corporate governance of eastern bank limited (3)
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Corporate Governance of Eastern Bank Limited (3)TRANSCRIPT
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EXECUTIVE SUMMARY
Banking service in Bangladesh is characterized as a highly
competitive and highly regulated sector. With a good number of
banks already in operation and a few more in the pipeline, the
market is becoming increasingly competitive by the day.
With the global slowdown in the face of rising competition banks
are constantly looking for ways to develop their market and
product offers to remain ahead of others. A significant amount of
regulation by Bangladesh bank prevents the scope of introducing
newer products into the market and thereby restricts a banks’
ability to outperform others with a diversified product range.
Eastern Bank Limited (EBL) is the commercial bank operating in
Bangladesh. It has over the years, created one of the largest
networks among all the local banks in Bangladesh. Having
established itself as the leading commercial bank in Bangladesh is
not by itself sufficient unless a hearty attempt is made to sustain
this position. Amidst an age of regulation and intense competition,
diversification of the corporate products in a way that helps to
increase the wallet share of the bank and thereby achieve growth is
undoubtedly very desirable.
This report takes a look at the current corporate governance tools
practice by Eastern Bank Limited (EBL) to lead the way of
banking industry in Bangladesh.
TABLE OF CONTENTS
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Sl. No. Chapter Page No.
1 CORPORATE GOVERNANCE OF EASTERN BANK LIMITED, BANGLADESH
11
1.1 INTRODUCTION 11
1.2 OBEJECTIVES 11
1.3 METHODOLOGY 12
1.4 SCOPE 13
1.5 LIMITATIONS 13
1.6 PROBLEM STATEMENT 13
2 ABOUT CORPORATE GOVERNANCE 13
3 ORGANIZATIONAL PART OF EBL 14
3.1 INTRODUCTION 14
3.2 MISSION 15
3.3 VISION 16
3.4 VALUES 16
3.5 STRATEGIC PRIORITY 17
3.6 OBJECTIVES OF EBL 17
3.7 HISTORICAL REVIEW & DIFFERENT MILESTONES 17
3.8 AT A GLANCE- BENEFITES FROM CHANGES 18
3.9 PRIZE BOOKS OF EBL 19
3.10 BOARD OF DIRECTORS OF EBL 20
3.11 CURRENT PROFILE OF EBL 21
3.12 MANAGEMENT ASPECTS 22
3.12.1 EXECUTIVES COMMITTEE 23
3.12.2 THE AUDIT COMMITTEE & GROUP OF STRUCTURE 23
3.12.3 MANAGEMENT COMMITTEE 24
3.13 MANAGEMENT HIERARCHY OF EBL EXECUTIVE 25
3.14 MANAGEMENT ORGANOGRAM OF EXECUTIVE 26
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3.15 CURRENT BANKING SCENARIO & EBL’S POSITION 27
3.16CREDIT RISK MANAGEMENT (PORTFOLIO
DIVERSIFICATION)28
3.17 DEPARTMENTS & DIVISION OF EBL 28
3.18 PRODUCTS OF EBL 29
3.19 SERVICES OF EBL 30
3.20 CSR OF EBL 30
3.21 CENTER ZONE OFFICES OF EBL 31
3.22 CONCLUTION 31
4 CORPORATE GOVERNANCE OF EBL 32
4.1 INTRODUCTION 32
4.2 CORPORATE GOVERNANCE OF EBL 32
4.3 ANALYSIS OF CORPORATE GOVERNANCE OF EBL 32
4.4 CORPORATE GOVERNANCE CHECKLIST 33
4.5 OBJECTIVES OF CORPORATE GOVERNANCE OF EBL 35
4.6 REASON BEHIND COMPLIED 35
4.7 INDEPENDENT DIRECTORS 36
4.8RESPONSIBILITIES OF THE CHAIRMANM OF THE
DIRECTORS37
4.9 RESPONSIBILITIES & AUTHORITIES OF CEO 37
4.10 AUDITORS REPORT 38
4.11REPORTING OF ANYTHING HAVING MATERIAL
FINANCIAL IMPACT TO THE COMMISSION39
4.12 EBL’S BALANCE SHEET & SOME VITAL STATISTICS 39
5 FINDINGS 42
5.1 SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE 42
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5.1.1 DEMAND FOR INFORMATION 42
5.1.2 MONITORING COSTS 42
5.1.3 SUPPLY OF ACCOUNTING INFORMATION 42
5.2TO MAINTAIN SOME PRICIPLES FOR CORPORATE
GOVERNANCE42
5.2.1 RIGHTS & EQUITABLE TREATMENT OF SHARE HOLDER 42
5.2.2 INTEREST OF THE OTHER STAKEHOLDER 43
5.2.3 ROLE AND RESPONSIBILITIES OF THE BOARD 43
5.2.4 INTEGRITY & ETHICAL BEHAVIOR 43
5.2.5 DISCLOSURE & TRANSPARENCY 43
6 RECOMMENDATIONS 44
6.1 MONITORING BY THE BOARD OF DIRECTORS 44
6.2 BALANCE OF POWER 44
6.3 EXTERNAL CORPORATE GOVERNANCE CONTROLS 44
7 CONCLUSIONS 45
8. REFERENCES 46
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CORPORATE GOVERNANCE OF EASTERN BANK LIMITED, BANGLADESH
1.1 INTRODUCTION:
This assignment has been prepared as a requirement of BBA program. Eastern bank limited is
the leading commercial bank in this country. To maintain its leading position in the Bangladesh,
Eastern Bank Limited is always keen to develop long term beneficial relationship with
trustworthy clients. To achieve this end, they have always upgraded their approaches to achieve
profitability. The report on “Corporate Governance of Eastern Bank Limited” is initiated as part
of learning, which is a BBA degree requirement of the department of MANAGEMENT
STUDIES, Jahangirnagar University.
