1.
INTRODUCTION1.1 IntroductionThe separation of ownership from control produces a condition where the interests of owners and ultimate managers may, and often do diverge, and where many checks which formerly operated to limit the use of power disappear. Since the beginning of the 21st century, the corporate world has witnessed series of failures (Enron, WorldCom, RBS, Arthur Anderson; Oceanic bank, Intercontinental Bank; in Bangladesh the Hall Mark Scandal, NRB Bank Loan Scandal), which brought about a heightened public awareness to corporate governance issues.
The global economic crunch which began in 2007 added further strands to corporate governance practices and policies. These developments witnessed in the corporate sector have intensified investors’ involvements. And with that trend, have come more and more demand for high corporate governance standards, to ensure the efficient and effective use of capital, which provides good returns on investments in a manner responsible for society’s interest; and is protected from malfeasance and misappropriation. Corporate governance is about the procedures and processes according to which an organization is directed and controlled.
Corporate governance tends to encourage the efficient use of scarce resources as well as ensure accountability for the stewardship of those resources.Good corporate governance is an indication for the success of any organization. Its relevance was further stressed in a 2002. Mckinsey survey which stated that ‘corporate governance is at the heart of investment decisions’. And investors tend to put corporate governance at par with financial indicators when evaluating investment decisions. Corporate governance is not an end in itself but a means to an end.
As such, there are different factors that may lead to the accomplishment of its objectives. Effective Corporate Governance practices are essential to achieving and maintaining public trust and confidence in the banking system, which are critical to the proper functioning of the banking sector and economy as a whole. As we know banking sector has been performing an essential role in strengthening any economy. Poor Corporate Governance may contribute to bank failures, which can pose significant public costs and consequences due to their potential impact on any applicable deposit insurance systems and the possibility of broader macroeconomic implications, such as contagion risk and impact on payment systems. In addition, poor Corporate Governance can lead markets to lose confidence in the ability of a bank to properly manage its assets and liabilities, including deposits, which could in turn trigger a bank run or liquidity crisis.1.2 Scope of This StudyThe scope of the study is the operating private commercial banks in Bangladesh and their publications.1.
3 Literature ReviewKar, Sarker (2014) showed corporate governance practice in private banks of Khulna city of Bangladesh considering 10 local banks.Mahmud, Ara(2015) pointed corporate governance practice of banking industry of Bangladesh considering public and private banks.Ahmed, Jannat (2017) discovered corporate governance practice in banking industry of Bangladesh and their impact.Hoque, Mohammad Ziaul and Islam, Rabiul Md. and Ahmed, Hasnan, (2013) The results indicated that a good number of companies does not comply the mandatory requirements for board size, appointment of independent directors in the board, and holding audit committee meetings set forth by the central bank and the Security and Exchange Commission (SEC) implying remarkable shortfall in corporate governance practice in Bangladeshi banking sector.Muttakin, Mohammad Badrul and Shahid Ullah, Md., (2012) The study investigated the relationship between the corporate governance structure and performance of listed banks in Bangladesh. We find that board independence and board size have a significant positive impact of performance.
Kamruzzaman, Mr. Md., (2012) This article was intended to understand the banks sustainability, its increasing importance, and new developments contemplation.
Mamun, Syed and Muniruzaman, Mohammad, Board Attributes and Performance of Non-Banking Financial Institutions in Bangladesh: An Empirical Study (April 19, 2015). paper examined the relationship between board of directors, an important corporate governance instrument, and performance of non-bank financial institutions in Bangladesh Haque, Jalil, Naz (2017) showed state of corporate governance in Bangladesh: considering public limited companies–financial, nonfinancial institutions and state owned enterprises.Deepty, Ahmed (2011) The study was examined the level of corporate governance (CG) disclosures of the general insurance companies (GICs) of Bangladesh (BD). Additionally, it has developed a multi-index model to identify impact of corporate attributes on corporate governance disclosures.Mahmood, Rezwan & Moshin Islam, Md. (2015) study found that top management influence as well as political pressure exist in banking sector which affect the lending decision.
