangladesh Bank to dissolve a
bank’s board if it fails to protect depositor interests. Under Section 47, Bangladesh Bank can dismiss
the board if it determines the board's actions are detrimental to the bank or its depositors. The
dismissal order, effective from a specified date, may be extended up to two years. Following a
dismissal, a Bangladesh Bank appointee assumes the board's powers and responsibilities, with
relevant provisions of Section 46 applicable to this process.
Appointment of Observer: The central bank has the authority to dissolve the board and appoint an
observer, either autonomously or upon request. According to Section 49, Bangladesh Bank can send
an officer to observe board meetings or the bank's operations, requiring the company to allow the
officer to participate and report back. The observer oversees the bank's affairs and can suspend or
remove directors or employees as necessary to safeguard stakeholder interests until a new board is
formed or the bank is closed.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-12)
Module C: CEO and Senior Management
Syllabus: Tone from the top; Composition and qualification of CEO and other senior
managers; Senior Management Committees; Business strategy; Management Culture;
Organization Culture; Changing CEO and Senior Management

What do you understand by ‘tone from the top’? **

"Tone from the top" refers to the ethical and moral values and attitudes that are demonstrated by an
organization’s leadership. This includes the tone set by the board of directors, executive team, and
other senior leaders in their words and actions.
The "tone from the top" can have a significant impact on the culture of an organization, including its
ethical standards, compliance with regulations, and overall success. If leaders set a positive tone and
model ethical behavior, employees are more likely to follow suit. Conversely, if leaders are perceived
as tolerating or even encouraging unethical behavior, this can create a toxic culture that undermines
the organization’s success.

What do you understand by senior management team (SMT) in an organization? [BPE-96th] ***
The senior management team in an organization typically consists of a group of executives who are
responsible for the overall strategic direction and day-to-day operations of the company. Bangladesh
Bank's Internal Control and Compliance Guidelines – 2016 finalized the roles and responsibilities of
senior management through some changes in the functions of the management committee. Here the
term MANCOM is replaced by Senior Management Team (SMT). The exact composition and roles
of the senior management team can vary depending on the size and complexity of the organization,
but typically includes the following positions:
1. Chief Executive Officer (CEO): The CEO is the highest-ranking executive in the organization
and is responsible for setting the overall strategic direction of the company.
2. Chief Operating Officer (COO): The COO is responsible for overseeing the day-to-day
operations of the company, including production, sales, and customer service.
3. Chief Financial Officer (CFO): The CFO is responsible for managing the company’s finances
and financial reporting, as well as overseeing the company’s accounting and treasury functions.
4. Chief Information Officer (CIO): The CIO is responsible for managing the company’s information
technology systems and ensuring that they support the company’s overall business objectives.
5. Chief Human Resources Officer (CHRO): The CHRO is responsible for managing the
company’s human resources function, including recruiting, hiring, and training employees, as well
as managing employee benefits and compensation.
6. Chief Marketing Officer (CMO): The CMO is responsible for managing the company’s marketing
and advertising activities, including developing and executing marketing strategies and campaigns.
Other senior management positions may include a Chief Legal Officer (CLO), Chief Strategy Officer
(CSO), or Chief Communications Officer (CCO), depending on the needs of the organization. The
senior management team typically reports to the company’s board of directors and works closely
with other departments and teams throughout the organization to achieve the company’s overall goals
and objectives.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-13)
As per the internal control and compliance guidelines (2016) of Bangladesh Bank, what are the
roles played by Senior Management Team (SMT) in strengthening the internal control system of a
bank? [BPE-98th]
Or, Discuss the role of a senior management team in an organization. [BPE-96th] **
The responsibilities and functions of the Senior Management Team (SMT) as per the internal control
and compliance guidelines (2016) of Bangladesh Bank are described below:
1. Forming the SMT: The board of directors determines the composition of the Senior Management
Team (SMT), which includes the Managing Director/CEO, Chief Financial Officer, and other key
officers, excluding Internal Control & Compliance audit executives.
2. Monitoring Internal Controls: The SMT is responsible for overseeing the adequacy and
effectiveness of the internal control system to ensure it aligns with the bank’s policies and procedures.
3. Annual Review and Certification: Annually, the SMT reviews the internal control system's
effectiveness and certifies its policies and practices to the Board of Directors.
4. Supporting Audit Teams: The SMT directs management to provide audit teams with necessary
skilled manpower and IT support, as requested by the Audit Committee of the Board.
5. Ensuring Compliance: The SMT ensures the bank adheres to all legal and regulatory
requirements from authorities such as Bangladesh Bank, the Ministry of Finance, and the Bangladesh
Securities and Exchange Commission.
6. Reporting Lapses or Irregularities: Any lapses or irregularities found by the audit team that
were not identified by previous auditors are reported to the Audit Committee.
These guidelines underscore the SMT's role in maintaining a robust internal control environment,
vital for operational integrity and regulatory compliance.

Who is a Chief Executive Officer (CEO)? **

A Chief Executive Officer (CEO) is the highest-ranking executive in an organization. The CEO is
responsible for overseeing the entire organization and ensuring that the company is meeting its goals
and objectives. The CEO typically reports to the board of directors and is responsible for
implementing the board’s strategic decisions.

Describe the roles and responsibilities of a CEO/MD. [BPE-96th,98th] **

Bangladesh bank vide BRPD Circular Letter No. 18 dated 27 October, 2013 has fixed the duties and
responsibilities of CEO of a commercial bank. The CEO of the bank, whatever name called, shall
discharge the responsibilities and affect the authorities as follows:
a) Financial, Business, and Administrative Leadership: The CEO is responsible for achieving
financial and business targets through effective business planning, implementation, and prudent
management, as vested by the board.
b) Regulatory Compliance: The CEO must ensure the bank complies with the Bank Company Act,
1991, and other relevant regulations in its routine operations.
c) Ensuring Legal Adherence in Memorandum Presentation: The CEO must highlight any
deviations from the Bank Company Act, 1991, and other laws during Board or Committee meetings
when presenting memoranda.
d) Legal and Regulatory Reporting: The CEO is responsible for reporting any violations of the
Bank Company Act, 1991, or other laws to Bangladesh Bank.
e) Human Resources Management: The CEO oversees the recruitment and promotion of all bank staff
except those in the two tiers below him, following approved service rules and human resources policies.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-14)
f) Staff Transfers and Disciplinary Actions: The CEO has authority over staff transfers and
disciplinary actions, except for those at two tiers below him, and must act according to approved
service rules and human resources policies.

Describe the rules and regulations for appointing the chief executive of a bank company as per
the Bangladesh Bank directives. [BPE-97th] ***
As per Bangladesh Bank directives, the appointment of a Chief Executive Officer (CEO) must adhere
to specific guidelines:
a) Moral Integrity: The candidate must have no criminal convictions, no penalties for regulatory
violations, and no associations with companies whose registrations or licenses have been canceled.
b) Experience and Suitability: The candidate should have at least 15 years of banking experience,
including 2 years in a position just below the CEO, and must hold a Master's degree from a
recognized university. Advanced degrees in Economics, Banking, Finance, or Business
Administration are preferred, along with an excellent performance record.
c) Transparency and Financial Integrity: The candidate must not have engaged in illegal activities,
defaulted on loans, suspended payments to creditors, been a tax defaulter, or been declared insolvent.
d) Age Limit: Candidates must be 65 years old or younger to be eligible for the CEO position.
e) Tenure: The CEO's tenure is a minimum of 3 years and can be renewed. If the candidate has less
than 3 years before turning 65, they may be appointed for that remaining period.
f) Salary and Allowances Guidelines: Banks must adhere to specific guidelines when determining
the CEO's salary and allowances and submit proposals to Bangladesh Bank.

How can CEO and Senior Management be changed?

Or, Can Bangladesh Bank change the CEO? How? [BPE-96th] **
Changing a CEO in financial institutions (FIs) is a significant strategic initiative that affects the entire
business and its stakeholders, differing from other organizational roles. Unlike non-FI organizations,
FIs must obtain approval from two regulators—Bangladesh Bank and BSEC—making the process
more complex. The board’s decision to appoint a CEO, whether from within or outside, necessitates
careful consideration to ensure business continuity and adherence to organizational culture and
values.
For the board, selecting a new CEO is a critical decision that requires increased engagement and
collaboration among directors. Although the process may not involve numerous meetings, it should
be approached as a team effort, allowing contributions from all members to lead to informed and
judicious decisions.
Changing CEO by regulatory action
Yes, the Bangladesh Bank, as the central bank of Bangladesh, has the authority to change the CEO
(Chief Executive Officer) of a bank under certain circumstances. The process for changing the CEO
involves regulatory oversight and approval by the Bangladesh Bank.
Bangladesh Bank has the authority to CEO of an FI through the Financial Institution Act 1993. This
is, however, very rare and abnormal situation and does not fall under a normal process of CEO change.

What is a CEO succession plan, and why is it important for an organization? ***
A CEO succession plan is a strategic and structured process that organizations put in place to manage
the transition of leadership from the current CEO to a successor. It involves identifying and

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-15)
developing potential candidates, ensuring a smooth transfer of responsibilities, and maintaining
continuity in the organization’s leadership. The CEO succession plan is designed to address the long-
term needs and strategic goals of the organization and to mitigate any potential risks associated with
a change in leadership.
A CEO succession plan is vital for several reasons:
1. Leadership Continuity: It ensures a well-prepared successor is ready to maintain the
organization’s vision and momentum.
2. Risk Mitigation: It minimizes disruption during leadership transitions, helping maintain
operational stability and stakeholder confidence.
3. Talent Development: The plan identifies and nurtures future leaders, fostering a talent pipeline
within the organization.
4. Board and Shareholder Confidence: A clear succession plan boosts confidence in governance
and responsible leadership.
5. External Perception: A robust plan enhances the organization’s reputation, signaling
preparedness to investors and partners.
6. Continuity of Relationships: It ensures a smooth transition of key stakeholder relationships,
preserving trust and confidence.

What are the key steps/measures involved in developing a CEO succession plan?
Or, What measures are taken to develop and groom potential CEO successors within the
organization? ***
Although there is not a very well-articulated and formal textbook formula of CEO succession plan,
HR experts recommend some measures.
1. Evaluating the Current CEO: Assess the current CEO's skills, leadership style, and impact on
culture, while reviewing long-term goals.
2. Creating Future CEO Criteria: The board and CEO should define essential capabilities for the
future CEO, considering the organization’s revenue, market position, and potential internal and
external candidates.
3. Building a Talent Pipeline: Identify and train potential internal CEO candidates through on-the-
job learning, relationship building, and formal education.
4. Assessing Internal Candidates: Evaluate internal candidates’ readiness for CEO responsibilities,
even high performers, through comprehensive assessments and comparisons.
5. Benchmarking Against External Talent: Compare external candidates to internal successors
without notifying them to ensure unbiased evaluations.
6. Implementing and Reviewing the Succession Plan: After formulating the plan, get board
approval, implement the program, and regularly review and update it.