Since the BBA program is an integrated, practical and theoretical method of learning, the
students of this program are required to have practical exposure in any kind of business
organization as last term of this course.
1.2 OBEJECTIVES:
The main objective of the report is to explore the corporate governance of eastern bank limited in
the banking sector of Bangladesh.
And other objectives are given below-
1. Briefly observe the banking environment of Bangladesh and look at Eastern Bank Limited
(EBL) as an organization at some length.
2. Identify the major strengths of the bank customer service division.
3. Market scenario of banking sector and the current position of eastern bank Limited.
4. To know about the overall banking activity.
5. To find out sustainable position of Eastern Bank Limited.
6. To know about the management style and organization structure of Eastern Bank Limited.
7. To identify the problem and weakness of the banking system of Eastern Bank Limited.
8. To suggest necessary measures for the development of the bank.
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1.3 METHODOLOGY:
In the organization part, much information has been collected from different published articles,
journals, brochures, web sites and previous internship report. All the information incorporated in
this report has been collected both from the primary sources and as well as from the secondary
sources.
1.3.1 Primary sources of information 1.3.2 Secondary sources of information
1. Observation of the internship period.
2. Operation process.
3. Discussion officials of the EBL
4. Data from the company’s documents
and Eastern Bank Limited
computerized information system.
5. Data from the internet of Eastern Bank
Limited (EBL).
1. Balance sheets and profit and loss
accounts of Eastern Bank Limited.
2. Relevant Eastern Bank Limited paper
and published documents.
3. Bank’s other published documents.
4. Bank’s other published information
some text books.
5. Internet of Eastern Bank Limited.
The primary data relating to problems involved in Corporate Governance practice and
suggestions to remove the same were collected on the basis of a questionnaire by interviewing 24
randomly selected Bank personnel such as Directors of the Board as the internal part of
management and the Auditors as the external group.
The secondary data were collected through an extensive literature survey on the subject. The
study has identified some major problems in Corporate Governance practice in the Banking
Industry of the country. The prospect of Corporate Governance practice is bright in Banking
Industry in the country as reported by the respondents if problems are removed by the concerned
management of the Banks as well as Bangladesh Bank management as the guardian of
commercial Banks.
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1.4 SCOPE:
The scope of the report is limited to the overall descriptions of corporate governance of the bank,
its services, its position in the industry, and its competitive advantage. The scope is also defined
by the organizational set-up functions, and performances. Here Eastern Bank Limited has been
compared in different aspects and derivatives of management accounting tools with foreign and
local banks as well.
1.5 LIMITATIONS:
Information at the bank is confidential and critical.
The findings are not statistically validated.
Limitation of time was one of the most important factors that shortened the present study.
Rush hour & business was another reason that act as acts as an obstacle while gathering
data.
1.6 PROBLEM STATEMENT:
Eastern bank limited (EBL) is one of the leading first generation private sector banks in our
country. Such banks come into operation following the decision that the government of
Bangladesh took almost two decades back to allow private banks to operate side with the
Nationalized Commercial Banks. Today’s business operates in the dynamic complex
environment as they are affected by STEP (sociologically, Technologically, Economical, and
political) factors, internal competition, and the increasing bargaining power of suppliers and
customers. These forces have rapidly altered today’s business environment. In ordered to survive
in the changing business environment organization should rethink their strategic philosophy and
the role of management.
2. ABOUT CORPORATE GOVERNANCE:
Corporate governance is the set of process, customs, policies, laws and affecting the way in
which corporation is directed, administered and controlled. The United Kingdom Cadbury
Report (Cadbury, 1992, p.15) defined corporate governance as “the system by which companies
are directed and controlled”.
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As for example, Asian Development Bank (ADB) describes corporate governance as “(i) a set of
rules, that define the relationship between shareholders, managers, creditors, the government and
stakeholders, (ii) a set of mechanism that help directly or indirectly to enforce these rules” (Asian
Development Bank, 2000, p. 5).
Corporate Governance ensures to bring transparency, accountability and professionalism in the
management system of a corporate body that enhances the credibility and acceptability to the
shareholders, employees, potential investors, customers, lenders, governments and all other
stakeholders.
This is truer in case of Banking Industry. Since Banks deal in public money, public confidence is
of outmost importance in this Industry. The study aims at finding out problems & deficiencies
involved in Corporate Governance practice in Banking Industry in Bangladesh and also
suggesting ways and means to remove the same in order to make the Corporate Governance
practice sound and effective. In this study, both the primary and secondary data were used.
3 ORGANIZATIONAL PART OF EBL:
3.1 INTRODUCTION:
The emergence of Eastern Bank Limited in the private sector is an important event in the
banking industry of Bangladesh. Eastern Bank Limited started its business as a public limited
company on August 08, 1992 with the primary objectives to carry on all kinds of banking
business in and outside of Bangladesh and also with a view to safeguard the interest of the
depositors of erstwhile BCCI [Bank of Credit and Commerce International (Overseas)] under the
Reconstruction Scheme, 1992, framed by Bangladesh Bank.
In 19991, when BCCI had collapsed internationally, the operation of this bank had been closed
in Bangladesh. After a long discussion with the BCCI employees and taking into consideration
the depositors’ interest, Bangladesh Bank then gave the permission to form a bank named
Eastern Bank Limited which would take over all the assets, cash and liabilities of erstwhile BCCI
in Bangladesh, with effect from August 16, 1992. So, it can be said the EBL is a successor of
BCCI.
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EBL started its business as a scheduled bank with only four branches, which included Principal
Branch, Dhaka; Motijheel Branch, Dhaka; Agrabad Branch, Chittagong and Khulna Branch.
EBL started its business with motto to grow as a leader in the banking arena of Bangladesh
through better counseling and efficient service to clients. EBL resumed its operational activities
initially with an authorized capital of Tk. 1000 million, divided into 10 million shares of Tk. 100
each and paid up capital of Tk. 310 million. The initial shareholders were the NCBs, various
govt. agencies, and some of the depositors who had agreed to accept shares in the new bank in
lieu of their deposits.
