Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 1

1. INTRODUCTION

1.1 Introduction
The 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 Study
The scope of the study is the operating private commercial banks in Bangladesh and their
publications.

1.3 Literature Review
Kar, Sarker (2014) showed corporate governance practice in private banks of Khulna city of
Bangladesh considering 10 local banks.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 2

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.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 3

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 Banks

Ahmed, 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 Study
Primary 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.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 4

2. METHODOLOGY

2.1 Assumption
An 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 Methodology

The 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 Study

Among 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 Data

The secondary data were collected through related bank annual report, books, official statistics,
published brochures, and bank websites.

2.6 Data Entry and Analysis

Major 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.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

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2.7 Research Hypothesis
The 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 Study
Due to time and resource constraint the researcher was bound to use only secondary data.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

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3. BANGLADESH BANK- CORPORATE GOVERNANCE
GUIDELINE

3.1 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 governance
Formation 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

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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:

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

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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;

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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.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

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4. ANALYSIS AND INTERPRETATION

4.1 Shareholders’ Rights and Disclosure of Information
The following graph shows the data with compliance and non-compliance level

Graph 1. Shareholders’ Rights and Disclosure of Information
Hypothesis Test-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.
Here,
Total attributes, n = 5
Total conformed attributes, x = 2
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 = 5 × 0.90 = 4.5
Standard deviation, (;#55349;;#57102;) = ?;#55349;;#56411;;#3627408477;;#3627408478; = ?4.5×.10= 0.67
Calculated z value z= ;#55349;;#56421;?;#55349;;#56411;;#55349;;#56413;
;#55349;;#57102; = 2?4.5
.67 = – 3.73
Practice of Voting
in AGM
Adequate
Information on
Agenda
Adequate time
for Questions ;
Placing Issues
Major
Shareholders’
Information
Disclosing
Candidates
Before Meeting
compliance with CG codes9075452515
Non-compliance with CG codes1025557585
90
75
45
25
1510
25
55
75
85
05101520253035404550556065707580859095100

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 11

Significance level = 5%
A two tailed test ��
2= .05
2 = 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 Practice
Disclosure 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 Transparency

Resume
of
Director
s
Remune
ration of
Director
s
Fees
Paid to
External
Auditors
Policies
on Risk
Manage
ment
Significa
nt
Changes
in
Owners
hip
Governa
nce
structur
es and
police
Disclosi
ng Semi
Annual
Report
Audited
financial
stateme
nt
Website
in
English
Informa
tive
Website
compliance with CG codes55507095959520909595
Non-compliance with CG codes455030555801055
5550
70
959595
20
909595
4550
30
555
80
1055
0
10
20
30
40
50
60
70
80
90
100
compliance with CG codesNon-compliance with CG codes

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 12

Hypothesis Test-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.
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, (;#55349;;#57102;) = ?;#55349;;#56411;;#3627408477;;#3627408478; = ?9×.10= 0.95
Calculated value z = ;#55349;;#56421;?;#55349;;#56411;;#55349;;#56413;
;#55349;;#57102;= 7?9
.95= – 2.10

Significance level = 5%
A two tailed test ;#55349;;#57102;
2= .05
2 =0.025
Table 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 Issues

Information 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.

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

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Graph 3. Board Issues
Hypothesis Test-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.
Here,
Total attributes, n = 15
Total conformed attributes, x = 9
Compliance 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, (?) = ?���� = ?13.5×.10= 1.16
Calculated value z= 9?13.5
1.16 = – 3.88

Significance level = 5%
A two tailed test ��
2= .05
2 =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 board issues are not
practiced as we were expecting by the 70% or more private commercial banks of Bangladesh.