What is corporate/organizational culture? [IBB SMQ] ***

Corporate culture refers to the values, beliefs, and behaviors that determine how a company’s
employees and management interact, perform, and handle business transactions.
William Schneider: "Corporate culture is the shared values, beliefs, and norms that characterize an
organization, and that shape the attitudes and behaviors of its members."

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-16)
Corporate culture is the shared beliefs, values, traditions, and behaviors of an organization. Examples
of corporate culture include an emphasis on customer service, a positive work environment, and ethical
practices. Other examples include a focus on productivity, collaboration, and use of technology.

What factors to consider when thinking about how to describe company culture? **
There are several factors to consider when thinking about how to describe company culture:
1. Factors Defining Company Culture: Key elements of corporate culture shape an organization’s
personality and success.
2. Details and Shareable Goals: Employee attention to detail is crucial for achieving shared goals,
so management must define expectations clearly.
3. Strong Teamwork: Effective teamwork yields better results than individual efforts.
Organizations should create teams that leverage complementary skills.
4. Continual Training and Learning: Employees should regularly enhance their skills and
knowledge for personal and professional growth.
5. Strong Leadership: Effective leaders provide clear communication, warmth, and support,
fostering employee confidence.
6. Adaptability and Agility: A strong culture must adapt to change to meet evolving challenges and
customer expectations.
7. Defined Structure: Clear supervision and defined objectives help control employee behavior and
set performance expectations.
8. People Orientation: Focus on creating a positive work environment enhances employee
satisfaction and productivity.
9. Innovation and Risk-Taking: Encouraging innovation and risk-taking positions organizations as
industry leaders and boosts potential returns.
10. Outcome Orientation: Businesses should prioritize results over processes in their operational
models.
11. Aggressiveness: Market-dominating strategies and a strong approach in stable environments
help achieve organizational goals.
How does organizational culture impact business strategy? Describe the relationship/
connection between the organizational culture and the business strategy. [IBB SMQ, BPE-97th,98th]***
Organizational culture and business strategy are closely linked, and their relationship significantly
impacts a company’s success. Organizational culture impacts business strategy in many ways. There
are multiple ways culture impacts strategy in business, it can be from making provision for
innovation and creativity to create unique hiring criteria.
Ways Organizational Culture Impacts Business Strategy are given below:
1. Treat Employees with Dignity: A respectful culture attracts and retains talent, leading employees
to give their best.
2. Opportunity for Innovation: A positive work culture fosters creativity, resulting in increased
profitability.
3. Using Company Values: Company values are essential for operations, influencing recruitment,
performance reviews, and business decisions.
4. Culture as Business Strategy: Organizational culture is a strategic asset tied to the company’s
mission and values.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-17)
5. Culture Over Strategy: When culture and strategy conflict, culture typically prevails, as it’s
easier to adjust strategies than to change ingrained values.
6. Building a Diverse Team: Diversity enhances decision-making and aligns with strategic growth
goals.
7. Empowering Employee Feedback: Transparency fosters trust and aligns employee goals with
organizational culture.
8. Unique Hiring Criteria: Continuous learning and skill development linked to company culture
enhance communication and loyalty.
9. Culture and Strategy Integration: Culture shapes strategy execution, keeping the company’s
mission central to its goals.
Relationship Between Organizational Culture and Business Strategy:
1. Alignment with Vision: A culture that aligns with the business strategy ensures everyone works
towards common objectives.
2. Employee Engagement: A positive culture fosters commitment, resulting in higher productivity
and better performance.
3. Adaptability to Change: A strong culture enables effective navigation through changes, as
employees share common values.
4. Innovation and Risk-Taking: Cultures that promote innovation empower employees to propose
new ideas and take risks, creating competitive advantages.
5. Customer Focus: A culture prioritizing customer satisfaction leads to strategies that enhance
customer loyalty and sustained growth.

What do you understand by Work Ethics? **

Work ethics refer to the principles and values that guide an individual’s behavior and decision-
making in the workplace. These ethics dictate the level of professionalism, accountability, and
responsibility an individual exhibits in their job. Good work ethics are essential for personal and
professional success, as well as for the overall success of the organization.
Individuals with strong work ethics are responsible, professional, trustworthy, punctual, productive,
adaptable, and committed to continuous learning and improvement. Ethical practices at work build
trust and satisfaction among employees, customers, and stakeholders, fostering a positive reputation.

Why Work Ethics is important for an organization?

Work ethics are crucial for an organization for several reasons:
1. Trust Building: Ethical practices build trust among employees, customers, and stakeholders,
fostering a positive reputation.
2. Employee Satisfaction: A strong ethical culture enhances job satisfaction and morale, leading to
higher productivity and retention.
3. Improved Collaboration: Ethical behavior promotes teamwork and cooperation, creating a more
harmonious work environment.
4. Reputation Management: Organizations known for their ethical standards attract customers and
top talent, enhancing their market position.
5. Risk Mitigation: Adhering to ethical guidelines reduces the risk of legal issues and financial penalties.
6. Customer Loyalty: Ethical companies are more likely to gain and retain loyal customers who
appreciate their integrity.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-18)
7. Innovation Encouragement: A transparent and fair work environment encourages creativity and
innovation among employees.
8. Long-term Success: Ethical practices contribute to sustainable growth and long-term success by
ensuring consistent and fair operations.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-19)

Module-D: Capital, Liquidity and Assets

Syllabus: Capital Adequacy, Liquidity Profile, Asset Composition, RWA, Liability and Asset
Drives, Managing Problem Assets

What is Capital Adequacy Ratio (CAR)? [BPE-96th] *

The Capital Adequacy Ratio (CAR) is a measure of a financial institution’s ability to absorb potential
losses and continue to operate without risking insolvency or default. The CAR is a key indicator of
a financial institution’s soundness and is closely monitored by regulators as part of prudential
regulation in the financial sector. As per regulatory guidelines banks have to maintain a prescribed
rate of capital as compared to its weighted risks. This rate is called the capital adequacy ratio (CAR).
Formula to calculate:
Tier 1 capital + Tier 2 capital
CAR =
risk weighted assets
The CAR is calculated by dividing a financial institution’s capital by its risk-weighted assets, and
the resulting ratio is expressed as a percentage. The capital of a financial institution is typically
divided into two categories: Tier 1 capital and Tier 2 capital. Tier 1 capital includes the financial
institution’s core capital, such as common stock and retained earnings, while Tier 2 capital includes
other forms of capital, such as subordinated debt and hybrid instruments.
Risk-weighted assets are used to measure the amount of capital that must be held by a bank based on
the ratio of assets weighted by risk. This is to help banks avoid inability to pay liability or settle credit
exposures. Risk-weighted assets help to determine the capital requirement needed to cater for the
risk of each asset.

What are the importance and implications of CAR? [BPE-96th] *

Here are the important aspects and implications of CAR:
1. Financial Stability: CAR measures a bank’s capital against its risks, ensuring that it has a
sufficient buffer to absorb potential losses without becoming insolvent.
2. Regulatory Compliance: Banks must maintain a CAR that meets or exceeds the requirements set by
financial regulators, which helps in protecting depositors and maintaining confidence in the financial system.
3. Risk Management: CAR helps banks manage credit, operational, and other risks by requiring
them to hold capital proportional to the riskiness of their assets.
4. Investor Confidence: A strong CAR indicates to shareholders and potential investors that a bank
is financially sound and well-managed.
5. Operational Continuity: Tier 1 capital within CAR ensures that a bank can continue operating
and manage losses without needing to cease trading.
6. Economic Stability: By promoting the stability and efficiency of financial systems, CAR
contributes to the overall economic stability of a country.
7. Loss Absorption: CAR ensures that a bank has enough capital to cover unexpected losses, thus
reducing the risk of insolvency and protecting depositors’ money.
8. Strategic Planning: The requirement to maintain a certain CAR level influences a bank’s
decision-making and strategic planning, particularly in terms of asset allocation and risk-taking.
These points highlight the significance of CAR in ensuring that banks operate within a safe and sound
financial framework, ultimately safeguarding the interests of depositors and the wider economy.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-20)
Describe the Components of Capital.
Or, What are the components of Tier-1 capital or 'Going-Concern' capital? [BPE-96th, 97th] ***
For the purpose of calculating capital under capital adequacy framework, the capital of banks shall
be classified into two tiers. The total regulatory capital will consist of sum of the following categories
as per Bangladesh Bank guidelines. The total regulatory capital will consist of sum of the following
categories:
1) Tier 1 Capital (going-concern capital): Going-concern capital is the capital which can absorb
losses without triggering bankruptcy of the bank. It consists of two elements, such as:
a) Common Equity Tier 1
b) Additional Tier 1
a) Common Equity Tier 1 Capital: For
the local banks, Common Equity Tier 1
(CET1) capital shall consist of sum of the following items:
1. Paid up capital 5. Retained earnings
2. Non-repayable share premium account 6. Dividend equalization reserve
3. Statutory reserve 7. Minority interest in subsidiaries*
4. General reserve
Less: Regulatory adjustments applicable on CET1 as under:
• Shortfall in provisions against NPLs and Investments
• Remaining deficit on account of revaluation of investments in securities
• Goodwill and all other Intangible Assets
• Deferred tax assets (DTA)
• Defined benefit pension fund assets
• Gain on sale related to securitization transactions
• Investment in own shares
• Reciprocal crossholdings in the Capital of Banking, Financial and Insurance Entities
• Investments in the Capital of Banking, Financial and Insurance Entities
b) Additional Tier 1 (AT1): This capital also provides loss absorption on a going-concern basis,
although AT1 instruments do not meet all the criteria for CET1. AT1 capital is composed of
instruments that are not common equity. In the event of a crisis, equity is taken first from Tier 1.
2) Tier 2 Capital (gone-concern capital): Gone-concern capital is the capital which will absorb
losses only in a situation of liquidation of the bank. Tier 2 capital shall consist of the following items:
a) General Provisions: These provisions are for unidentified losses, limited to 1.25% of risk-
weighted assets (RWA) for banks using the standardized approach.
b) Subordinated Debt: Instruments issued by banks that meet Tier 2 capital criteria specified in the
Bangladesh Bank Guidelines on Risk-Based Capital Adequacy, December 2014.
c) Minority Interest: Tier 2 capital issued by consolidated subsidiaries to third parties as per the
same guidelines.
Less: Regulatory Adjustments
• Deduction of investments in banking and financial entities: Capital held in shares or securities
of these entities.
• Deduction of investments in unconsolidated intermediaries: Capital held in shares or
securities of unconsolidated financial intermediaries.
• Deduction of investments in insurance entities: Capital held in shares or securities of insurance
entities.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-21)
• Deduction of deferred tax assets: Deferred tax assets not expected to be realized within 12
months.
• Deduction of intangible assets: Intangible assets like goodwill, patents, and trademarks.
• Deduction of losses on revaluation of fixed assets: Losses incurred from revaluing fixed assets.