Corrupted bankers and dishonest officials of Bangladesh Bank were found associated with several scams.Gramling, Maletta and Schneider (2004) revealed the relationship between internal audit and corporate governance. The most important finding of their study was the catalytic role of internal auditing in the effective corporate governance.Kamal, Yousuf and Pervin, Tahura and Alam, Samsul, (2007) studied with the concept and evolution of corporate governance in this sector and argued the importance of a broader view of corporate governance, which encapsulates both shareholders and depositors. Then examined the corporate governance of banks in Bangladesh in the context of ongoing banking reforms. Ultimately provided a set of measures for both micro and macro level to strengthen corporate governance in this sector.Khan (2010) the purpose of paper was to investigate the corporate social responsibility (CSR) reporting information of Bangladeshi listed commercial banks and explores the potential effects of corporate governance (CG) elements on CSR disclosures.
Ahmed, Zannat, Ahmed (2017) study showed a positive relation between corporate governance and performances of banks, the statistical insignificance of the relation raises concern regarding various issues of corporate governance in the financial sector of Bangladesh.Rahman, Arifuzzaman, Alam (2013) particularly put light on the extent of CG in the country and attempts to evaluate actual governance practices in the banks of Bangladesh.Huq (2014) focused on the state of Corporate Governance (CG) in two categories of the banking industries: Conventional Banks and Islamic BanksAhmed, Samiul and Jannat, Rahatul and Ahmed, Uddin, (2017) creates values not only to those banks but also to the other stakeholders who are related to this. Investors and creditors decision can be influenced by this study.
Islam, Haque (2015) aimed to find the extent of Disclosure of Corporate Governance Compliance of State Owned Commercial Banks (SOCBs) in recent years in Bangladesh.Ibrahim (2011) stated the nature and characteristics of internal audit function in Egyptian listed firms and assessed its ability to fulfill its role in corporate governance. The study was carried out through a questionnaire survey. The results showed that internal audit function in Egyptian listed firms, in its current status, faces many difficulties that affect negatively its effectiveness in corporate governance. Therefore, extensive efforts should be made to enhancing the internal audit profession in Egypt. Mutave, Martin Everlyn (2012) study found out that that risk management had the greatest effect on corporate governance within deposit taking microfinance institutions in Kenya followed by internal controls while compliance and consulting and audit committee had the least effect respectively.1.
4 Objective of The StudyPrimary Objective to evaluate the practices of Corporate Governance by the Private Commercial Banks of Bangladesh. Secondary Objective Assessing the accountability of private banks of Bangladesh to the stakeholders. Evaluating in what extent the current practice of corporate governance passes the test of fairness in case of private commercial banks. To know whether corporate commercial governance system in Bangladesh is transparent for all stakeholders of private banks.2. METHODOLOGY2.1 AssumptionAn assumption has been made to test the probability that 70% or more of the commercial banks in Bangladesh are satisfying with 90% or more issues of the corporate governance codes. Compliance of corporate governance codes for each issue is determined when 70% or more banks have satisfied with that assumption.
The probability has been taken based on subjective probability technique. (Douglas A. Lind, William G. Marchal, “Statistical Techniques in Business and Economics”, Fourteenth Edition, pp.
146-147)2.2 Research MethodologyThe study adopted qualitative research methodology. Qualitative, quantitative and secondary data were gathered via websites and publications in order to achieve the research objectives and provide answers to the research questions. 2.3 Population of the Study All 48 private commercial banks have considered the total population for this study purpose.2.4 Sample Size of the StudyAmong the large number of private banks, only 20 commercial private banks were randomly selected as the sample of this study purpose.Among 48 banks it was considered Bank Asia Ltd, AB Bank Ltd, AIBL, Eastern Bank Ltd, Mercantile Bank Ltd, MTB Ltd, NRB Bank Ltd, One Bank Ltd, Premier Bank Ltd, South East Bank Ltd Midland Bank Ltd, Meghna Bank Ltd, IFIC Ltd, DBL Ltd, City Bank Ltd, BRAC Bank Ltd, BCBL, Trust Bank Ltd, UCB Ltd, Uttara Bank Ltd.