The first Board of Directors of EBL constituted under govt. supervision, consisted of 7 directors
from various business and professions. Eastern Bank Limited was under government control
until the end of 2000 and therefore, there were lots of deficiencies in the Bank’s management. In
2001, the board of directors brought in new professional management from various foreign banks
who have been trying to modernize the bank ever since.
3.2 MISSION:
EBL will deliver service excellence
to customers, both internal and
external.
EBL will constantly challenge their
systems, procedures and training to
maintain a cohesive and professional
team in order to achieve service
excellence.
EBL will create an enabling
environment and embrace a team
based culture where people will
excel.
EBL will ensure to maximize
shareholder’s value.
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3.3 VISION: The vision of Eastern Bank Limited is to become the bank of choice by
transforming the way they do business and developing a truly unique financial institution that
delivers superior growth and financial performance and be the most recognizable brand in the
financial services in Bangladesh.
3.4 VALUES: EBL see their customers’ trust as the lifeline of their business, control and
compliance as their license to operate, dynamic and motivated people as their strength to
multiply and technology as their weapon to service excellence.
Service excellence
Openness
Trust
Commitment
Integrity
Responsible corporate citizen
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3.5 STRATEGIC PRIORITY:
Integrate sustainable principles into Business strategy.
Shift to values-based marketing, focuses on human aspirations, values, sprites.
Strengthen internal controls through clearly laid down policies, productions & process
Pursue a moderate asset growth keeping the asset quality intact.
Optimize funding mix to reduce cost of fund.
Accelerate deposit growth by offering innovative products.
3.6 OBJECTIVES OF EBL:
Maximization of profit along with the benefits of employees is the main objective of the bank. In
addition, the other objectives are:
To be one of the leading banks of Bangladesh in terms of ROE and ROE.
To be the market leader in high quality banking products and services.
Achieve excellence in customer service through providing the most modern and
advanced state-art technological in the different spheres of banking.
Cater to a broader and differentiated segment of retail and wholesale customers.
To grow its credit extension service to the commercials as well industrial sector;
To increase its diversification of loan portfolio and geographical coverage.
To curd present operating expenses further so as to increase earnings before tax.
To reduce the burden of nonperforming assets.
3.7 HISTORICAL REVIEW & DIFFERENT MILESTONES OF EBL:
In the year of 1992 EBL started their banking operation in the country. Within these 15 years
EBL became one of the successful banks in Bangladesh. They are able to gain this huge success
because of their employee’s honesty, integration and hard work.
EBL dreams to be the bank of choice of the general public which includes both the consumer and
the corporate clients. It has adopted the tag line “simple math”, the philosophy of Easy Banking
while celebrating the 10th anniversary in 2002, EBL’s logo was changed to reflect the restricting
and the transformations it is going through; the colors of the new logo signify the vibrant green
of mother earth, a blue sky full of possibilities and a yellow rising sun of hope.
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In order to achieve superior growth and financial performance for its shareholders, EBL is
radically transforming the way it dies business .The bank has already restructured from the
traditional geographic matrix (branch based banking) to business unit matrix. The bank is also
centralizing most of the business functions in the head office to ensure greater control and
efficiency.
EBL wanted to stand up in the crowd. For moving out of the ramshackle, EBL management
under the dynamic leadership of the honorable Directors of the Board switched over to a
centralized platform using a world renowned banking software (Flex cube) which was the no one
most popular software in the world for the year 2003. The bank also centralizing most of the
business functions in the head office to ensure greater control and efficiency. The result has been
incredible.
3.8 AT A GLANCE- BENEFITES FROM CHANGES:
List of few benefits from centralization are mentioned below:
• Standalone systems= > Centralized system
• Branch Banking= > Anywhere Banking
• EOD at Branch= > EOD at Data Centre
• Telegraphic Transfers= > Online Inter-branch transfer
• Hold accounts= > Online Inter-branch transfer
• Produce MIS at Branch= > Centralized MIS
• Poor ‘Control’ reports= > Improved ‘Control’ reports
• Audit needs branch visit= > MIS available at Head Office
• Information on paper= > Information in CIF
• On Card Signature/Pix= > Digital Signature/Pix
• No Funds Management= > Automatic Sweep-in/Out
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3.9 PRIZE BOOKS OF EBL:
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3.10 BOARD OF DIRECTORS OF EBL:
NAME POSITION
1. Mr. Mir Nasir Hossain Chairman
2. Ms. Aneela Haque Director
3. Mr. G. M. Shakhawat Hossain Director
4. Mr. M. Showkat A. Chowdhury Director
5. Mr. A. M. Shaukat Ali Director
6. Mr. Asif Mahmood Director
7. Mr. Ahmed Qamrul Islam Chowdhury Director
8. Mr. M. M. Abdur Rahim Director
9. Mr. Mohd. Noor Ali Director
10. Mr. Ali Reza Iftekhar Managing Director & CEO
11. Mr. Safiar Rahman Company Secretary
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3.11 CURRENT PROFILE OF EBL:
EBL is a leading private sector bank in Bangladesh offering full range of Personal, Corporate,
International Trade, Foreign Exchange, Lease Finance and Capital Market Services. At present,
this can be said; Eastern Bank Limited is the preferred choice in banking for friendly and
personalized services, cutting edge technology, tailored solutions for business needs, global
reach in trade and commerce and high yield on investments, assuring Excellence in Banking
Services. Within very short span of time EBL is going to open five more branches in the country.
EBL is start strengthen their consumer products along with their corporate products; as they
lunched “Simple Credit Card” in the market recently.