Describe the liquidity risk indicators of bank. [BPE-96th,97th,98th] ***

Risk Management Guidelines for banks, issued in February 2012 by BB, have given some early
warning indicators that have potential to ignite liquidity problem for a bank. Bank management needs
to monitor carefully such indicators and exercise careful scrutiny wherever it deems appropriate.
Examples of such internal indicators are:
a) A negative trend or significantly increased risk in any area or product line;
b) Concentrations in either assets or liabilities;
c) Deterioration in quality of credit portfolio;
d) A decline in earnings performance or projections;
e) Rapid asset growth funded by volatile large deposit;
f) A large size of off-balance sheet exposure;
g) Deteriorating third party evaluation (negative rating) about the bank and negative publicity; and
h) Unwarranted competitive pricing that potentially stresses the banks.
Liquidity risk management involves not only analyzing banks on- and off-balance sheet positions to
forecast future cash flows, but also how the funding requirement would be met. The latter involves
identifying the funding market the bank has access to, understanding the nature of those markets,
evaluating banks current and future use of the markets and monitor signs of confidence erosion.

Mention the sources of funds that can be used by a bank to meet up the unexpected demand for
funds. [BPE-97th] ***
The nature of banking business is such that banks are vulnerable to sudden and unexpected demand
for funds by their customers irrespective of depositos and borrowers. Inability to honour those
demands due to liquidity problems may have serious and negative impact on the entire financial
system. To avoid this kind of scenario, 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.

What are the Risk-weighted assets (RWA) of bank? **

Risk-weighted assets (RWA) are a measure of the amount of risk that a bank has taken on its balance
sheet, adjusted for the level of risk associated with each type of asset. This measure considers the
level of risk associated with each asset.
According to Bangladesh Bank's "Risk-Weighted Capital Adequacy Guidelines, December 2014", a
bank's risk-weighted assets (RWA) is a measure of the riskiness of the assets on the bank's balance sheet.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-22)
The RWA of a bank is calculated by multiplying the value of each asset on the balance sheet by a risk
weight factor, which reflects the level of risk associated with that asset. The risk weight factor is determined
by regulatory authorities and depends on the type of asset and the credit quality of the borrower.

How to assess asset risk of a bank? **

Assessing asset risk is crucial for evaluating a bank's overall risk profile. Key steps include:
1. Identify Asset Types: Recognize the various assets on the balance sheet, such as loans and
investments, and understand their characteristics, including credit quality, maturity, and liquidity.
2. Evaluate Credit Risk: Assess the creditworthiness of borrowers, collateral for loans, and the
overall risk of the loan portfolio using historical data, credit scoring models, and risk management
techniques.
3. Analyze the Investment Portfolio: Examine risks associated with investments like government
and corporate bonds, focusing on credit, interest rate, and market risks.
4. Review Risk Management Practices: Assess the adequacy and effectiveness of the bank’s risk
management policies, controls, and its overall risk appetite.
5. Evaluate Liquidity Risk: Analyze the liquidity of the asset portfolio and the effectiveness of
liquidity management practices, including funding sources and cash flow indicators.
6. Monitor Changes: Continuously monitor the asset portfolio for changes in risk and evaluate the
effectiveness of risk management practices.

What do we understand by problem asset? [BPE-98th]***

Problem assets are assets on a bank’s balance sheet that are considered to be at risk of default or loss
due to factors such as credit risk, liquidity risk, or market risk. These assets are typically classified
as nonperforming or impaired, meaning that the borrower has defaulted on the loan, the loan is past
due, or there is reason to believe that the borrower may default on the loan. The term "Problem asset"
is mentioned in the Basel framework under Principle 18 of Core Principles for Effective Banking
Supervision. This term is commonly known as Non-performing Loan (NPL), i. e., NPL is used as a
synonym for problem loan or problem asset.
Examples of problem assets include:
1. Nonperforming loans: Loans that are past due or in default, typically defined as loans that are 90
days or more past due.
2. Impaired loans: Loans that have been restructured or renegotiated due to financial difficulties of
the borrower.
3. Foreclosed properties: Properties that have been repossessed by the bank due to default on a
mortgage loan.
4. Troubled debt restructurings (TDRs): Loans that have been restructured due to financial
difficulties of the borrower, but are still considered to be at risk of default.

How to handle/supervise problem assets of a bank? ***

Or, What are the essential criteria for handle/supervise problem assets or NPLs of a bank as per Basel
framework?
The Basel framework establishes key criteria for banks to manage Non-Performing Loans (NPLs)
effectively. These criteria ensure robust policies for the early identification, management, and
resolution of problem assets:

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-23)
1. Policy Formulation: Banks must have policies for identifying and managing problem assets, with
regular reviews of classifications, provisioning, and write-offs.
2. Asset Grading and Provisioning: Supervisors assess the adequacy of banks' asset grading,
classification, and provisioning, possibly with external assistance.
3. Off-Balance Sheet Exposures: Classification and provisioning systems must include off-balance
sheet exposures.
4. Timely Provisions and Write-Offs: Policies should ensure timely provisions and write-offs that
reflect realistic recovery expectations based on market conditions.
5. Early Identification of Deteriorating Assets: Banks need processes and resources for the early
identification of deteriorating assets and collection of overdue obligations.
6. Access to Information: Supervisors must have access to detailed information on asset
classification and provisioning, supported by adequate documentation.
7. Adequacy Assessment: Supervisors evaluate asset classification and provisioning adequacy and
can require necessary adjustments.
8. Valuation of Risk Mitigants: Banks should regularly assess the value of risk mitigants like
guarantees and collateral, ensuring valuations reflect current market conditions.
9. Criteria for Asset Classification: Established criteria must identify problem assets and guide
reclassification as performing.
10. Board Information: The bank’s Board should receive timely updates on asset conditions,
including classification, provisioning levels, and major problem assets.
11. Individual Valuation and Provisioning: Significant exposures must be valued, classified, and
provisioned individually, with banks reviewing thresholds for identifying these exposures.
12. Sector-Wide Risk Assessment: Supervisors regularly assess risk trends and concentrations in
the banking sector, considering the effectiveness of risk mitigation strategies.
These criteria highlight the need for a proactive approach to managing problem assets to ensure
financial stability and protect stakeholders' interests.

Module-E: Risk Management and Controls

Syllabus: ERMF, Risk Scanning and emerging Risks, Risk Appetite, Risk Culture, Managing
Material Risks, Appropriate implementation of 03 (three) lines of defense, Strength and
Independent functioning of 2nd line functions and Internal Audit, Regulatory compliance,

What is material risk? Please, briefly discuss the most important/material/enterprise risks for
Banks/Fls and how to manage these risks of a bank? [IBB SMQ] [BPE-96th,98th]
Or, Mention the material risks financial institution deal with. How do financial institutions
minimize/mitigate the credit risk and operational risk? [BPE-98th] **
Material risks are prime risks that are recognized by management as having the potential to materially
impact the company’s business performance. It is a designation that (typically in a particular
regulatory context) indicates that a certain risk is of sufficient significance for an organization that it
must be managed following certain minimum criteria. To be more precise it can be said that the risks
which can be managed by some measure as against the risks which cannot be avoided nor can be
forecasted, such as earthquake risk.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-24)
The followings are the material/enterprise risks which can be managed or minimized adopting
various measures.
1. Credit Risk: Credit risk is the potential for loss due to a borrower’s failure to make payments. To
manage this risk, banks should assess their capital and loan loss reserves, implement robust credit
risk management systems, and maintain transparency regarding customers' creditworthiness.
2. Market Risk: Market risk arises from volatility in capital markets affecting the bank's
investments. Effective management involves diversifying investment portfolios, employing hedging
strategies to mitigate potential losses, and continuously monitoring and adjusting investments based
on market movements.
3. Liquidity Risk: Liquidity risk refers to the inability to quickly access cash to meet obligations.
Management strategies include regular financial planning, cash flow forecasting, monitoring net
working capital, and ensuring adequate liquidity through effective management of credit facilities.
4. Interest Rate Risk: Interest rate risk impacts a bank’s earnings and capital due to fluctuations in
interest rates. To mitigate this risk, banks can use financial derivatives, such as swaps and options,
and diversify their asset portfolios to reduce sensitivity to interest rate changes.
5. Operational Risk: Operational risk stems from internal failures in processes, people, or systems.
Managing this risk involves establishing strong internal controls and audit procedures, implementing
redundant backup systems, and obtaining insurance for potential losses from unforeseen events.
6. Information Technology and Cybersecurity Risk: This risk arises from IT system
vulnerabilities and cyber threats. Effective management includes investing in robust IT
infrastructure, conducting regular risk assessments, and implementing comprehensive data
protection and cybersecurity measures.
7. Legal and Compliance Risk: Legal risk involves potential financial or reputational loss from
non-compliance with laws and regulations. To reduce this risk, companies should train employees in
relevant legal frameworks, consult legal experts, and ensure alignment of business practices with
regulatory standards.
8. Reputation Risk: Reputation risk refers to the potential negative impact on public perception.
Managing this risk entails maintaining regulatory compliance, developing effective communication
and crisis management strategies, and monitoring social media and news for emerging issues.
9. Strategic Risk: Strategic risk involves the possibility of failing to achieve organizational goals
due to poor strategic choices. Management includes developing a comprehensive risk management
framework, conducting regular assessments, and ensuring alignment between business strategy and
risk appetite.
10. Environmental Risk: Environmental risk encompasses potential losses from environmental
factors like natural disasters or pollution. Management strategies should include implementing
pollution controls, adopting sustainable practices, and developing disaster response plans for natural
events.
11. Human Resource Risk: Human resource risk arises from workforce-related issues, including
high turnover and skill shortages. Effective management involves creating comprehensive HR
policies, providing regular compliance training, and fostering a positive work environment to
enhance employee engagement.
12. Systemic Risk: Systemic risk refers to the potential for widespread disruption in the financial
system due to interconnectedness among institutions. Management strategies include implementing
robust regulations, conducting regular stress tests, diversifying investments to avoid concentration
risks, and developing crisis management plans.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-25)
Discuss the importance of enterprise risk management. ***
Enterprise risk management (ERM) is an essential process for any business or organization, as it
helps to identify, assess, and manage risks that could impact the achievement of strategic objectives.
Here are some key reasons why ERM is important:
1. Protecting the business: ERM helps to protect the business from potential financial losses, legal
liabilities, and reputational damage resulting from various types of risks.
2. Enhancing decision-making: By identifying and assessing risks, ERM provides decision-makers
with valuable information to make informed decisions that balance risk and reward.
3. Improving resource allocation: ERM enables organizations to prioritize resources to mitigate
high-risk areas and allocate resources more effectively.
4. Improving operational efficiency: By identifying operational risks, ERM helps organizations to
improve operational efficiency and effectiveness by addressing the root cause of problems.
5. Increasing stakeholder confidence: A well-designed ERM program can increase stakeholder
confidence by demonstrating that the organization is effectively managing risks and is committed to
achieving its objectives.
6. Enhancing strategic planning: ERM provides valuable insights into the risks that could impact the
achievement of strategic objectives, enabling organizations to develop more effective strategies and plans.
7. Meeting Regulatory Requirements: Many industries are subject to various laws and regulations,
and effective ERM can help businesses ensure compliance with these requirements. By identifying
and addressing potential legal and regulatory risks, businesses can avoid costly fines, penalties, and
other consequences of non-compliance.