2.5 Sources of Secondary DataThe secondary data were collected through related bank annual report, books, official statistics, published brochures, and bank websites.2.6 Data Entry and AnalysisMajor issues of corporate governance have been tabulated and analyzed.
For some analysis here, percentage system has been used. It has been presented in terms of tables, figures, and graphs as well as written scripts. For the processing and analyzing numerical data, means, standard deviations and z tests have been used in the study.2.7 Research HypothesisThe following hypothesis will be test to fulfill the research objectives:Hypothesis-1 H0: The state of Shareholder Rights and Disclosure of Information is being met the corporate governance codes by the private banks. HA: The state of Shareholder Rights and Disclosure of Information isn’t being met the corporate governance codes by the private banks. Hypothesis-2 H0: The condition of condition for Disclosure and Transparency is being met the CG corporate governance codes by the private banks. HA: The condition of condition for Disclosure and Transparency isn’t being met the corporate governance codes by the private banks.
Hypothesis-3 H0: The situation of Board of Directors issues is being met the corporate governance codes by the private banks. HA: The situation of Board of Directors issues isn’t being met the corporate governance codes by the private banks. Hypothesis-4 H0: The situation of Financial Reporting is being met the corporate governance codes by the private banks. HA: The situation of Financial Reporting isn’t being met the corporate governance codes by the private banks. Hypothesis-5 H0: The situation of Audit practices by the private banks is meeting the corporate governance codes.
HA: The situation of Audit practices by the private banks isn’t meeting the corporate governance codes. Hypothesis-6 H0: The situation of HRM approaches embraced by the banks is meeting the corporate governance codes. HA: The situation of HRM approaches embraced by the banks isn’t meeting the corporate governance codes. Hypothesis-7 H0: The situation of CSR arrangements embraced by the banks are meeting the corporate governance codes. HA: The situation of CSR arrangements embraced by the banks are not meeting the corporate governance codes.2.8 Limitations of the StudyDue to time and resource constraint the researcher was bound to use only secondary data.3.
BANGLADESH BANK- CORPORATE GOVERNANCE GUIDELINE3.1 Corporate governance Practice Scenario in Bangladesh Most companies and organizations of Bangladesh don’t follow good corporate governance guideline because most of the organizations’ governing bodies are family oriented. Also the director doesn’t feel the necessity to disclose information positively. Another reason there is little judgement or penalty consequences.
3.2 Bangladesh Bank Guideline for Corporate governanceFormation of Board of Directors: The newly amended Section 15 of the Bank Company Act, 1991 (Amended up to 2013) includes provisions for prior approval of Bangladesh Bank before the appointment of new bank directors, as well as dismissal, termination or removal of any director from the post; director’s fit & proper criteria; maximum number of directors; appointment of independent directors; appointment of maximum 2(two) members from a family as director; etc. 1.1. Appointment of New directors: Under section 15(4) of the Bank Company Act, 1991 (amended up to 2013), every banking company, other than specialized banks, at the time of taking prior approval from Bangladesh Bank for appointing/reappointing directors should furnish the following documents along with the application: 3. Information regarding Directors: Banks are advised to take the following steps regarding director information: a) Every bank should keep an updated list of bank directors, b) Banks should send a directors’ list to other banks or financial institutions immediately after the appointment or release of director. c) Banks should display a list of directors in the website and update it on a regular basis.
4. Responsibilities of the Board of Directors: To ensure good governance in the bank management it is essential to have specific demarcation of responsibilities and authorities among controlling bodies over bank affairs. In the Bank Company Act, 1991 (amended upto 2013) the newly included Section 15(kha) ; (ga) give responsibility to the board of directors for establishing policies for the bank company, for risk management, internal controls, internal audit and compliance and for ensuring their implementation.a) Personal information of the nominated person (Appendix-ka); b) Nominated person’s declaration(Appendix-kha); c) ‘Declaration for confidentiality’ by the nominated person(Appendix-ga); d) In case of Independent director, the approval letter from Security and Exchange commission; e) In case of Independent director, a declaration of the directors concerns as Appendix-gha (he will also submit declaration under Appendix-ka, kha & ga); f) CIB report of the nominated person; g) Updated list of the directors.4.1. Responsibilities and Authorities of the Board of Directors:Credit and risk management: i.