At present, the bank has 32 branches throughout the country with about 850 employees. The
existing Board of Members is 12. Mr. A. Q. I. Chowdhury, OBE is the Chairman of Board and
Mr. Ali Reza Md. Iftekhar is the Managing Director & CEO. EBL is currently going through a
restructuring stage where the traditional ‘Branch Banking System` is gradually discarded and
being replaced by a Centralized System till 2000. The bank has been restructured into five main
businesses which is responsible for earning the revenues of the bank. These are:
Corporate Banking
Consumer Banking
SME Banking
Treasury
Cards
All other departments of the bank act as support for these five units and help them in every
possible way. Under this arrangement, the responsibilities and functions of those branches have
been reduced dramatically. Many of the activities like credit evaluation and approval, monitoring
of loans, trade services activities etc. are now centralized in the Head Office. The branches of the
bank are now termed as the “Sales & Service Centers” which are solely concentrated on
delivering services to the corporate and consumer clients and maintain relationship with them.
2006, last year was another year of continued success of EBL across all the business units. The
Bank has made an Operating Profit growth of 28.6% to BDT 1,358 million during the year but
suffered a decline of Profit after Tax by 6.1% to BDT 513 million mainly due to increased
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general provisioning requirement by BB and disallowance of specific provision in tax
computation. Therefore EPS dropped to BDT 61.98 in 2006 against BDT 66.00.
Corporate Banking remains the major bread earner with largest volume of loan portfolio and fees
income. Adding 3 more branches at strategic locations, Consumer Banking supplied the major
part of funding assets of corporate and SME, one of the potential business segments. EBL
Treasury has passed a superb year 2006 by achieving an extraordinary growth of FX income by
130% to the tune of BDT 434 million by exploiting market volatility. Investment income also
grew by 47.48% due to governments increased borrowing at higher rates.
3.12 MANAGEMENT ASPECTS:
The EBL Management Team comprises of a group of people and each of them comes with an
international working background and is committed in leveraging their experiences to take EBL
to greater heights by ensuring top line revenues with dynamic capabilities. This Management
Team is unique in being able to envision the need of the business by bringing in admixture of
advanced technology solutions know-how and revamping the organizational make-up for
maximum profitability. Other than the CEO, the remaining Management Team Members each
lead a functional department.
This mix of people is persistent to provide unparallel services to its customers, come up with
timely and innovative products and services and to enhance the capabilities of its people of its
people while emphasizing on the latest technology. This they believe will take the Bank to a
foremost position in the country by the turn of the year 2007. This team is to drive the business
to maximize the operational excellence and efficiency through acquisition of talent, developing
systems, processes and people and through blending of these to let customers revel in with
fulfillment and permanency.
Like any other business organization, all the major decisions in EBL are made by the top
management Committee. The board mainly establishes the objectives and policies of the bank.
There are three (3) committees of the board for different purposes:
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3.12.1 EXECUTIVES COMMITTEE:
In compliance with the BRPD circular no. 16 dated July 24, 2003 the board of Directors of EBL
has reconstituted its Executive Committee in its 352the Board Meeting and was duly confirmed
by the Board. This committee is comprised of four non-executive Directors and Managing
Director of the bank and the functions and responsibilities of this committee is to Establish and
periodically review the bank’s overall credit and lending policies and procedures, develop and
implement uniform and minimum acceptable credit standards for the bank, new credit proposal
assessment and approval etc.
3.12.2 THE AUDIT COMMITTEE & GROUP OF STRUCTURE:
The main objective of this committee is to assist Board of Directors with regard to the audit of
financial reports, management reports by external auditors, internal controls and internal audits.
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3.12.3 MANAGEMENT COMMITTEE:
Name Position
1. Ali Reza Iftekhar Managing Director & CEO
2. Mamoon Mahmood Shah SEVP & Head of Consumer Banking
3. Md. Sirajul Islam SVP & Head of Human Resources
4. Mahbubul Alam Tayiab EVP & Head of Operations
5. Malick Musfique Reza SAVP & Head of Finance & Accounts
6. Md. Fakhrul Alam EVP & Area Head, Corporate Banking, CTG
7. Syed Rafiqul Haq Head of Unit 5, Corporate Banking, Dhaka
8. Ehsan Khasru Head of Credit Risk Management
9. Muklesur Rahman Head of SME Banking
10. Noor E Alam Chowdhury Head of IT
11. Safiar Rahman Company Secretary
Mid and lower level employees get the direction and instruction from the top executives about
the duties and tasks they have to perform. Management of Eastern Bank Ltd. assumes that; active
employees are the inputs to achieve the organization goal. The manager provides the guidelines
and broad directions to the subordinates but delegate responsibility for determining how tasks
and goals are to be accomplished.
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3.13 MANAGEMENT HIERARCHY OF EBL EXECUTIVE:
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Managing Director
Executive Vice President
Senior Vice President
Vice President
Senior Assistant Vice President
First Assistant Vice President
Assistant Vice President
Senior Principal Officer
Principal Officer
Management Trainee (Entry Level)
Senior Officer
Officer (Entry Level)
Contractual Officer (Entry Level)
3.14 MANAGEMENT ORGANOGRAM OF EBL EXECUTIVE:
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3.15 CURRENT BANKING SCENARIO OF BANGLADESH & EBL’S POSITION IN
THE MARKET:
From the beginning of the year 2004, the entire banking industry in Bangladesh started facing
stiff competition to procure business, under the changed circumstances of the policy of BB to
lower the rates of interest in lending and to go for syndication against large loan portfolios with
the objective to ensure better operation and control of all functions of the bank.
Despite such situation the year was a remarkable on for EBL when the bank finally completed
the introduction of a state-of-the art IT technology platform of Flex Cube, a world class banking
software. All of bank’s 25 branches were connected to this IT platform giving an enviable
opportunity to all the EBL customers to obtain the most coveted services that no other bank
could offer them yet.