What are the challenges in adopting enterprise risk Management? [BPE-97th]**

ERM is not a simple project to implement like many others and has to overcome multiple challenges.
Financial and banking consultant Seshagiri Rao Vaidyula and Jayaprakash Kavala pointed out few
challenges being faced by the banks in adopting Enterprise Risk Management (ERM) including:
Improving efficiency Achieving greater efficiencies in the risk and control processes,
improving coordination, unifying and streamlining approaches.
Challenging regulatory Ever changing regulatory demands, high degree of regulatory
environment scrutiny, variation of regulations across jurisdictions, preparing
to operationalize / compliance with Basel II.
Keeping pace with Rapid business growth, competitive intensity, M&A activity,
business growth and global expansion, increasing product complexity, increasing
complexity customer expectations.
Attracting and retaining Shortage of good talent in competitive markets, especially in
talent specialized areas or emerging geographies
Managing Change Dealing with people and organizational issues as new processes
demand new methods of work
Fear of compliance Fear of compliance failures despite best efforts, due to human
failures and emerging risks error or unanticipated events; identifying and preparing for
future risks.

What are the components of enterprise risk management ERM? [BPE-96th]***

Financial experts have identified the following components of an Enterprise Risk Management
Framework for Banks :

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-26)
1. Code of Conduct: An organization’s core values and conduct guidelines are crucial in shaping its
approach to risk-taking and establishing a risk-aware work culture.
2. Setting Objectives and Goals: Clear organizational objectives ensure that all employees
understand their roles and responsibilities, guiding risk management planning.
3. Identifying Areas of Risk: Identifying risks involves reviewing the entire portfolio, conducting
stress tests, disaster tests, risk modeling, assigning risk ownership, and aligning with strategic plans.
4. Assessment of Risk: Effective risk assessment involves evaluating inherent and residual risks and
determining steps to align these risks with the bank’s risk appetite.
5. Risk Response: A proper risk response requires implementing control mechanisms to mitigate
high-risk areas, guided by comprehensive credit risk policies and loan management standards.
6. Checks and Balances: Ensuring adherence to policies through checks and balances is essential,
with clear roles and responsibilities set by the board to maintain ethical standards.
7. Information and Communication: Effective communication is key in risk management,
necessitating training programs for employees to identify and report potential risks.
8. Risk Monitoring: In a volatile market, continuous monitoring and review of risk management
strategies are necessary to adapt to changing risks and trends.

Discuss the key requirements/capabilities/factors for successful implementation of ERM. ***

Implementing an Enterprise Risk Management (ERM) program requires dedicated staff and
resources. In the wake of the 2008 financial crisis, specific requirements emerged for more effective
risk management. McKinsey & Company identified key capabilities for successful ERM
implementation, which include the following:
1. Risk Insight and Transparency: Organizations must achieve transparency around market
threats, operational crises, and legal issues. A proactive approach should focus on potential future
risks rather than just current and past ones.
2. Risk Appetite and Strategy: Establishing a clear risk appetite and strategy requires leadership to
create a risk-appetite statement that permeates all organizational levels. Metrics for risk appetite help
guide the overall business strategy.
3. Risk-Related Decisions and Processes: A successful ERM program embeds risk considerations
into all organizational processes and decisions, including mergers, compliance, and performance
management.
4. Risk Organization and Governance: This involves clarifying financial responsibility for risk
and structuring the risk organization. Effective ERM necessitates dedicated resources, including a
chief risk officer and departmental leaders accountable for risk management.
5. Risk Culture and Performance Transformation: Organizations should implement initiatives
that foster a strong risk culture. The ERM program should outline specific actions, identify
responsible team members, and set milestones for ongoing risk management and monitoring.

What is risk appetite statement? [IBB SMQ] ***

A risk appetite statement is a formal declaration that outlines an organization’s willingness to
accept various risks in pursuit of its objectives. It includes both operational and strategic risks and
serves as a guide for decision-making processes within the organization. The statement defines the
level and type of risk the organization is prepared to take, considering its business goals and
obligations to stakeholders. It is typically expressed through both quantitative and qualitative means
and should take into account extreme conditions, events, and outcomes, reflecting the potential
impact on profitability, capital, and liquidity.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-27)
Describe the benefits of articulating risk appetite (statement). [IBB SMQ]***
Articulating risk appetite has several benefits for an organization, particularly in the financial sector:
1. Enhanced Risk Management: It helps companies better understand and manage their risk exposure.
2. Informed Decision-Making: Management can make more informed decisions based on a clear
understanding of risks.
3. Resource Allocation: It aids in resource allocation by highlighting risk/benefit trade-offs.
4. Improved Transparency: Articulating risk appetite improves transparency for investors,
stakeholders, regulators, and credit rating agencies.
5. Strategic Alignment: Risk appetites are tailored to each organization’s specific strategies,
influencing behaviors and decision-making.
6. Strategic Cascading: According to Bangladesh Bank, a risk appetite statement is crucial for
cascading risk strategy throughout the institution.
7. Consistency with Capacity: The statement should align with the bank’s capacity to take risks,
considering capital constraints and potential profit and loss.
8. Regular Review: Good practice calls for a regular review of the risk appetite statement.
9. Governance Alignment: Risk limits should align with governance, ensuring breaches are flagged
and addressed promptly.
10. Risk Management Objectives: The risk appetite focuses on upholding ethical standards,
financial resilience, avoiding public investment losses, compliance with legal obligations, and
maintaining a robust internal control environment.

What are the steps for developing the risk appetite statement? [BPE-97th]***
Developing a risk appetite statement (RAS) involves key steps to accurately reflect an organization's
willingness to take on risk. The summarized process includes:
1. Strategic and Financial Objectives: Align the RAS with the bank’s overall strategic and
financial goals.
2. Comprehensive Analysis: Consider annual reports, financial statements, regulatory
requirements, industry trends, portfolio growth, non-performing loans (NPL), profitability, capital,
liquidity, and the existing risk management culture.
3. Risk Profile Determination: Assess the bank’s risk profile.
4. Tolerance Setting: Establish exposure tolerances and potential losses with input from business
lines and related departments.
5. Board Approval: Obtain approval from the board of directors and communicate the RAS
throughout the organization.
6. Loan Growth Target: Define loan growth targets supporting strategic objectives, comparing with
past performance and current risk appetite, tolerance, and limits. Distribute expected loan growth
across sectors, detailing Risk Appetite, Risk Tolerance, and Risk Limit/Threshold.
7. Measurability and Review: Ensure the RAS is measurable with timeframes for periodic reviews.
Any interim revisions must be approved by the board, submitted to the Department of Supervision
(DOS) of Bangladesh Bank (BB), and communicated organization-wide. Frequent reviews should
be avoided to maintain stability.
These steps highlight the importance of strategic alignment, detailed analysis, communication, board
involvement, measurable targets, and periodic reviews for an effective RAS.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-28)
What is risk appetite framework (RAF)?**
A Risk Appetite Framework (RAF) is a strategic tool used by businesses to assess and manage the
risks they are willing to take in pursuit of their goals. It helps companies determine how much risk they
can handle, which is essential for both short-term operations and long-term planning. The RAF includes:
• Risk Identification: Recognizing the types of risks the business might face, such as competitive,
economic, or legal risks.
• Risk Tolerance: Establishing the level of risk the company is comfortable with.
• Risk Management: Developing strategies to minimize potential losses while maximizing gains
within the set risk tolerance.

Discuss how to develop a risk appetite framework (RAF) in a bank. (Discuss how to develop
and adopt a risk appetite framework (RAF) in a bank.
Or, What are the criteria that should be included in Risk appetite framework (RAF)?**
1. Risk Appetite Framework Criteria: Banks must annually review their Risk Appetite Framework
(RAF) to align with strategic goals and stakeholder demands. The RAF should detail key risks,
preferences, avoidance strategies, and include a risk register while acknowledging business losses
within tolerances and ensuring adequate risk management resources.
2. Developing Risk Appetite Statement: Creating a Risk Appetite Statement (RAS) begins with
aligning it to strategic objectives and considering financial reports and regulatory needs. It involves
setting risk tolerances, securing board approval, and communicating the RAS, including specific loan
growth targets.
3. Areas of Risk Appetite: Banks’ RAS should encompass all regulatory risk requirements and
Basel III pillar II components. This includes establishing limits for liquidity risks per ALM guidelines
and considering various reports for comprehensive risk limit setting.
Possible areas for setting risk appetite are as follows:
• Overall growth of total loans and advances • Value at Risk (VAR) for securities and FX
including off-balance sheet item • Overdue accepted bills (payable and
• Credit concentration receivable) to total loans
(borrower/sector/geographical area wise) • Net Open Position limit
• Gross and net NPL to total loans • Exchange rate shock to operating income
• Cash recovery against classified loans/written • Liability concentration (Top-10 deposit
off loans suppliers to total deposit)
• Amount of loan outstanding with acceptable • Bucket-wise gap under structural Liquidity
rated customers (ECA score up to 3) to the Profile (SLP)
amount lies with total rated customers • Liquidity ratios (at least for regulatory
• Unsecured exposure to total exposure (funded) requirements) including Commitment
• Rescheduled loans to total classified loans Limit and Wholesale Borrowing Guideline
• Written off loans to total classified loans (WBG) Limit
• Interest waiver as % of NPL • Loss due to overall operational risk
• Impact on Net Interest Income (NII) due to • Loss due to internal and external fraud
adverse change in interest rate • CRAR including CRAR after combined
• Expected operational loss as % of operating income minor shock
• Operating expenses to operating income • Credit rating of bank itself
• Bucket-wise gap under simple sensitivity • CAMELS rating
analysis for interest rate change • Core risks rating
• Exchange rate shock to operating income • Regulatory ratios

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-29)
What do we understand by three lines of defense? Discuss in brief the function of three line of
defenses in the context of risk management purposes of a bank. [BPE-98th] **
The "Three Lines of Defense" model is a risk management framework commonly used in the banking
industry to ensure effective risk management practices. The "Three Lines of Defense" is a risk
management framework that helps organizations to establish clear roles and responsibilities for
managing risks. By establishing these three lines of defense, organizations can ensure that risks are
identified, assessed, and managed effectively, and that the overall risk management framework is
robust and resilient. The three lines of defense with their functions are:
▪ First Line of Defense - Operational Management: This includes business units and front-line
staff responsible for identifying and managing risks in daily operations. They implement risk
management policies, monitor risks, and report issues to management.
▪ Second Line of Defense - Risk Management and Compliance: This consists of risk management
functions like compliance and internal audit that oversee the first line's activities. They provide
guidance and support, ensuring effective risk identification, assessment, and management.
▪ Third Line of Defense – Internal Audit: This independent function assures the board and senior
management that the risk management framework is effective and aligns with bank policies. It
provides an objective assessment of the first and second lines of defense.