The policies, strategies, procedures etc. in respect of appraisal of loan/investment proposal, sanction, disbursement, recovery, reschedule and write-off thereof shall be made with the board’s approval under the purview of the existing laws, rules and regulations. The board shall specifically distribute the power of sanction of loan/investment and such distribution should desirably be made among the CEO and his subordinate executives as much as possible. No director, however, shall interfere, direct or indirect, into the process of loan approval. ii. The board shall frame policies for risk management and get them complied with and shall monitor the compliance at quarterly rests and review the concerned report of the risk management team and shall compile in the minutes of the board meeting. The board shall monitor the compliance of the guidelines of Bangladesh Bank regarding key risk management. c) Internal control management: The board shall be vigilant on the internal control system of the bank in order to attain and maintain satisfactory qualitative standard of its loan/investment portfolio.
The board will establish such an internal control system so that the internal audit process can be conducted independently from the management. It shall review the reports submitted by its audit committee at quarterly rests regarding compliance of recommendations made in internal and external audit reports and the Bangladesh Bank inspection reports. d) Human resources management and development: i. Policies relating to recruitment, promotion, transfer, disciplinary and punitive measures, human resources development etc. and service rules shall be framed and approved by the board. The chairman or the directors shall in no way involve themselves or interfere into or influence over any administrative affairs including recruitment, promotion, transfer and disciplinary measures as executed under the set service rules.
No member of the board of directors shall be included in the selection committees for recruitment and promotion to different levels. Recruitment, promotion, transfer ; punishment of the officers immediate two tiers below the CEO shall, however, rest upon the board. Such recruitment and promotion shall have to be carried out complying with the service rules i.e.
, policies for recruitment and promotion. ii. The board shall focus its special attention to the development of skills of bank’s staff in different fields of its business activities including prudent appraisal of loan/investment proposals, and to the adoption of modern electronic and information technologies and the introduction of effective Management Information System (MIS). The board shall get these programs incorporated in its annual work plan.
iii. The board will compose Code of Ethics for every tier and they will follow it properly. The board will promote healthy of conducts for developing a compliance culture.4.3.
Responsibilities of the Chairman of the Board of Directors: a) As the chairman of the board of directors or chairman of any committee formed by the board or any director does not personally possess the jurisdiction to apply policy making or executive authority, he/she shall not participate in or interfere into the administrative or operational and routine affairs of the bank. b) The chairman may conduct on-site inspection of any bank-branch or financing activities under the purview of the oversight responsibilities of the board. He may call for any information relating to bank’s operation or ask for investigation into any such affairs; he may submit such information or investigation report to the meeting of the board or the executive committee and if deemed necessary, with the approval of the board, he shall effect necessary action thereon in accordance with the set rules through the CEO. However, any complaint against the CEO shall have to be apprised to Bangladesh Bank through the board along with the statement of the CEO. c) The chairman may be offered an office-room, a personal secretary/assistant, one peon/MLSS, one telephone at the office, one mobile phone to use inside the country and a vehicle in the business-interest of the bank subject to the approval of the board.
5. Formation of committees from the Board of Directors: Each bank company can form 1(one) executive committee, 1(one) audit committee and 1(one) risk management committee with the directors. Board can’t form any other permanent, temporary or sub- committee except the above mentioned three committees. 5.2. Audit Committee: The board will approve the objectives, strategies and overall business plans of the bank and the audit committee will assist the board in fulfilling its oversight responsibilities. The committee will review the financial reporting process, the system of internal control and management of financial risks, the audit process, and the bank’s process for monitoring compliance with laws and regulations and its own code of business conduct.
Financial Reporting: 1. Audit committee will check whether the financial statements reflect the complete and concrete information and determine whether the statements are prepared according to existing rules ; regulations and standards enforced in the country and as per relevant prescribed accounting standards set by Bangladesh Bank; 2. Discuss with management and the external auditors to review the financial statements before its finalization. (iii) Internal Audit: 1. Audit committee will monitor whether internal audit working independently from the management. 2. Review the activities of the internal audit and the organizational structure and ensure that no unjustified restriction or limitation hinders the internal audit process; 3. Examine the efficiency and effectiveness of internal audit function; 4.