Customers of new century are self-motivated, vigilant and informed about the market conditions,
further more development of information technology and telecommunication systems created an
environment whereby customers demand convenience, reasonable priced better quality financial
products and personalized services. Customer demand together with technological advancement
created new challenges and opportunities in the banking sector in Bangladesh. Adapting realistic
and timely business policies, investments in IT are now prejudicing to stay at the edge of this
assertive and competitive banking business of the country. Invention of new financial products
and services and introduction of new delivery methods are the key concern of staying close to
customers.
To cope with the status quo, Eastern Bank Limited welcomed these developments and
restructured the bank to meet the challenges in future. The branches of the bank are now termed
as the “Sales & Services Center” which are solely concentrated providing service to the
corporate and consumer clients and maintain relationship with them.
2006, last year was another year of continued success of EBL across all the business units. The
Bank has made an Operating Profit growth of 28.6% to BDT 1,358 million during the year but
suffered a decline of Profit after Tax by 6.1% to BDT 513 million mainly due to increased
general provisioning requirement by BB and disallowance of specific provision in tax
computation. Therefore EPS dropped to BDT 61.98 in 2006 against BDT 66.00.
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Corporate Banking remains the major bread earner with largest volume of loan portfolio and fees
income. Adding 3 more branches at strategic locations, Consumer Banking supplied the major
part of funding assets of corporate and SME, one of the potential business segments. EBL
Treasury has passed a superb year 2006 by achieving an extraordinary growth of FX income by
130% to the tune of BDT 434 million by exploiting market volatility. Investment income also
grew by 47.48% due to governments increased borrowing at higher rates.
3.16 CREDIT RISK MANAGEMENT (PORTFOLIO DIVERSIFICATION):
Comprehensive risk management is a core competence of EBL. EBL take a prudent and
conservative approach to risk that is fully aligned with their long-term strategy. The risk
framework combines centralized policy setting with board oversight supported by risk execution
and monitoring. It provides management with the ability to oversee the bank’s large and highly
diversified portfolio effectively and efficiently.
EBL’s risk management systems are designed to identify and analyze risks management
processes by establishing a credit risk management policy, credit underwriting standards, and
credit risk rating methodology. It also established a Credit Risk Management Division, which is
independent from relationship management units to ensure proper controls on its lending.
3.17 DEPARTMENTS & DIVISION OF EBL:
These are the main divisions; the structures and functions of each of these divisions are given
below:
Serial Name of Departments Serial Name of Departments
1 Audit & Compliance Division 8 SME Banking Divisions
2 Finance & Accounts Division 9 Credit Risk Management Divisions
3 Human Resources Department 10 Credit Administration Departments
4 Corporate Banking Divisions 11 Operations
5 Treasury Departments 12 International Divisions
6 Consumer Banking Divisions 13 Information Technology Divisions
7 Brand Management Divisions
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3.18 PRODUCTS OF EBL:
Consumer Products
1. Loan Products 2. Deposit Products 3. SME Banking Products
• EBL Jibandhara Loan • Interesting Account Loan Products
• EBL Utshab Loan • Campus Account • EBL Agrim
• EBL Home Loan • High Performance • EBL Uddog
• EBL Fast Cash • EBL Repeat • EBL Asha
• EBL Fast Loan • EBL Confidence • EBL Puji
• EBL Executive Loan • EBL Just Double • EBL Banijjo
• EBL Auto Loan • EBL Mukti
• EBL Travel Loan 4. Cards Products
• EBL Parse loan • Simple Credit Card 5. Deposit Products
• Education Finance Pack • Lifestyle Card • EBL Subidha
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3.19 SERVICES OF EBL:
Services offered by Consumer Banking Services offered by SME Banking Division
Locker Services Debit Card (Visa Electron) Facility
EBL 5 to 9 (Evening Banking) Online Banking
Online Banking Internet Banking
EBL Visa Electron Card Bill Payment Facility
Utility Services Bill Collection
Tuition Fees Collection
Student File
Simple Credit Card
Local Classic
Local Gold
Dual Classic
Dual Gold
3.20 CSR OF EBL:
In this 21st century, the social responsibility of an organization is unavoidable. The societal
marketing concept holds that the organization should determine the needs wants, and interests of
target markets. It should then deliver superior value to customers in a way that maintains or
improves the consumer’s and the society’s well-being. In this concept the marketers will
maximize the consumers’ value in the long run rather than short run to maximize their profit.
The bank realizes the importance of contributing to the public, community, and society as a
whole as well as participating in environmental protection and conservation for a sustainable
future. EBL ensures that the customer already having production facility that is susceptible to
damage environment has due environmental clearance certificate from the concerned ministry
while granting or renewing credit facility.
Every year EBL contribute their in various types of social activities, are; awarding the talent
student through “talent hunt”, monetary contribution in the disable fund, contribute increasing
public awareness about the social ills and the most recently EBL contributed BDT 320 million in
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the Chief Advisors fund for the flood affected people. No one in society can avoid the due
responsibilities, EBL’s position is positive in this regard and they wish to find a suitable segment
to work with in future to meet the corporate social responsibility.
3.21 CENTER ZONE OFFICES OF EBL:
Center zone offices of EBL
1) EBL Head Office Jiban Bima Bhaban 10, Dilkusha C/A Dhaka
2) Corporate Banking Office Dhaka
Jiban Bima Bhaban 10, Dilkusha C/A Dhaka Phone: PABX
3) Corporate Banking - Uday Tower Office
Uday Tower (1st Floor) Plot: 57 & 57/A Gulshan Avenue (South) Dhaka
4) Gulshan Cards Center Sabera Tower (5th ), House 42, Road
3.22 CONCLUTION:
Since banks deal with customer’s hard earned cash and finances business, it is natural financial
organization largely depends on the service quality, promotional activity, personnel effort and
distribution. EBL is the first local private bank in Bangladesh which has implanted the strategy
of Centralization. The ultimate goal of following this strategy is to maximizing the profit and
also reduces the amount of bad debts and in most reduces the internal conflicts. EBL has
diversified its assets and remittance, loan portfolio and now EBL is focusing on establishing a
leading small and medium enterprise as well as adding value added consumer banking products
to satisfy its customers better as it lunched Simple Credit Card with the fullest possibilities of
modern credit card. It has restructured its business process to meet the challenges of rapidly
evolving technology based banking services, in the awake of growing competition in the
financial service industry and changes in the customer needs.