How the 2nd line functions can be strengthened? [IBB SMQ] **

Or, Discuss the strength and independent functioning of 2nd line functions and Internal Audit.
The second line of defense in risk management plays a managerial role, focusing on oversight and
developing risk management processes, policies, and procedures. It can target specific areas like
compliance and information security or take on broader responsibilities like enterprise risk
management (ERM). Positioned to identify operational efficiencies and implement controls, the
second line significantly contributes to the organization’s risk management strategy and supports
both the first and third lines, forming a key part of the risk management infrastructure.
To enhance the second line’s effectiveness and independence , several measures can be implemented:
1. Clear Definition of Roles: Clearly define roles and responsibilities, including the scope of
oversight and authority to challenge the first line.
2. Robust Risk Management Frameworks: Establish comprehensive frameworks outlining
processes for identifying, assessing, managing, and monitoring risks.
3. Proactive Issue Identification: Implement mechanisms to proactively identify known and
emerging issues, along with shifts in the organization’s risk appetite.
4. Support in Developing Controls: Assist management in creating robust processes and controls
while providing guidance on best practices.
5. Adequate Resources: Ensure the second line has sufficient resources, including access to relevant
data and technology.
6. Training and Guidance: Offer ongoing training and guidance on risk management processes to
empower operational management.
7. Monitoring and Alerting: Actively monitor internal controls' adequacy and effectiveness,
alerting management to emerging issues and regulatory changes.
8. Independence: Maintain functional independence from business lines that generate risks for
unbiased judgment and advice.
9. Internal Audit Collaboration: Collaborate with Internal Audit to review the effectiveness of risk
management processes.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-30)
What do you mean by regulatory compliance? **
Regulatory compliance refers to the process of ensuring that an organization is aware of and takes
steps to comply with relevant laws, policies, and regulations. The goal of regulatory compliance is
to ensure that organizations operate within the legal framework and avoid legal penalties, fines, and
reputational damage.

What are regulatory requirements and compliance challenges faced by banking industry?
[BPE-96th] ***
The banking industry in Bangladesh faces various regulatory requirements and compliance
challenges, including:
1. Evolving Regulations: Banks must continuously adapt to changing global regulations,
necessitating enhanced compliance skills and improved IT tools.
2. Basel III Compliance: Banks must effectively detect, measure, and report risks per Basel III
requirements, innovating and being cost-efficient in their risk functions.
3. Money Laundering Scandals: Banks are liable for money laundering activities, requiring robust
anti-money laundering controls, even if they occur without their knowledge.
4. Complex Reporting Standards: The need to comply with diverse reporting requirements across
different sectors complicates compliance efforts for banks.
5. Data Management: Banks must securely store, manage, and ensure the confidentiality of large
volumes of personal data.
6. Cybersecurity Regulations: Banks need to implement strong cybersecurity measures, including
firewalls and employee training, to protect against threats like data breaches.
7. Capital Adequacy Requirements: Banks must maintain a minimum level of capital as per the
Bangladesh Bank’s regulations to ensure financial stability and mitigate risk.

What are the core principles of regulatory compliance (to address these challenges)? [IBB
SMQ]***
The principles of regulatory compliance or legal compliance are:
1. Compliance with Laws and Regulations: Organizations must adhere to relevant national and
international laws, regulations, and agency guidelines.
2. Risk Management: Organizations should establish a robust risk management framework for risk
identification, assessment, control, and monitoring.
3. Internal Control: A strong internal control system is essential for ensuring accurate financial
reporting, asset safeguarding, and operational efficiency.
4. Training and Awareness: Organizations must train employees on the importance of regulatory
compliance and relevant laws.
5. Reporting and Investigation: Regular reporting to regulatory bodies and investigating non-
conformities or violations is crucial.
6. Accountability: A clear accountability framework for regulatory compliance must be established.
7. Transparency: Organizations should maintain transparency about their activities with regulatory
bodies and stakeholders.
8. Improvement: Regular reviews and improvements of the regulatory compliance program are
necessary.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-31)

Module-F: Subsidiary and other business governance

Syllabus: Brokerage, Merchant Banking, Custodial Services, OBU, Islamic Window, MFS, Agent
Banking.

What do you mean by subsidiary business?*

A subsidiary is a company that is more than 50% owned by a parent company or holding company.
In the context of financial institutions, a subsidiary is a separate and distinct legal entity from the
parent company, which is reflected in the independence of its liabilities, taxation, and governance.
Companies buy or establish a subsidiary to obtain specific synergies or assets, secure tax advantages,
and contain or limit losses.

What are the main purposes behind the formation of different subsidiaries by the financial
institutions? [BPE-97th]*
The main purposes behind the formation of different subsidiaries by financial institutions are:
1. Risk Management: Subsidiaries can be used to manage risk by separating high-risk activities
from the parent company’s core business.
2. Regulatory Compliance: Subsidiaries can be used to comply with local regulations in different countries.
3. Tax Benefits: Subsidiaries can be used to optimize tax liabilities by taking advantage of different
tax regimes in different countries.
4. Asset Protection: Subsidiaries can be used to protect assets from legal claims and other liabilities.
5. Access to Capital Markets: Subsidiaries can be used to access capital markets in different countries.
6. Business Diversification: Subsidiaries can be used to diversify a company’s operations and
reduce its dependence on a single market or product.
7. Acquisitions: Subsidiaries can be used to acquire other companies and assets.
8. Brand Management: Subsidiaries can be used to manage a company’s brand by creating a
separate identity for a specific product or service 1.
9. Access to Expertise: Subsidiaries can be used to access specialized expertise in a particular area
of business. For example, a bank may establish a subsidiary to provide investment banking services.

Define Brokerage and brokerage service of bank in capital market.

Or, Discuss about the brokerage services provided in the capital market of Bangladesh and their
importance.*
Brokerage is a service provided by banks in the capital market that involves facilitating the buying
and selling of financial securities, such as stocks, bonds, and mutual funds, on behalf of their clients.
A brokerage firm acts as an intermediary between buyers and sellers, executing transactions on their
behalf and charging a commission or fee for the service.
For doing brokerage business banks have to purchase brokerage license from stock exchanges and to
become a member of the exchanges. Brokerage house operates the business activities by following ways.
• Brokerage Service
• Dealer Service. (Stock Dealer)
1) Brokerage Service: The Company trade shares on behalf of clients in exchange of trade
commission as set by BSEC. There are two types of account:
a. Non Margin Account : No loan facility is provided for trading shares.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-32)
b. Margin Account : Clients are allowed loan facility for share trading.
2) Stock Dealer Service: The Company itself can trade shares for its own portfolio to earn capital
gain and dividend.
The goal of brokerage services is to provide clients with access to the capital markets and to help
them make informed investment decisions. Banks may offer a range of brokerage services, from
basic self-directed trading to more advanced services that involve a higher level of guidance and
support. Brokerage services can be an important source of revenue for banks, as well as a valuable
service for clients looking to invest in the capital markets.

What do mean by Structured finance? Describe different forms of structural finance.*

Structured finance refers to the creation of complex financial instruments by pooling together various
financial assets and then repackage them into securities that can be sold to investors. The securities
created through structured finance are typically backed by a pool of underlying assets, such as
mortgages, auto loans, credit card debt, or other types of loans.
Here’s a brief description of various forms:
• Collateralized Debt Obligations (CDOs): These are securities backed by a pool of various assets,
typically loans. They are sold to institutional investors and serve as collateral in case of loan defaults.
• Collateralized Bond Obligations (CBOs): CBOs pool high-risk bonds, often referred to as junk
bonds, to create a new security with a lower risk profile through diversification.
• Asset-Backed Securities (ABS): ABS are created by pooling assets like mortgages, auto loans,
or credit card debt. Securities issued are backed by the cash flows from these assets, which are
used to pay the security holders.
• Mortgage-Backed Securities (MBS): Similar to ABS, MBS are backed by a pool of residential or
commercial mortgages. The cash flows from these mortgages are used for payments to MBS holders.
• Credit Derivatives: These instruments allow the transfer of credit risk between parties. The most
common form is the credit default swap (CDS), which provides protection against the default of
an issuer.

What are the steps necessary to encourage the local and foreign banks to accelerate their off-
shore activities in Bangladesh? ***
The following measures, if adopted, can further enhance the OBUs’ ability to attract even more
increase in exports:
1. Type C companies should be permitted to access financing from Offshore Banking Units (OBUs)
like Type A investors, creating a level playing field with foreign investors.
2. Companies outside Export Processing Zones (EPZs) should have simplified access to OBU
financing for export-oriented industries and the option to borrow in foreign currency if they have
natural hedges. The BOI approval process should be streamlined or transferred to Bangladesh Bank.
3. OBUs should also provide short-term trade loans to settle onshore bank deferred import
obligations, eliminating deferred interest payments abroad, increasing local bank revenues, lowering
foreign supplier prices due to immediate payments, and preventing an increase in the country’s
foreign currency obligations.
4. Ensure easiness in clearing services
5. Assist to Ensure Stable International Banking Services
6. Keep Assets Safe from Legal Action

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-33)
7. Ensure Protection from Tax Agencies
8. Encourage to Offer Favorable Interest Rates.
9. Provide Advantageous to Currency Exchange Rates
10. Ensure Safeguard Against Political Shifts
11. Insulate Finances from Natural Disasters
12. International Control to ensure Easy Access to Funds Home and Abroad
13. Facilitate banks to optimize deposits and make withdrawals

Which activities are prohibited in offshore banking operation as per Bangladesh Bank
guidelines? **
As per Bangladesh Bank policy for Offshore Banking Operation of the Banks (BRPD Circular No:
0225 February 2019), banks are prohibited from the following activities in offshore banking operation:
a) Engage in any direct or indirect, funded or non-funded banking transactions that goes beyond
transactions specified in paragraph 6;
b) Accepting deposit or loan which is repayable on demand by cheque, draft, pay order or any other
instrument drawn by depositor on the offshore banking unit;
c) Placement of fund to DBU.
d) Any transaction using the Nostro Account of the domestic banking operation.
e) Remittance of money to any overseas destinations other than for the operation/transactions stated
in paragraph 6;
f) Granting credit facilities to its ‘Bank Related Persons’ as defined in section 26Ga of the Bank-
Company Act, 1991 (amended up to 2018) exceeding the quota prescribed by Bangladesh Bank
from time to time even if any of them are NRBs.