85
15
90
45
95
45657580
4540
95959590
15
85
10
55
5
55352520
5560
55510
0
20
40
60
80
100
120
compliance with CG codes15 85 10 55 5 55 35 25 20 55 60 5 5 5 10

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4.4 Financial Reporting
It 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 Reporting
Hypothesis Test-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.
Here,
Total attributes, n = 7
Total conformed attributes, x = 6
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 =7 × 0.90 = 6.3
Standard deviation (?) = ?���� = ?6.3×.10= .79
Calculated value z = 6?6.3
.79 = – .38

Significance level = 5%
A two tailed test ��
2= .05
2 =0.025
Accounting
system
Qualificati
on of CFO
Experience
of CFO
Accounts
reflect a
fair picture
Maintainin
g BAS
Safeguard
against
unethical
behavio
Effective
internal
audi
compliance with CG codes95959585802090
Non-compliance with CG codes55515208010
9595958580
20
90
5551520
80
10
0102030405060708090100
compliance with CG codesNon-compliance with CG codes

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 15

Table 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 Practices
Commercial 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 Practice
Hypothesis Test-5
H0: 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, (?) = ?���� = ?5.4 × 0.10 = 0.73
Calculated value z = 4?5.4
.73 = – 1.92

95
15
65
85
100
100
5
85
35
15
0
0
020406080100120
Audit by external audit team
Shareholders nominate external auditor
Experienced external auditors
Rotation of external auditors
Internal audit department
Independent internal audit team

Corporate Governance Practice in Banking Sector of Bangladesh -A Study on Private Commercial Bank.

D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 16

Significance level = 5%
A two tailed test ��
2= .05
2 =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 audit practice are not
practiced by the 70% or more private banks of Bangladesh.

4.6 Human Resources Management
The HRM practice by the private commercial banks of Bangladesh is not up to that mark.
Summary of HRM Practice

Graph 6. Human Resource Management
Hypothesis Test-6
H0: 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 = 6
Total conformed attributes, x = 1
Self-directed
teams
Problem
solving
groups
Job rotation
and cross
training
Employee
stock
ownership
plans
Profit
sharing
Existence of
trade union
compliance with CG codes60100155250
Non-compliance with CG codes400859575100
60
100
15
5
25
0
40
0
85
95
75
100
0
20
40
60
80
100
120

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D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 17

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, (?) = ?���� = ?5.4 × 0.10 = 0.73
Calculated value z= 1?5.4
.73 = – 6.02

Significance level = 5%
A two tailed test ��
2= .05
2 = 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 human resource
management are not practiced according to the expectation by the 70% or more private banks of
Bangladesh.

4.7 Corporate Social Responsibility Practice
In 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 Practice
Graph 7. Corporate Social Responsibility

5
10
85
95
90
15
020406080100120
Education (30%)
Health (20)
Climate risk fund (10)
Education (30%)Health (20)Climate risk fund (10)
Compliance with CG codes51085
Non-compliance with CG codes959015
Compliance with CG codesNon-compliance with CG codes

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D e p t . o f A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s P a g e 18

Hypothesis Test-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.
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, (?) = ?;#55349;;#56411;;#3627408477;;#3627408478; = ?2.7 × 0.10 = .52
Calculated value z= 0?2.7
.52 = – 5.19

Significance level = 5%
A two tailed test ;#55349;;#57102;
2= .05
2 = 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 corporate social
responsibility are not maintaining according to the expectation by the 70% or more private banks
of Bangladesh.

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5. FINDINGS
5.1 Shareholders’ Rights and Disclosure of Information
The 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 Transparency
The 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 Issues
One 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 Reporting
From 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 Practice
From 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 Management
In 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 responsibility
From 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.

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6. CONCLUSION AND RECOMMENDATION

6.1 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 Recommendation

The 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.