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4. CORPORATE GOVERNANCE OF EBL:
4.1 INTRODUCTION:
Corporate Governance is based on several critical principles. They include an independent,
active and engaged Board of Directors which has the skill to properly evaluate and oversee the
business process, business and financial performance, internal control and compliance structure
and direct management on strategic and policy issues. On the other hand, the Board has to ensure
that the management headed by Chief Executive Officer (CEO) fully discharge their day to day
administrative responsibilities prescribed by BB and the Board itself and necessarily refrain
themselves from micro management of the management affairs. Eastern Bank Ltd. recognizes
the importance of good corporate governance as a major factor in enhancing the efficiency of the
organization. The Bank therefore seeks to encourage the conduct of its business to be in line with
the principles of good corporate governance, which form a basis for sustainable growth.
4.2 CORPORATE GOVERNANCE OF EBL:
In absence of any specific, integrated and mandatory Corporate Governance instructions, various
rules and guidelines by different regulatory bodies constitute an informal structure of Corporate
Governance. EBL understands that all these rules and guidelines aim at establishing and
maintaining a delicate balance of authority and responsibility conferred on the Board, the
collective representatives of shareholders, and the management to safeguard the interest of key
stakeholders i.e. depositors and shareholders. Two very important pillars of a good corporate
governance structure are “Transparency” and “Accountability” backed by strong Internal Control
and Compliance Structure and MIS capabilities.
4.3 ANALYSIS OF CORPORATE GOVERNANCE OF EBL:
The only guideline regarding Corporate Governance so far issued by Securities & Exchange
Commission (SEC) vide letter no SEC/CFD/246/2006-2378 dated January 26, 2006 is currently
being followed by Banks, although not mandatory yet.
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4.4 CORPORATE GOVERNANCE CHECKLIST:
Status of Compliance with the conditions imposed by the Securities and Exchange Commission
Order no, SEC/CMRRCD/2006-158/Admin/02-08 dated 20 February, 2006 issued under section
2CC of the Securities and Exchange Ordinance, 1969.
Provided, however, that these conditions are imposed on ‘comply or explain’ basis. The
companies listed with any stock exchange in Bangladesh should comply with these conditions or
shall explain the reasons for non-compliance in accordance with the condition No.5. (Report
under Condition No.5.00)
Condition Title Compliance
Status.
1.0 Board of Directors (BOD): Complied
1.1 Board’s Size (Should not be less than 5 but not more than 20) Complied
1.2 (i) Independent Directors (At least 1/10th i.e. minimum one) Complied
1.2 (ii) Appointment of Independent Director Complied
1.3 Separate Chairman & CEO and their clearly defined roles Complied
1.4 Directors’ Report to Shareholders: Complied
1.4 (a ) Fair presentation of Bank financials Complied
1.4 (b) Maintenance of proper books of account Complied
1.4 (c) Adoption of appropriate accounting policies and estimates Complied
1.4 (d )Compliance with Inter. Accounting Standard Complied
1.4 (e) Soundness of Internal Control System Complied
1.4 (f) Ability to continue as a going concern Complied
1.4 (g) Significant deviations in operating results from Complied
1.4 (h) Presentation of key operating and financial data at least 3 years Complied
1.4 ( i) Declaration of Dividend Complied
1.4 ( j) Number of Board Meetings held and attendance by each Director Complied
1.4 ( k) Shareholding pattern. Complied
2.0 CFO, Head of Internal Audit (HoIA) and Company Secretary (CS): Complied
2.1 Appointment of CFO, HoIA and CS and their clearly defined roles Complied
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2.2 Attendance of CFO & CS in the Board of Directors’ Meeting.
CFO attends the Meeting as end when required.
Complied
3.0 Audit Committee: Complied
3.1 Constitution of Audit Committee: Complied
3.1 (i) Size of the Audit Committee (at least 3 members) Complied
3.1 (ii) Audit Committee comprised of Board members including
independent director(s).
Complied
3.1 (iii) Filling of casual vacancy in the Audit Committee. Complied
3.2 (i) Selection of Chairman of the Audit Committee. Complied
3.2 (ii) Professional qualification and experience of the Chairman of the
Committee.
Complied
3.3.1 (i) Reporting to BOD on the activities of the Audit Committee. Complied
3.3.1 (ii) Reporting of conflict of interest to the BOD. Complied
3.3.1 (ii) Reporting of any fraud to the BOD. Complied
3.3.1 (ii) Reporting of suspected infringement of laws to the BOD. Complied
3.3.1 (ii) Reporting of any other matter to the BOD. Complied
3.3.2 Reporting of anything having material financial impact to the
Commission.
Complied
3.4 Reporting of activities to the shareholders and general investors. Complied
4.0 External/Statutory Auditors: Complied
4.1 (i)Appraisal or valuation services or fairness Complied
4.1 (ii)Design and implementation of Financial Information System. Complied
4.1 (iii)Book keeping or any other related services Complied
4.1 (iv) Broker or dealer services. Complied
4.1 (v)Actuarial services. Complied
4.1 (vi)Internal audit services Complied
4.1 (vii)Any other services determined by the Audit. Complied
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4.5 OBJECTIVES OF CORPORATE GOVERNANCE OF EBL:
For excellence in Corporate Governance, the most important processes one has to concentrate on
are:
Strategy Process, which provides: – A link between Strategy & Operations, – Sets up a
mechanism for Strategy Review
People Process, which provides: – A link between People & Operations
Operations Process, which provides: – A link between Strategy & People The link
between Core Objectives of Corporate Governance and the important processes is the
structure of the corporate & the systems through which the activities are organized and
executed.