What do you understand by Mobile financial services (MFS) or Mobile banking? **

Mobile financial services (MFS) refer to financial services that are delivered through mobile devices,
such as smartphones or feature phones. MFS allow users to perform a wide range of financial
transactions, including money transfers, bill payments, mobile banking, and other financial services,
without the need for physical bank branches or traditional banking infrastructure.
Mobile financial services in Bangladesh started in March 2011. The private sector Dutch-Bangla
Bank was the first to launch this service. Later it was renamed Rocket. After that, BKash launched
MFS services as a subsidiary of BRAC Bank. Later many more banks came in this service. But they
couldn't do much good. Currently 15 banks including Bikash, Rocket, MyCash, MCash, Way,
SureCash are providing services. Development controls over 70 percent of this market, followed by
Rocket. Cash Mobile Financial Service operated by Bangladesh Post Department.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-34)

Module-G: Stakeholder Governance

Syllabus: Relationship with Regulators, Local Government Agencies; Regulations on Corporate
Governance; Relationship with Shareholders; Relationship with Competitors and Market Conduct;
Relationship with Customer, Complaint Management; Relationship with Media; Relationship with
Civil Society; Relationship with Community and CSR. Disclosure and Transparency.

Why relationship with the regulators is so important?

Or, Discuss about governance related to the relationship with regulators.**
Maintaining a constructive relationship with regulators is crucial for businesses for several reasons:
1. Strategic Engagement: It allows for strategic engagement rather than avoidance or opposition,
which are less effective approaches.
2. Transparency: Financial institutions should maintain open and transparent communication with
regulators, providing timely and accurate information on their operations, performance, and risk
management practices. This can help to build trust and credibility with regulators, and minimize the
risk of non-compliance.
3. Accountability: Financial institutions should be accountable to regulators for their actions. This
can include implementing remediation plans, conducting independent reviews, and making
appropriate changes to their governance and risk management practices.
4. Regulatory Compliance: Regular interaction helps ensure compliance with regulations and can
make the process more manageable.
5. Business Success: A good relationship is vital for both the success of the business and the
effectiveness of the regulatory body.
6. Industry Reputation: Engaging with regulators demonstrates a commitment to ethical practices
and can enhance the firm’s reputation in the industry.
7. Investigation Cooperation: If under investigation, maintaining a relationship can facilitate a
cooperative approach and potentially mitigate outcomes.
8. Long-Term Benefits: Building relationships during quiet times can pay dividends later, making
it easier to navigate regulatory landscapes during more challenging periods.

Discuss about the importance/ benefits /advantages of maintaining relationship with Competitors
for a bank. [IBB SMQ, BPE-96th]**
Maintaining a positive and productive relationship with competitors is important for a bank for
several reasons:
1. Market Insights: Competitors offer banks insights into market trends and consumer behavior,
informing strategic decisions.
2. Strategic Partnerships: Banks can partner with competitors to offer joint services, like co-
branded cards, to widen their market reach.
3. Industry Standards: Collaborating with competitors helps banks set industry standards,
improving efficiency and trust.
4. Innovation: Competition prompts banks to adopt new technologies and services to stay ahead and
cater to customer needs.
5. Regulatory Compliance: Banks use competitors as benchmarks for compliance, ensuring their
own practices are up to par.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-35)
6. Continuous Improvement: Competitors highlight organizational weaknesses, prompting banks
to address and rectify them.
7. Competitive Success: True success comes from competing with the best, driving businesses to
strive for excellence and market share.
8. Mutual Benefits: Exchanging information with competitors can lead to mutual growth and cover
areas of weakness.
9. Industry Growth: Cooperation among competitors through trade organizations promotes
industry-wide growth and positive public perception.

Discuss about different types relationship of bank with a customer.

Or, "The relationship between banker and customer is not only that of a debtor and creditor, they
have other relationships too."-Describe the relationships. [BPE-96th]**
The relationship between banker and customer can be divided into four parts. These are discussed in
detail below:
1. Relationship as debtor and creditor:
• When the customer takes a loan from the bank, the bank becomes a creditor and the customer
becomes a debtor.
• Loan amount, interest rate, repayment terms etc. are clearly mentioned in the loan agreement.
• Customer remains liable for repayment of loan.
• Bank reserves the right to recover the loan amount.
2. Banker as a Trustee:
• When the customer deposits money in the bank, the bank acts as a trustee.
• As a trustee, the bank fulfills the responsibility of keeping the customer's money safe.
• The bank pays the money as per the instructions of the customer.
• The bank cannot use the customer's money for any other purpose.
3. Banker as an agent:
• When the customer requests the bank to perform certain tasks, the bank acts as an agent.
• As an agent, the bank handles various transactions on behalf of the customer.
• For example, banks can act as agents for depositing checks, paying bills, sending money etc.
• Bank may get commission for acting as agent.
4. Other special relationships with the customer:
• Special relationships such as seller and buyer, adviser and adviser seeker, service provider and
receiver etc. may also exist between the bank and the customer.
• These relationships depend on the services the customer receives from the bank.
For example:
• When the customer hires a locker from the bank, the relationship of tenant and owner is created
between the bank and the customer.
• When the customer buys insurance through the bank, the relationship of insurance agent and
policyholder is created between the bank and the customer.

How can a bank build a strong/deeper relationship with customers? [IBB SMQ]**
Building a strong relationship with customers is crucial for a bank’s success, and there are several
ways a bank can achieve this:
1. Exceptional Service: Banks must ensure prompt and personalized customer service through
various channels like phone, email, online chat, and in-person interactions.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-36)
2. Understand Customer Needs: Banks should understand customers’ needs and financial goals to
offer relevant products and services.
3. Personalized Solutions: Banks should use customer data to provide tailored solutions, including
customized investment plans and credit offerings.
4. Feedback Response: Actively seeking and promptly responding to customer feedback
demonstrates a commitment to excellent service.
5. Value-Added Services: Banks should offer services like financial education, wealth management,
and loyalty programs that enhance traditional banking.
6. Trust and Transparency: Banks must communicate transparently and practice integrity to build
trust and long-lasting customer relationships.
7. Timely Services: Mobile banking should prioritize quick, efficient, and automated services for
seamless user experiences.
8. Reduce Friction: Banks should guide customers through regulatory changes to minimize hassle
related to privacy and data handling.
9. Individual Treatment: Understanding individual customers helps banks provide personalized
and effective service.
10. Enhance Customer Experience: Providing personalized service from staff even before
customer interactions fosters strong relationships.

What are the basic rules for customer complaints received by the financial institutions? [BPE-
97th]**
We can derive the basic rules for consumer complaints received by banks, such as:
1. Handle consumer complaints promptly: Address consumer complaints quickly and establish
clear procedures for capturing and resolving them.
2. Designated Responsibility: Establish procedures to capture and address complaints and designate
individuals or departments responsible for handling them. Assign specific individuals or departments
to manage complaints.
3. Clear Communication: Make sure the complaint process is well communicated throughout the
organization.
4. Risk Identification: Be ready to discuss how complaints are recognized, the risks they pose, and
the measures taken to address them.
5. Managerial Awareness: Ensure customer service managers are informed about the nature of
complaints and the actions taken to resolve them.
6. Documentation: Ensure the bank fully documents the process to demonstrate timeliness and
complete files. This includes the initial complaint, supporting documentation and all communication
and correspondence with the complainant or other parties.
7. Categorizing Risks: Classify each complaint to track and assess risk areas.
8. Third-Party Monitoring: Monitor complaints to third parties providing services on behalf of the
bank and complaints made to the bank about those service providers.
9. Addressing Legal Issues: Escalate complaints that involve legal concerns.
These rules help financial institutions manage complaints effectively, ensuring customer satisfaction
and regulatory compliance.

What are the benefits of relationship with Media for a bank? [IBB SMQ]**
Establishing a positive relationship with the media can offer several benefits for a bank, including:

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-37)
1. Credibility: Coverage by trusted journalists enhances a company's credibility, as media
endorsements solidify perceptions of reliability among potential customers.
2. Crisis Management: Established media relationships are invaluable during a crisis, allowing
banks to quickly share accurate information and address public concerns.
3. Investor Relations: Positive media coverage can attract and retain investors by highlighting a
bank's financial stability and success.
4. Increased Brand Awareness: Media outlets can expose a company’s products and services to a
wider audience, leading to new sales opportunities.
5. Enhanced Reputation: A positive media image boosts a bank’s reputation, increasing trust and
confidence from customers and investors.
6. Improved Customer Engagement: Media presence allows banks to connect with customers on
relevant issues, fostering stronger relationships and loyalty.
7. Access to Industry Insights: Collaborating with finance journalists provides banks with valuable
industry insights to inform their business strategies.
8. Talent Attraction and Retention: Positive media mentions can instill employee pride and attract
talent and vendors interested in the company's credibility.

What do you mean by Corporate social responsibility (CSR)?**

Corporate social responsibility (CSR) is a concept that refers to a business’s responsibility to operate
in a way that is socially, environmentally, and economically sustainable. CSR in the context of banks
involves the bank’s efforts to integrate social and environmental concerns into its business
operations, while also considering the interests of its stakeholders.
According to Philip Kotler and Nancy Lee, “Corporate Social Responsibility is a commitment to
improve community well-being through discretionary business practices and corporate resources.”