Examine whether the findings and recommendations made by the internal auditors are duly considered by the management or not. (iv) External Audit 1. Review the performance of the external auditors and their audit reports; 2. Examine whether the findings and recommendations made by the external auditors are duly considered by the management or not. 3. Make recommendations to the board regarding the appointment of the external auditors. (v) Compliance with existing laws and Regulations: Review whether the laws and regulations framed by the regulatory authorities (central bank and other bodies) and internal regulations approved by the board are being complied with.
Risk Management Committee: To play an effective role in mitigating impending risks arising out from strategies and policies formulated by the Board and to carry out the responsibilities efficiently, a risk management committee will be formed. After identifying and assessing several risk factors like credit risks, foreign exchange risks, internal control and compliance risks, money laundering risks, information and communication risks, management risks, interest risks, liquidity risks etc.; the risk management committee will scrutinize whether appropriate risk management measures are being put in place and applied and whether adequate capital and provision is being maintained against the risks identified.Corporate Social Responsibility Practice:It was instructed by the GBCSRD circular no-7 (22 December, 2014) that every scheduled banks and financial institutions how they will cost the CSR fund willingly. Through that circular it was advised to incurred 30% for education, 20% for health, 10% for climate risk fund.
Training for the Directors: The directors shall make themselves fully aware of the banking laws and other related rules and regulations for performing his duties properly.4. ANALYSIS AND INTERPRETATION4.
1 Shareholders’ Rights and Disclosure of InformationThe following graph shows the data with compliance and non-compliance level Graph 1. Shareholders’ Rights and Disclosure of InformationHypothesis Test-1H0: The state of Shareholder Rights and Disclosure of Information is being met the corporate governance codes by the private banks. HA: The state of Shareholder Rights and Disclosure of Information isn’t being met the corporate governance codes by the private banks.
Here,Total attributes, n = 5Total conformed attributes, x = 2Compliance probability in the population, p = 0. 90 Non Compliance probability in the population, q = 0.10 Thus attributes’ population mean (µ) = n × p = np = 5 × 0.90 = 4.5Standard deviation, (?) = npq = ?4.5×.
10= 0.67Calculated z value z= x-np? = 2-4.5.67 = – 3.73 Significance level = 5% A two tailed test ?2= .052 = 0.025 Table value of z = ±1.
96. It is the corresponding value of 0.475 = (0.5 ? .025) Here, Reject H0, So, it can be concluded that the corporate governance on Shareholders’ Rights and Disclosure of Information are not maintained properly by the 70% or more private commercial banks of Bangladesh.
4.2 Disclosure and Transparency PracticeDisclosure is an important issue for the shareholder. On the basis of the disclosed issue they take decision whether they will sell, purchase or retain the share. So transparency is highly required in disclosing issue.The resulting data with compliance and non-compliance level on this issue is given in the following graph. Graph 2.
Disclosure and TransparencyHypothesis Test-2H0: The condition of condition for Disclosure and Transparency is being met the CG corporate governance codes by the private banks. HA: The condition of condition for Disclosure and Transparency isn’t being met the corporate governance codes by the private banks. Here, Total attributes, n = 10 Total satisfying attributes, x = 7 Compliance probability in the population, p = 0. 90 Non-compliance probability in the population, q = 0.10 Thus attributes’ population mean (µ) = n × p = np =10 × 0.90 = 9 Standard deviation, (?) = npq = ?9×.10= 0.
95 Calculated value z = x-np?= 7-9.95= – 2.10 Significance level = 5% A two tailed test ?2= .052 =0.025Table value of z = ±1.
96. It is the corresponding value of 0.475 = (0.5 ?.
025)Here, do not reject H0. So, it can be concluded that the corporate governance guideline of disclosure and transparency are maintained by the 70% or more private commercial banks of Bangladesh.4.3 Board IssuesInformation relating to board of director gives a confidence level that shareholders’ invested amount will be maintained properly, not misused.The board issues are summarized in the following graph.Graph 3. Board IssuesHypothesis Test-3H0: The situation of Board of Directors issues is being met the corporate governance codes by the private banks.