4.6 REASON BEHIND COMPLIED:
Board of Directors (BOD):
Board’s Size: The number of the board members of the company should not be less than
5 (five) and more than 20 (twenty).
Provided, however, that in the case of banks and non-bank financial institutions, insurance
companies and statutory bodies for which separate primary regulators like Bangladesh Bank,
Department of Insurance etc. exist, the Board of those companies should be constituted as may
be prescribed by such primary regulators in so far as those prescriptions are not inconsistent with
the aforesaid condition. Eastern Bank Limited (EBL) board consists with the 10 members and
their name given below.
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4.7 INDEPENDENT DIRECTORS:
All companies should encourage effective representation of independent directors on their Board
of Directors so that the Board, as a group, includes core competencies considered relevant in the
context of each company. For this purpose, the companies should comply with the following:-
At least one tenth (1/10) of the total number of the company’s board of directors, subject to a
Minimum of one, should be independent directors.
For the purpose of this clause
1. Independent director” means a director who does not hold any share in the company or who
holds less than one percent (1%) shares of the total paid-up shares of the company.
2. Not connected with the company’s promoters or directors and shareholder who holds one
percent (1%) or more than one percent (1%) shares of the total paid-up shares of the
company on the basis of family relationship.
3. Who does not have any other relationship whether pecuniary or otherwise, with the company
or its subsidiary/associated companies
4. Who is not a member, director or officer of any stock exchange, and who is not a
shareholder, director or officer of any member of stock exchange or an intermediary of the
capital market.
Eastern Bank Limited (EBL) independent directors free from any interest or any business or
other relationship which could, or could reasonably be perceived to, materially interferes with
the director’s ability to act with a view to the best interests of the company.
1. He is not a member of management.
2. Not a substantial shareholder of the company or an officer of or otherwise associated directly
or indirectly with a substantial shareholder of the company.
3. Not within the least three years been employed in an executive capacity by the company or
any other group member or been a director after ceasing to hold any such employment.
4. Not a principal or a professional adviser to a company or another group member.
5. Not a significant supplier or customer of the company.
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4.8 RESPONSIBILITIES OF THE CHAIRMANM OF THE BOARD OF DIRECTORS:
1. As the chairman of the board of directors does not personally possess the jurisdiction to
apply policymaking or executive authority, he not participates in or interferes into the
administrative or operational and routine affairs of the bank.
2. 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 effect necessary
action thereon in accordance with the set rules through the CEO.
3. The chairman offered an office-room, a personal secretary/assistant, a telephone at the office
and a vehicle in the business-interest of the bank subject to the approval of the board.
4. Leading the board of directors.
5. Obtaining contributions from other board members in the board’s deliberations is crucial to
ensure that the board works effectively.
4.9 RESPONSIBILITIES & AUTHORITIES OF CEO:
The CEO of the Eastern Bank Limited (EBL), Mr. Ali Reza Iftekhar, shall discharge the
responsibilities and affect the authorities as follows
In terms of the financial, business and administrative authorities vested upon him by the
board, the CEO discharges his own responsibilities. He remains accountable for
achievement of financial and other business targets by means of business plan.
The CEO ensures compliance of the Bank Companies Act, 1991 and/or other relevant
laws and regulations in discharge of routine functions of the bank.
The CEO reports to Bangladesh Bank of issues in violation of the Bank Companies Act,
1991 or of other laws/regulations and, if required, may apprise the board post facto.
The recruitment and promotion of all staff of the bank except those in the two tiers below
him rest on the CEO. He acts in such cases in accordance with the approved service rules
on the basis of the human resources policy and approved delegation of employees as
approved by the board.
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4.10 AUDITORS REPORT:
1. We have obtained all the information and explanations which to the best of our knowledge
and belief were necessary for the purposes of our audit and made due verification thereof.
2. In our opinion, proper books of account as required by law have been kept by the Bank so
far as it appeared from our examination of those books and proper returns adequate for the
purposes of our audit have been received from branches not visited by us.
3. The Bank’s Balance Sheet and Profit and Loss Account together with the annexed notes 1 to
44 dealt with by the report are in agreement with the books of account and returns.
4. The expenditure incurred was for the purpose of the Bank’s business.
5. The financial position of the Bank at 31 December 2007 and the profit for the years then
ended have been properly reflected in the Financial Statements, the Financial Statements
have been prepared in accordance with the generally accepted accounting principles.
6. The Financial Statements have been drawn up in conformity with the Bank Companies Act
1991 and in accordance with the accounting rules and regulations issued by the Bangladesh
Bank.
7. Subject to above paragraphs, adequate provisions have been made for advances and other
assets which are, in our opinion, doubtful of recovery.
8. The Financial Statements conform to the prescribed standards set in the accounting
regulations issued by the Bangladesh Bank after consultation with the professional
accounting bodies of Bangladesh.
9. The records and statements submitted by the branches have been properly maintained and
consolidated in the Financial Statements on the basis of the statements certified by the
branch manager and considered by us as correct.
10. The information and explanations required by us have been received and found satisfactory.
11. We have reviewed over 80% of the risk weighted assets of the bank and we have spent
around 3,000 person hours for the audit of books and accounts of the bank.
12. The capital adequacy ratio (CAR), as required by law, has been maintained adequately
during the year.
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4.11 REPORTING OF ANYTHING HAVING MATERIAL FINANCIAL IMPACT TO
THE COMMISSION:
If the Audit Committee has reported to the Board of Directors about anything which has material
impact on the financial condition and results of operation and has discussed with the Board of
Directors and the management that any rectification is necessary and if the Audit Committee
finds that such rectification has been unreasonably ignored, the Audit Committee should report
such finding to the Commission, upon reporting of such matters to the Board of Directors for
three times or completion of a period of 9 (nine) months from the date of first reporting to the
Board of Directors, whichever is earlier.