How Community Relations can be improved through CSR activities? [IBB SMQ]***
Or, Discuss the role of bank Corporate social responsibility (CSR) in community development. BPE-
97th
CSR refers to strategies business organizations adopt to run their business in a way that is ethical and
society friendly. CSR can involve a range of activities such as working in partnership with local
communities, socially sensitive investment, developing relationships with employees, customers and
their families, and involving in activities for environmental conservation and sustainability. The
common roles of CSR in CD are as follows:
1. Enhanced Branding and Value Proposition: CSR initiatives elevate a bank’s image beyond just
being a profit-driven entity, positioning it as a responsible and ethical organization.
2. Attractive Employer: Banks with strong CSR reputations attract top talent, as potential
employees are drawn to organizations that demonstrate social responsibility.
3. Employee Morale and Performance: Employees who perceive their bank’s commitment to CSR
positively tend to have better attitudes and performance, contributing to overall organizational success.
4. Technology Transfer: CSR fosters closer ties with the community, facilitating the transfer of
technology and knowledge, particularly between multinational corporations and local communities.
5. Environmental Protection: Banks can lead environmental campaigns and programs, such as tree
planting and sustainability initiatives, contributing to the protection and preservation of the environment.
6. Sustainable Development: Long-term CSR commitments create sustainable development by
fostering a strong link between the bank and the community, ensuring mutual growth and prosperity.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-38)
7. Community Education: Banks can support educational initiatives, providing resources and funding for
schools, scholarships, and educational programs, thereby enhancing community literacy and knowledge.
8. Healthcare Initiatives: CSR activities can include funding for healthcare facilities, health camps,
and awareness programs, improving the overall health and well-being of the community.
9. Disaster Relief and Humanitarian Aid: Banks can play a crucial role in providing immediate
relief and long-term support during disasters, helping communities recover and rebuild.
10. Cultural and Infrastructure Development: Supporting cultural events, infrastructure projects,
and income-generating activities helps in the holistic development of the community, fostering a
vibrant and thriving local environment.
What do you mean by bank disclosure and transparency.***
Disclosure is a document that makes information known. In the banking industry, it’s a statement
provided by a financial institution—either to a consumer or customer—that outlines all pertinent
information. Disclosures are most commonly provided to customers during the establishment of a
new account or loan. Banks need to make public disclosure of information for keeping their
stakeholders informed about different aspects of banking operation, operating performance, financial
position and many other issues of interest. Greater disclosure of banking problems can reduce the
costs of banking crises, even if transparency is not a panacea for preventing banking crises.

What are the principles of Bank of International Settlement (BIS) on disclosure? [BPE-97th]***
The Bank for International Settlements (BIS) has announced guiding principles for banks' Pillar 3
disclosures, aimed at promoting market discipline by providing meaningful regulatory information
to investors and stakeholders consistently. These principles establish a strong foundation for
transparent and high-quality risk disclosures, enabling users to better understand and compare banks’
businesses and risks.
Principle 1: Disclosures should be clear: Disclosures must be understandable to key stakeholders,
using accessible mediums. Important messages should be highlighted, complex issues explained in
simple terms, and related risk information grouped together.
Principle 2: Disclosures should be comprehensive: They should detail a bank's main activities and
significant risks, supported by relevant data. Changes in risk exposures between reporting periods
must be described along with management's responses.
Principle 3: Disclosures should be meaningful to users: They should highlight the most significant
current and emerging risks and their management. Irrelevant or outdated information should be
removed.
Principle 4: Disclosures should be consistent over time: Consistency allows stakeholders to
identify trends in a bank’s risk profile. Changes from previous reports, including additions or
deletions, should be highlighted and explained.
Principle 5: Disclosures should be comparable across banks: The level of detail and presentation
format should facilitate meaningful comparisons of business activities, prudential metrics, risks, and
risk management across banks and jurisdictions.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-39)

Module-H: Future Outlook of the Organization

• Market Positioning, New Business initiatives, Digital Agenda, Systems and infrastructure
capabilities, People Plan, Succession Plan, Recruiting and upscaling employees of future.

Define Future Looking Organizations. [BPE-97th]***

Future-looking organizations are companies or institutions that prioritize innovation, adaptability,
and forward-thinking strategies to prepare for the future. These organizations recognize that the
business landscape is constantly changing, and they seek to anticipate and respond to emerging trends
and challenges before they become urgent.
Future-looking organizations are characterized by their willingness to experiment, take risks, and
embrace new technologies and ideas. They often invest heavily in research and development, and
they encourage collaboration and cross-functional teams to foster creativity and innovation.

What is meant by market positioning and repositioning? [BPE-96th]**

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.
Market repositioning: Market repositioning refers to the strategic process of changing a company’s
brand perception or image in the minds of its customers and target audience. This can involve shifting
the company’s marketing message, product positioning, pricing strategy, or other elements of the
marketing mix to better align with the needs and preferences of the target market.

What are the steps to ensure effective market positioning? [IBB SMQ]**
Or, What are the most common market positioning strategies used by banks?
For creating an effective market positioning strategy, the followings have been proved to be most effective:
1. Determine company uniqueness by comparing to competitors: Identify opportunities by comparing
a company with its competitors, focusing on strengths and how to exploit these opportunities.
2. Identify current market position: Assess the existing market position and how new positioning can
distinguish the company from competitors.
3. Competitor positioning analysis: Analyze marketplace conditions and the influence each competitor
has on one another.
4. Targeting specific customer segments: Banks can target segments like high-net-worth individuals or
millennials by tailoring products and services to their specific needs, creating a compelling value
proposition.
5. Emphasizing brand values: Banks can differentiate by highlighting brand values such as social
responsibility or sustainability, building trust and loyalty among like-minded customers.
6. Offering specialized expertise: Differentiation can come from offering specialized expertise in areas
like investment banking or wealth management, attracting customers who need premium services.
7. Develop a positioning strategy: By following these steps, companies can understand their strengths,
industry conditions, market opportunities, and how to position themselves effectively.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-40)
What is meant by digital agenda? [BPE-98th] Describe the components of digital agenda. [IBB
SMQ, BPE-96th] **
Digital Agenda refers to a strategic plan or roadmap that outlines a country’s or organization’s
priorities, policies, and actions towards promoting digital technologies’ adoption and integration into
different sectors of the economy and society.
The Digital Agenda typically includes a range of objectives, such as expanding access to high-speed
internet, improving digital skills and literacy, fostering entrepreneurship and innovation, promoting
cybersecurity and data protection, and enhancing e-government services. The agenda is often
developed in collaboration with various stakeholders, including industry players, policymakers,
academia, and civil society, to ensure that it reflects the needs and aspirations of all parties involved.
Thus, the digital agenda includes the following components-
1. Customer relationships: By providing mobile or online services that help customers to get more
data and insights, achieve their business goals, or finalize their transactions faster, easier or cheaper
which improve customer intimacy.
2. Omnichannel experiences: By providing seamless and delightful omnichannel experiences that
combine offline, online, mobile and other relevant channels.
3. Processes: By improving core business processes applying harmonization and digital tooling that
eliminate unnecessary steps or interdependencies.
4. Marketing: By taking full advantage of digital marketing channels aligning digital marketing,
communications, content, sales funnels and customer journeys so that they delight, inspire the customers.
5. Commercial: By selling digital offerings, through digital channels, by using digital tools.
6. Technology: By exploring explore new digital opportunities on a global scale and identifying
emerging trends, competitors’ new offerings and valuable academic contributions, as well as
developing applicable technologies for our digital assets.

Short Notes
Liquidity Profile. [BPE-97th, 98th]***
Liquidity profile is a term used to describe the ability of an individual or a business to meet their
short-term financial obligations. It refers to the amount of cash or easily convertible assets that an
individual or business has on hand to cover their expenses and debts in the short term.
Having a strong liquidity profile is important for individuals and businesses as it helps to ensure that
they are able to cover their expenses and debts in a timely manner, without having to rely on external
sources of funding. A weak liquidity profile, on the other hand, can lead to financial difficulties and
may result in missed payments, default, or bankruptcy.

Risk-weighted assets (RWA) of bank. [BPE-97th]**

Risk-weighted assets (RWA) are a measure of the amount of risk that a bank has taken on its balance
sheet, adjusted for the level of risk associated with each type of asset. Banks use RWAs to calculate
the amount of capital they need to hold to cover potential losses from their risk-taking activities.
The RWA of a bank is calculated by multiplying the value of each asset on the balance sheet by a
risk weight factor, which reflects the level of risk associated with that asset. The risk weight factor
is determined by regulatory authorities and depends on the type of asset and the credit quality of the
borrower.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-41)
Problem asset management. [BPE-96th]***
Problem asset management refers to the process of identifying, evaluating, and addressing assets
within a company or organization that are causing financial or operational difficulties. These problem
assets are typically underperforming, non-performing, distressed, or high-risk assets that can
negatively impact the overall performance and profitability of the business.

Merchant Banking.**
A merchant bank is a financial institution that provides specialized banking services to businesses
and corporations. Unlike traditional retail banks, which primarily provide services to individual
customers, merchant banks focus on serving large corporate clients.
Merchant Banker means any person (Organization) who performs all activities related to Fund
Management, Portfolio Management, Issue Management, Underwriting and Advisory services,
investment banking, corporate finance, asset management, and securities trading. They also offer
specialized financial advisory services, such as mergers and acquisitions, initial public offerings
(IPOs), and project finance on behalf of clients. The operation is guided by the Securities and
Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996 se (2) (1).

Custodial services**
Services provided by a bank custodian are usually the settlement, safekeeping and reporting of
customers’ marketable securities and cash. A custody relationship is contractual, and the services
that are performed for a customer differs. Banks render custody services to a variety of customers,
including mutual funds and investment managers, bank fiduciary, retirement plans, and agency
accounts, bank commercial security accounts, insurance companies, corporation, endowments and
foundations, and private banking clients.

Offshore banking Units (OBU). [BPE-97th]**

Offshore banking is simply another name for opening a bank account outside of your home country.
The term offshore refers to a location outside of one’s home country. The term is commonly used in
the banking and financial sectors to describe areas where regulations are different from the home
country. For example, if you live in Bangladesh and have a bank account in Singapore you have an
offshore account.
According to Circular No: 02- Policy for Offshore Banking Operation of the Banks in Bangladesh
(2019), "Offshore Banking" shall refer to the particular conduct of banking operations in foreign
currencies conditionally approved by Bangladesh Bank;

Agent Banking.**
Agent banking refers to the provision of financial services to customers by a third-party agent on
behalf of a financial institution. The agent may be an individual or business entity that is authorized
to provide basic financial services such as account opening, cash deposits, cash withdrawals, money
transfers, bill payments, and other related services.

Customer relationship management (CRM).**

A person who has a bank account in his name and the banker undertakes to provide the facilities as
a banker is considered a customer. Customer Relationship Management (CRM) in a bank refers to
the set of strategies, tools, and practices that a bank uses to manage its interactions with its customers.
The goal of CRM in a bank is to build and maintain strong and long-lasting relationships with

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-42)
customers by understanding their needs and preferences, providing personalized services, and
delivering exceptional customer experiences.

Customer complaint management.**

Customer complaint management in a bank refers to the set of processes and practices that a bank
uses to address and resolve customer complaints effectively. Customer complaints can arise from a
range of issues, including service quality, product features, billing, and transactional errors.
The goal of customer complaint management is to ensure that customers feel heard, valued, and
satisfied with the bank’s response to their concerns. Effective complaint management can help banks
retain customers, build loyalty, and improve their reputation.