HA: The situation of Board of Directors issues isn’t being met the corporate governance codes by the private banks. Here,Total attributes, n = 15Total conformed attributes, x = 9Compliance probability in the population, p = 0. 90 Non-compliance probability in the population, q = 0.10 So, attributes’ populations mean(µ)= n × p=np =15×0.90=13.5 Standard deviation, (?) = npq = ?13.5×.10= 1.
16Calculated value z= 9-13.51.16 = – 3.
88 Significance level = 5%A two tailed test ?2= .052 =0.025Table value of z = ±1.
96. It is the corresponding value of 0.475 = (0.5 ? .
025).Here, Reject, H0. So, it can be concluded that the corporate governance on board issues are not practiced as we were expecting by the 70% or more private commercial banks of Bangladesh.4.4 Financial ReportingIt shows that most of the private commercial banks of Bangladesh follow either Bangladesh Accounting Standards (BAS) or International Accounting Standards. Most of the banks try to ensure that their report shows fair picture to ensure that they employ experienced CFO.Summary of financial reporting data in the following graph.
Graph 4. Financial ReportingHypothesis Test-4H0: The situation of Financial Reporting is being met the corporate governance codes by the private banks. HA: The situation of Financial Reporting isn’t being met the corporate governance codes by the private banks.
Here,Total attributes, n = 7Total conformed attributes, x = 6Compliance probability in the population, p = 0. 90 Non-compliance probability in the population, q = 0.10 Thus attributes’ populations mean (µ) = n × p = np =7 × 0.90 = 6.3Standard deviation (?) = npq = ?6.3×.10= .79 Calculated value z = 6-6.
3.79 = – .38 Significance level = 5%A two tailed test ?2= .052 =0.025Table value of z = ±1.
96. It is the corresponding value of 0.475 = (0.5 ? .
025)Here, do not reject H0. So, it can be concluded that all the corporate governance on financial reporting are maintained by the 70% or more private commercial banks of Bangladesh.4.5 Audit PracticesCommercial banks audit their accounts by internal and external audit team and they employ experienced auditor and ensure fair review but in selection process the shareholders have little access.The following graph shows the present condition of audit practice Graph 5. Audit PracticeHypothesis Test-5H0: The situation of Audit drilled by the private banks is meeting the corporate governance codes. HA: The situation of Audit honed by the private banks isn’t meeting the corporate governance codes. Here, Total attributes, n = 6 Total conformed attributes, x = 4 Compliance probability in the population, p = 0.
90 Non-compliance probability in the population, q = 0.10 Thus attributes’ populations mean (µ) = n × p = np =6 × 0.90 = 5.4 Standard deviation, (?) = npq = ?5.4 × 0.10 = 0.73 Calculated value z = 4-5.
4.73 = – 1.92 Significance level = 5%A two tailed test ?2= .
052 =0.025Table value of z = ±1.96. It is the corresponding value of 0.475 = (0.
5 ? .025)Here, reject H0. So, it can be concluded that the corporate governance on audit practice are not practiced by the 70% or more private banks of Bangladesh. 4.
6 Human Resources ManagementThe HRM practice by the private commercial banks of Bangladesh is not up to that mark.Summary of HRM PracticeGraph 6. Human Resource ManagementHypothesis Test-6H0: The situation of HRM approaches embraced by the banks is meeting the corporate governance codes. HA: The situation of HRM arrangements embraced by the banks isn’t meeting the corporate governance codes.
Here,Total attributes, n = 6Total conformed attributes, x = 1Compliance probability in the population, p= 0.90 Non-compliance probability in the population, q = 0.10 Thus attributes’ populations mean (µ) = n × p = np = 6 × 0.90 = 5.4 Standard deviation, (?) = npq = ?5.4 × 0.
10 = 0.73 Calculated value z= 1-5.4.73 = – 6.02 Significance level = 5%A two tailed test ?2= .052 = 0.025Table value of z = ±1.