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APPENDIX
Analysis Table
Source: 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 1
Shareholders Right and Disclosure of Information

Compliance with CG
codes
Non-compliance with CG
codes
Yes % No %

Practice of Voting in AGM 18 90 2 10
Adequate Information on
Agenda 15 75 5 25
Adequate time for
Questions ; Placing Issues 9 45 11 55
Major Shareholders’
Information 5 25 15 75
Disclosing Candidates
Before Meeting 3 15 17 85
250 250

Total compliance with
CG codes 50
Total Non-compliance
with CG codes 50
Table 2
Disclosure and Transparency

Compliance with CG
codes
Non-compliance with
CG codes
Yes % No %

Resume of Directors 11 55 9 45
Remuneration of Directors 10 50 10 50
Fees Paid to External
Auditors 14 70 6 30
Policies on Risk
Management 19 95 1 5
Significant Changes in
Ownership 19 95 1 5
Governance structures
and police 19 95 1 5
Disclosing Semi Annual
Report 4 20 16 80
Audited financial
statement 18 90 2 10
Website in English 19 95 1 5
Informative Website 19 95 1 5

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760 240

Total compliance
with CG codes 76
Total Non-compliance
with CG codes 24
Table 3
Board Issues

Compliance with CG
codes
Non- compliance with
CG codes
Yes % No %

Written mission of BOD 17 85 3 15
Evaluation of mission
statement 3 15 17 85
Written responsibilities
of board 18 90 2 10
Directors’ training 9 45 11 55
Compliance officer 19 95 1 5
Evaluation of board’s
performance 9 45 11 55
Remuneration of
directors 13 65 7 35
Presence of independent
directors 15 75 5 25
Board audit committee 16 80 4 20
Board compensation
committee 9 45 11 55
Board nomination
committee 8 40 12 60
Accounting/Finance
expert in audit
committee 19 95 1 5
Written minutes of audit
committee 19 95 1 5
Written rules of audit
function 19 95 1 5
Size of BOD (7 to 15) 18 90 2 10
1055 445

Total compliance with
CG codes 70.33
Total Non-compliance
with CG codes 29.66

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Table 4
Financial Reporting

Compliance with CG
codes
Non-compliance with
CG codes
Yes % No %

Accounting system 19 95 1 5
Qualification of CFO 19 95 1 5
Experience of CFO 19 95 1 5
Accounts reflect a fair
picture 17 85 3 15
Maintaining BAS 16 80 4 20
Safeguard against
unethical behavior 4 20 16 80
Effective internal audit 18 90 2 10
560 140

Total compliance
with CG codes 80
Total Non-compliance
with CG codes 20
Table 5
Audit Practices

Compliance with CG
codes
Non-compliance
with CG codes
Yes % No %

Audit by external
audit team 19 95 1 5
Shareholders
nominate external
auditor 3 15 17 85
Experienced external
auditors 13 65 7 35
Rotation of external
auditors 17 85 3 15
Internal audit
department 20 100 0 0
Independent internal
audit team 20 100 0 0
460 140

Total compliance with CG
codes 76.67
Total Non-
compliance with CG
codes 23.33

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Table 7
CSR Practice

Compliance with CG
codes
Non-compliance with
CG codes
Yes % No %

Education (30%) 1 5 19 95
Health (20%) 2 10 18 90
Climate risk fund
(10%) 17 85 3 15
100 200

Total compliance with CG
codes 33.33
Total Non-compliance
with CG codes 66.67

Abbreviation
CG: Corporate governance
AGM: Annual General Meeting
HRM: Human Resource Management
CSR: Corporate Social Responsibility
SEC: Securities and Exchange Commission
BB: Bangladesh Bank
Table 6
Human Resources Management
Compliance with CG
codes Non-compliance with
CG codes
Yes % No %

Self-directed teams 12 60 8 40
Problem solving
groups 20 100 0 0
Job rotation and
cross training 3 15 17 85
Employee stock
ownership plans 1 5 19 95
Profit sharing 5 25 15 75
Existence of trade
union 0 0 20 100
205 395

Total compliance with CG
codes 34.67
Total Non-compliance
with CG codes 65.83

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CEO: Chief Executive officer
MBA: Master of Business Administration
BAS: Bangladesh Accounting Standard

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