Employee upskilling. [BPE-97th]***

Upskilling refers to the process of acquiring new skills or enhancing existing skills to improve one’s
ability to perform in their current role or to prepare for future roles or responsibilities. It involves
gaining new knowledge and competencies that enable an individual to perform new or different tasks
that they were not previously capable of doing.

CEO succession plan. [BPE-96th]***

A CEO succession plan is a strategic and structured process that organizations put in place to manage
the transition of leadership from the current CEO to a successor. It involves identifying and
developing potential candidates, ensuring a smooth transfer of responsibilities, and maintaining
continuity in the organization’s leadership. The CEO succession plan is designed to address the long-
term needs and strategic goals of the organization and to mitigate any potential risks associated with
a change in leadership.
The biggest challenge for many organizations today is finding a replacement for the CEO. When a
CEO departs, the organization must find a new leader, often at a critical time. Its critical, then, to
have a CEO succession plan in place to ensure the right leader is in place when the CEO steps down.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-43)

Short Questions: Answer in one sentence

[Answer the following questions. Answer is preferable in one sentence. Each question carries 2 marks.]
SQ-1. According to the companies Act, 1994, what is the minimum number of directors of a
public limited company? [BPE-96th]***
Ans: According to the Section 92(1)(a) of Companies Act, 1994 of Bangladesh, the minimum number
of directors required for a public limited company is three (3) to constitute a valid board of directors.
SQ-2. Under which section of the Bank Companies Act, 1991, Bangladesh Bank is empowered
to remove a director of a bank company? [BPE-96th]***
Ans: Under section 46 of the Bank Company Act, 1991, the Bangladesh Bank has the power to
remove Chairman, Directors, Managing Director, Chief Executive Officer, or maximum two-tier
lower level officers of any Bank Company for such allegations.
SQ-3. What is the minimum number of meetings of a Board to be held in a year as per
Bangladesh Bank’s instruction? [BPE-96th]**
Ans: 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 or at least 4 meetings in a year.
SQ-4. Can a bank directly engage in the business of stock dealing in Bangladesh? [BPE-
96th]***
Ans: No, under the prevailing regulations in Bangladesh, banks are not allowed to directly engage
in the business of stock dealing or operate as stockbrokers because banking sector and the stock
market operate as separate entities, each with its own regulatory framework.
SQ-5. What is the minimum number of independent director in the Board of a bank company
as per Bangladesh Bank directives? [BPE-96th]**
Ans: As per the BRPD Circular No. 11 (2013) of the Bangladesh Bank, the minimum number of
independent directors required on the Board of a bank company in Bangladesh is two.
SQ-6. What is the alternative name of Tier-1 capital? [BPE-96th]**
Ans: The alternative name for Tier-1 capital is "core capital."
SQ-7. How many principles are there in the Basel Corporate Governance Principles for Banks?
[BPE-96th]***
Ans: The Basel Committee has published a set of principles called the "Corporate Governance
Principles for Banks" in July 2015 which consists of 13 principles.
SQ-8. What is the age limit for CEO of a bank? [BPE-96th]***
Ans: No person crossing the age of 65 years shall hold the post of CEO of a bank.
SQ-9. What is the tenure for CEO of a bank?***
Ans: The tenure of the chief executive shall be for at least 03 (three) years, which is renewable.
SQ-10. Can an agent of a bank encash cheques on behalf of the bank? [BPE-96th]**
Ans: Yes, it is possible for an agent of a bank to encash cheques on behalf of the bank, subject to
certain conditions and within the scope of their authorized responsibilities.
SQ-11. Who are the secondary regulators of a bank/financial institutions? (Please name at least
two). [BPE-96th]***
Ans: Bangladesh Securities and Exchange Commission (BSEC), Insurance Development and
Regulatory Authority (IDRA), Microcredit Regulatory Authority (MRA), Registrar of Joint Stock
Companies and Firms (RJSC), Department of Non-Bank Financial Institutions (DNFI), Financial
Reporting Council (FRC) etc.

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-44)
SQ-12. Under what section of Companies Act, 1994, can a director be vacated or removed?
[BPE-96th]**
Ans: The office of director shall be vacated according to the instructions specified in section 108(1)
of the Companies Act, 1994.
SQ-13. What are the powers of Board regarding recruitment, promotion, transfer &
punishment of the officers? **
Ans: Recruitment, promotion, transfer & punishment of the officers immediate two tiers below the
CEO shall, however, rest upon the board.
SQ-14. How many committees can each bank company form from the Board of Directors as
per the Bangladesh Bank guidelines or regulations? *
Ans: Each bank company can form 3 (three) committees: 1 (one) executive committee, 1 (one) audit
committee and 1 (one) risk management committee with the directors.
SQ-15. What is the maximum number of members allowed in the executive committee of a
bank company as per the Bangladesh Bank guidelines or regulations?*
Ans: The executive committee will comprise of maximum 07 (seven) members;
SQ-16. For how long may members of executive committee be appointed to serve in a bank
company as per the Bangladesh Bank guidelines or regulations?**
Ans: Members of executive committee may be appointed for a 03 (three)-year term of office;
SQ-17. What is the maximum number of members allowed in the Risk Management
Committee of a bank company as per the Bangladesh Bank guidelines or regulations?**
Ans: The Risk Management Committee will comprise of maximum 05 (five) members;
SQ-18. For how long may members of Risk Management Committee be appointed to serve in
a bank company as per the Bangladesh Bank guidelines or regulations?***
Ans: Members of Risk Management Committee may be appointed for a 03 (three) year term of office;
SQ-19. What is the minimum number of meetings of a risk management committee to be held
in a year as per Bangladesh Bank’s instruction?***
Ans: The risk management committee should hold at least 4 meetings in a year and it can sit any
time as it may deems fit.
SQ-20. Under which section of the Companies Act, 1994, describe the procedure for the
appointment of directors?**
Ans: Section 91 of Companies Act,1994, provides for the procedure of the appointment of director.

Previous Exam Questions

THE INSTITUTE OF BANKERS, BANGLADESH (IBB)

98th Banking Professional Examination, 2024
JAIBB
Governance in Financial Institutions (GFI)
Subject Code: 102 Time-3 hours Full marks-100 Pass marks-45
[N.B. The figures in the right margin indicate full marks. Answer any five questions.] Marks
1. (a) "Corporate governance is the system by which business corporations are directed 4
and controlled." Justify the statement in the context of financial institutions.
(b) Why is corporate governance so important in the financial institutions? 6

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-45)
(c) Discuss in brief the key aspects of good governance. 4
(d) "Good governance not only boosts the reputation of the bank, but also has several 6
benefits to its progress." Explain the statement in brief.
2. (a) "Audit committee comprises with directors who are not Members of Executive 4
Committee of the Board of Directors." Justify the statement.
(b) Briefly discuss the responsibilities and authorities of the Board of Directors 6
regarding banking operation and risk management.
(c) What are the criteria for appointing an independent director as per the instructions 5
of BSEC Notifications, 2018?
(d) What are the purposes of governance framework? What does governance 5
framework cover?
3. (a) As per the internal control and compliance guidelines (2016) of Bangladesh Bank, 6
what are the roles played by Senior Management Team (SMT) in strengthening the
internal control system of a bank?
(b) Discuss in brief the roles and responsibilities of Chief Executive Officer (CEO) to 8
achieve the goal of a financial institution?
(c) How does organizational culture impact business strategy? Discuss the relation 6
between organizational culture and business strategy?
4. (a) "While lending or investing, a bank must look at the net rate of return obtained and 6
the associated risks of holding such earning assets."-Justify the statement with
example.
(b) What do problem assets mean? How does bank manage the problem assets? 6
(c) At present in Bangladesh, a bank has to maintain 12-50% of its risk weighted assets 6
as Capital Adequacy Ratio (including Buffer). Suppose, a bank has 12% adversely
classified loans investment and its CAR is 9-50% (including Buffer). What
problems this bank will experience in doing its business operations?
(d) What are the indicators of liquidity risk? 2
5. (a) Mention the material risks financial institution deal with. How do financial 6
institutions minimize/mitigate the credit risk and operational risk?
(b) Discuss in brief the characteristics of emerging risk. 4
(c) What are the benefits and weaknesses of Enterprise Risk Management (ERM) of a 6
financial institution?
(d) Discuss in brief the function of three line of defenses in the context of risk 4
management purposes of a bank.
6. (a) What are the broad categories of payment services offered by Mobile Financial 5
Services (MFS) provider?
(b) What is Agent Banking? What are the services that Agents are not allowed to 5
provide to the customers?
(c) What is Merchant Banking? Discuss in brief the main functions of Merchant Banking. 6
(d) With whom can Off-Shore Banking Unit (OBU) do its business? 4
7. (a) "In the banker and customer relationship both parties have some obligations and 6
rights." Explain the statement.
(b) Discuss in brief the principles of shareholders communication. 4
(c) How can greater disclosure of banking problems reduce the cost of banking crisis? 6
Discuss in brief the importance of disclosure.
(d) Discuss in brief the complaint resolution process. 4

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘

  Governance in Financial Institutions  (Page-46)

8. (a) "Succession planning is a contingency plan. It is not a one-time event."-Justify the 6

statement.
(b) What is Digital Agenda? Write down the objectives of Digital Agenda. 7
(c) What does upskilling mean? What are the benefits of employee upskilling? 7
9. Write short notes on any five of the following concept: 4×5 = 20
(a) Business Continuity Plan (BCP)
(b) Liquidity Profile
(c) Corporate Social Responsibility (CSR)
(d) New Business Initiatives
(e) Brand Promise
(f) Vision and Mission Statement
(g) People Plan
(h) Risk Appetite
(i) Brokerage Service
(j) Structured Finance.
10 Answer the following questions. Answer is preferable in one sentence. 2×10 = 20
(a) Write down the full form of ICRR and IRRBB.
(b) How many principles on corporate governance for financial institution are
formulated by Basel?
(c) What is the minimum and maximum number of members of a bank's Board of
Directors?
(d) Which section of Bank Company Act, 1991 empowers Bangladesh Bank to conduct
on-site inspection on banks?
(e) Name two MFS provider currently operating in Bangladesh.
(f) Mention two significant activities of banks from where they generate more income?
(g) Which division/department of a bank perform the action of second-line of defense?
(h) What is the typical risk weight of Govt. bond/securities?
(i) Mention two custodial services offered by banks in Bangladesh.
(j) Mention the categories of credit concentration.

[বই সম্পর্কিত যেককোক ো মতোমত র্িকত সরোসর্র কল করু ঃ ০১৮৩৪-৬৯৭৮১৫]

⌘ ব্যাংকযর্স ওয়েলযে়েযর বযাংলযযেশ য োগোয োগঃ ০১৮৮৫৬০২০২২ ⌘