Banking industry of Bangladesh has achieved remarkable momentum over the years. It has brought several positive changes in terms of expansion, modernisation, quality of assets, application of international standards, technology adaptation, capacity development efforts, corporate governance, and improved regulatory and supervisory environment. The development is not, however, uniform in all banks. Fortunately, the industry did not have to face any severe fallout from the 2007-2008 Global Financial Crisis (GFC). However, like other global economies, the industry is becoming exposed to newer challenges, financial crimes, and competitions. Though there are several instances and successful efforts of bank leadership to address the changing needs, all banks are required to develop their customised paths to sustain on a continuous process. Effective leadership, sound governance framework, and emotional intelligence are tools for tomorrow's banks to survive.
Bangladesh Bank (BB) has undertaken remarkable regulatory and supervisory initiatives over the years in line with the internationally accepted standards and compliance requirements. Banking sector of the country now has risk management guidelines and compliance requirements for all the key areas of banking; and prudential and capital standards are duly in place. Adoption of technology has brought in remarkable efficiency in the supervisory arrangement of Bangladesh Bank. The central bank has created a platform for modernisation of banking, payment system and financial service delivery by formulation of rules, guidelines and supportive arrangements. Notable initiatives have been taken for effective oversight of risk management, internal controls and customer interest protections. It is good to observe that the central bank has responded with due support to technology-driven initiatives of the scheduled banks.
In response to the global development and BIS (Bank for International Settlements)guidelines, Bangladesh Bank has updated and enforced circulars for improving corporate governance practices of the banking industry. It has circulars on fit and proper test for selecting board of directors. A major circular issued in 2013 defines formation of board of the banking companies and their duties and responsibilities. Several relevant circulars were issued for installing good board practices: prohibition on outsiders/non-member's presence at the board meeting and giving extra payment and benefits other than the stipulated benefits; restrictions on the payment of honorarium of the directors in the board meeting and travel expenses of directors, etc.
The central bank issued guidelines for Internal Control and Compliance in 2016 incorporating corporate governance issues elaborately. In addition to that, commercial banks of the country are required to follow the guidelines applicable to listed companies issued by the Bangladesh Securities and Exchange Commission (BSEC), covering several corporate governance and transparency issues. The enforcement of these improved and internationally accepted standards has brought visible changes in the governance structure of the banking industry.
Bangladesh Bank is promoting developmental banking in line with the country's priorities. To promote its developmental goals, Bangladesh Bank has upgraded the country's financial market infrastructure by setting up fully automated nationwide online clearing system and hastening automation in banks. Several incentives like refinance lines from BB and limited interest subsidies have been made available to promote lending to farmers, small enterprises and poor households. This developmental approach of Bangladesh Bank can be linked with 'financial and macroeconomic stability of the country', one of the key goals of the central bank.
Though Bangladesh Bank has a specific department, namely 'Sustainable Finance' to take care of the key relevant areas of sustainable finance like green banking and CSR (corporate social responsibility), activities of its certain other departments are clearly associated with the broad definition of 'sustainable finance'. These include Agricultural credit department, Financial inclusion department, SME and special programme department, Banking regulation and policy department, Department of off-site supervision, Financial integrity and customer service department, Payment systems department, etc.
In response to the policy initiatives and support services of the central bank, a good number of commercial banks are leading with innovative initiatives and products in the areas of mobile and agent banking, small and micro enterprise financing, green banking, school banking, and financial inclusion through small deposit mobilisation. Though at a slower pace, agricultural credit is picking up momentum in recent times.
Financial crime, ethical issues, and capacity development are drawing attention from policy makers. In recent years, money laundering concerns have brought in remarkable volume of compliance requirements. In response to the developments, Bangladesh Bank and the Bangladesh Financial Intelligence Unit (BFIU) responded with notable initiatives and ventures in line with global standards. Not different from other countries, unethical conduct on the part of bank executives and other key stakeholders came up as one of the reasons for growing financial crimes in the banking industry. The unethical behaviour adversely affects work environment in banks and traditional internal controls hardly prevent unethical behaviour because human behaviour is influenced by a multitude of factors. To encourage ethical behaviour, there is scope for taking necessary time and allocate resources for formulating internal policy and identifying behavioural factors that influence employees' behaviour in the organisation. Though banks generally have a set of Code of Conduct, these are not clearly communicated to the bank employees.
Leadership has a great role to play in establishing transparency through structures and processes to foster an ethical organisational climate, which is quite important to ensure customer confidence. Government agencies and the central bank have been working for promoting ethical behaviour and integrity issues in response to the growing concerns on the unethical conducts in business and economic arenas. Perception about capacity development need in banks has improved over the years but focus has remained on the technical or hard skills.
In the banking industry of Bangladesh, a good number of instances are really inspiring. There are cases when leadership of banks transformed their institutions remarkably in terms of improved services, processes, and brand images. It appears that network leadership (with the support of boards and efforts of top leadership) has played a remarkable role in transforming these banks and placing these on sound footing. A few banks of the country have been playing a leading role in modernising banking processes, developing new products, and launching technology-driven payment and financing services. Some banks have already come up with their own internet banking apps to provide services. In recent times, agent banking is a remarkable venture.
No different from other banking industries of the globe, the banking industry of Bangladesh has experienced ups and downs. The sector faced several challenges but showed resilience. In line with the need of the time, the banking industry needs capacity development or updating efforts for all key stakeholders: boards, top management, and bank employees- a continuous exercise for improved performance and to face newer challenges. In spite of several challenges the banking industry is facing, there is every reason to be optimistic about a more vibrant banking sector in the coming days.
Dr. Shah Md Ahsan Habib is Professor and Director (Training) at BIBM.