96. It is the corresponding value of 0.475 = (0.5 ? .025)Here, Reject H0. So, it can be concluded that the corporate governance on human resource management are not practiced according to the expectation by the 70% or more private banks of Bangladesh. 4.
7 Corporate Social Responsibility PracticeIn Bangladesh most commercial banks spend their CSR budget in education, health and climate risk fund. It has found that most banks spend in climate risk fund but supposed to be in education sector.This graph shows summary of CSR PracticeGraph 7.
Corporate Social ResponsibilityHypothesis Test-7H0: The situation of CSR arrangements embraced by the banks are meeting the corporate governance codes. HA: The situation of CSR arrangements embraced by the banks are not meeting the corporate governance codes. Here, Total attributes, n = 3 Total conformed attributes, x = 0 Compliance probability in the population, p= 0.
90 Non-compliance probability in the population, q = 0.10 Thus attributes’ populations mean (µ) = n × p = np = 3 × 0.90 = 2.7 Standard deviation, (?) = npq = ?2.
7 × 0.10 = .52 Calculated value z= 0-2.7.52 = – 5.19 Significance level = 5%A two tailed test ?2= .052 = 0.
025Table value of z = ±1.96. It is the corresponding value of 0.475 = (0.
5 ? .025)Here, Reject H0. So, it can be concluded that the corporate governance on corporate social responsibility are not maintaining according to the expectation by the 70% or more private banks of Bangladesh.5. FINDINGS5.1 Shareholders’ Rights and Disclosure of InformationThe corporate governance codes on Shareholders’ Rights and Disclosure of Information are practiced by only 40% private commercial banks and complied level is 70% where 90% was expected.
This is one of the major issues to ensure good governance in banking sector.5.2 Disclosure and TransparencyThe hypothesis result shows that the corporate governance guideline of disclosure and transparency are maintained by 70% commercial banks and compliance level is 76% where 90% was assumed. In this issue it has been found that the directors’ information is not disclosed properly.5.3 Board IssuesOne of the important issues of the corporate governance codes, is board issue that has not been practiced according to the assumption.
Only 70.33% of the board issues are compiled by 60% or more private banks.5.4 Financial ReportingFrom the analysis it is clear that 80% issues of financial reporting are compiled by the 85.71% or more banks. That is very essential for ensuring good governance.
5.5 Audit PracticeFrom the analysis part it can be inferred that the corporate governance codes of audit practice issues are practiced by only 67% or more private banks and complied level is 77% where 90% was expected.5.6 Human Resource ManagementIn this important issue the scenario is not satisfactory level. Only 34.
17% of the HRM guidelines are practiced by the 17% or more private banks accordance to guideline.5.7 Corporate social responsibilityFrom analysis part it is discovered that most of the commercial banks don’t follow Bangladesh Bank guideline.
Only 33.33% costs are incurred by 33.33% banks according to Bangladesh Bank guideline.6. CONCLUSION AND RECOMMENDATION6.
1 Conclusion The research study has achieved its objectives by showing the current practice of corporate governance in private banking sector of Bangladesh. The data collected was analyzed with percentage and using z test and presented through descriptive analysis, it is an evident that maintaining corporate governance in a bank is a symbol of good corporate cultured bank. A few number of the private commercial banks indeed do practice good corporate governance as a result of less effective application of the Bangladesh Bank guidelines.
This study concluded that practicing corporate governance in the major area like shareholders’ rights and disclosure of information are complying with only 50% by only 40% banks, disclosure and transparency are 76%, board issues are 70.33%, financial reporting conformances are 80%, 67% private banks’ audit practices are conformed by 76.66%, respectively 17% and 33.33% private commercial banks’ human resources management and corporate social responsibility practices match only 34.
16% and 33.33% respectively. Also concluded that complying with Bangladesh Bank guideline can bring a bank on a standard position in banking industry.6.2 RecommendationThe researcher would like to recommend the followings to improve the corporate governance practice of private banking sector in Bangladesh.For the disclosure compliance adequate time should be given for placing questions and issues on AGM Annual report should disclose the major shareholders’ information and remuneration of directors.Mission statement should be clearly identified with achieving process.Board’s performances need to evaluated regularly with the mission of BOD.
There must be adequate guideline against unethical behavior.Shareholder should provide access to nominate external auditor.In the audit team there must be experienced audit member.
Banks should maintain more self-directed teams.There must be job rotation and cross training facility to improve the human resources’ skills.Bank should expense more on education, health and climate risk fund respectively as a part of CSR practice.APPENDIX Analysis TableSource: Annual Report of Bank Asia Ltd, AB Bank Ltd, AIBL, Eastern Bank Ltd, Mercantile Bank Ltd, MTB Ltd, NRB Ltd, One Bank Ltd, Premier Bank Ltd, South East Bank Ltd, Midland Bank Ltd, Meghna Bank Ltd, IFIC Ltd, DBL, City Bank Ltd, BRAC Bank Ltd, BCBL, Trust Bank Ltd, UCB Ltd, Uttara Bank Ltd Table 1Shareholders Right and Disclosure of Information Compliance with CG codes Non-compliance with CG codes Yes % No % Practice of Voting in AGM 18 90 2 10Adequate Information on Agenda 15 75 5 25Adequate time for Questions & Placing Issues 9 45 11 55Major Shareholders’ Information 5 25 15 75Disclosing Candidates Before Meeting 3 15 17 85 250 250 Total compliance with CG codes 50 Total Non-compliance with CG codes 50Table 2Disclosure and Transparency Compliance with CG codes Non-compliance with CG codes Yes % No % Resume of Directors 11 55 9 45Remuneration of Directors 10 50 10 50Fees Paid to External Auditors 14 70 6 30Policies on Risk Management 19 95 1 5Significant Changes in Ownership 19 95 1 5Governance structures and police 19 95 1 5Disclosing Semi Annual Report 4 20 16 80Audited financial statement 18 90 2 10Website in English 19 95 1 5Informative Website 19 95 1 5 760 240 Total compliance with CG codes 76 Total Non-compliance with CG codes 24Table 3Board Issues Compliance with CG codes Non- compliance with CG codes Yes % No % Written mission of BOD 17 85 3 15Evaluation of mission statement 3 15 17 85Written responsibilities of board 18 90 2 10Directors’ training 9 45 11 55Compliance officer 19 95 1 5Evaluation of board’s performance 9 45 11 55Remuneration of directors 13 65 7 35Presence of independent directors 15 75 5 25Board audit committee 16 80 4 20Board compensation committee 9 45 11 55Board nomination committee 8 40 12 60Accounting/Finance expert in audit committee 19 95 1 5Written minutes of audit committee 19 95 1 5Written rules of audit function 19 95 1 5Size of BOD (7 to 15) 18 90 2 10 1055 445 Total compliance with CG codes 70.33 Total Non-compliance with CG codes 29.66Table 4Financial Reporting Compliance with CG codes Non-compliance with CG codes Yes % No % Accounting system 19 95 1 5Qualification of CFO 19 95 1 5Experience of CFO 19 95 1 5Accounts reflect a fair picture 17 85 3 15Maintaining BAS 16 80 4 20Safeguard against unethical behavior 4 20 16 80Effective internal audit 18 90 2 10 560 140 Total compliance with CG codes 80 Total Non-compliance with CG codes 20Table 5Audit Practices Compliance with CG codes Non-compliance with CG codes Yes % No % Audit by external audit team 19 95 1 5Shareholders nominate external auditor 3 15 17 85Experienced external auditors 13 65 7 35Rotation of external auditors 17 85 3 15Internal audit department 20 100 0 0Independent internal audit team 20 100 0 0 460 140 Total compliance with CG codes 76.
67 Total Non-compliance with CG codes 23.33Table 6Human Resources Management Compliance with CG codes Non-compliance with CG codes Yes % No % Self-directed teams 12 60 8 40Problem solving groups 20 100 0 0Job rotation and cross training 3 15 17 85Employee stock ownership plans 1 5 19 95Profit sharing 5 25 15 75Existence of trade union 0 0 20 100 205 395 Total compliance with CG codes 34.67 Total Non-compliance with CG codes 65.
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