The Audit Committee holds meetings at least once every three months to scrutinize matters as
assigned by the Board of Directors. The Audit Committee held 5 (Five) Meetings in 2014 as per
following dates:
16th meeting held on 4th April, 2014
17th meeting held on 26th July, 2014
18th meeting held on 2nd August, 2014
19th meeting held on 29th August, 2014
20th meeting held on 1st November, 2014
19th meeting held on 29th August, 2014
20th meeting held on 1st November, 2014
4.12 EBL’S BALANCE SHEET & SOME VITAL STATISTICS:
In next two pages, it is going to describe the EBL’s Balance sheet comparison of 2013 & 2014.
Some corporate governance related graphs and charts are given in next 2 pages.
1. Eastern Bank limited and its subsidiaries. (Balance sheet)
2. Performance during the income year (2008-2013)
3. Key performance indicator (2008 to 2013)
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5. FINDINGS:
Some systematic problems of corporate governance all over the world Eastern Bank Limited is
not different then other company.
5.1 SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE:
5.1.1 DEMAND FOR INFORMATION:
A barrier to shareholders using good information is the cost of processing it, especially to a small
shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance,
the efficient market hypothesis (EMH) asserts that financial markets are efficient), which
suggests that the small shareholder will free ride on the judgments of larger professional
investors.
5.1.2 MONITORING COSTS:
In order to influence the directors, the shareholders must combine with others to form a
significant voting group which can pose a real threat of carrying resolutions or appointing
directors at a general meeting.
5.1.3 SUPPLY OF ACCOUNTING INFORMATION:
Financial accounts form a crucial link in enabling providers of finance to monitor directors.
Imperfections in the financial reporting process will cause imperfections in the effectiveness of
corporate governance. This should, ideally, be corrected by the working of the external auditing
process.
5.2 TO MAINTAIN SOME PRICIPLES FOR CORPORATE GOVERNANCE:
5.2.1 RIGHTS & EQUITABLE TREATMENT OF SHARE HOLDER:
Organizations should respect the rights of shareholders and help shareholders to exercise those
rights. They can help shareholders exercise their rights by effectively communicating
information that is understandable and accessible and encouraging shareholders to participate in
general meetings.
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5.2.2 INTEREST OF THE OTHER STAKEHOLDER:
Organizations should recognize that they have legal and other obligations to all legitimate
stakeholders.
5.2.3 ROLE AND RESPONSIBILITIES OF THE BOARD:
The board needs a range of skills and understanding to be able to deal with various business
issues and have the ability to review and challenge management performance. It needs to be of
sufficient size and have an appropriate level of commitment to fulfill its responsibilities and
duties. There are issues about the appropriate mix of executive and non-executive directors.
5.2.4 INTEGRITY & ETHICAL BEHAVIOR:
Ethical and responsible decision making is not only important for public relations, but it is also a
necessary element in risk management and avoiding lawsuits. Organizations should develop a
code of conduct for their directors and executives that promotes ethical and responsible decision
making. It is important to understand, though, that reliance by a company on the integrity and
ethics of individuals is bound to eventual failure. Because of this, many organizations establish
Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and
legal boundaries.
5.2.5 DISCLOSURE & TRANSPARENCY:
Organizations should clarify and make publicly known the roles and responsibilities of board and
management to provide shareholders with a level of accountability. They should also implement
procedures to independently verify and safeguard the integrity of the company’s financial
reporting. Disclosure of material matters concerning the organization should be timely and
balanced to ensure that all investors have access to clear, factual information.
Issues involving corporate governance principles include:
1. Internal controls and the independence of the entity’s auditors.
2. Oversight and management of risk.
3. Oversight of the preparation of the entity’s financial statements.
4. The resources made available to directors in carrying out their duties.
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6. RECOMMENDATIONS:
6.1 MONITORING BY THE BOARD OF DIRECTORS:
The board of directors, with its legal authority to hire fire and compensate top management,
safeguards invested capital. Regular board meetings allow potential problems to be identified,
discussed and avoided. Whilst non-executive directors are thought to be more independent, they
may not always result in more effective corporate governance and may not increase performance.
Different board structures are optimal for different firms. Moreover, the ability of the board to
monitor the firm’s executives is a function of its access to information. Executive directors
possess superior knowledge of the decision-making process and therefore evaluate top
management on the basis of the quality of its decisions that lead to financial performance
outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the
financial criteria.
6.2 BALANCE OF POWER:
The simplest balance of power is very common; require that the President be a different person
from the Treasurer. This application of separation of power is further developed in companies
where separate divisions check and balance each other’s actions. One group may propose
company-wide administrative changes, another group review and can veto the changes, and a
third group checks that the interests of people outside the three groups are being met.
6.3 EXTERNAL CORPORATE GOVERNANCE CONTROLS:
External corporate governance controls encompass the controls external stakeholders exercise
over the organization. Some Examples include
1. Competition
2. Debt covenants
3. Demand for and assessment of performance information
4. Government regulations
5. Managerial labor market
6. Media pressure & Takeovers.
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7. CONCLUSIONS:
Since the banking service especially the private Banks are doing good business, so it is clear that
the modern people are more concerned about the securing their valuable assets and get high
quality and timely services. For this reason lot of new commercial banks has been established in
last few years and these banks have made this banking sector very competitive, so now banks
have to organize their operation and do their operations according to the need of the market.
Banking sectors no more depends on the traditional method of banking.
The study was conducted on the proceeding of the activities carried out by Eastern Bank Limited
(EBL) corporate governance. Therefore few limitations occurred while conducting the study. In
spite of having many challenges, adverse economic conditions and market pattern during the
years, the bank tried to maintain its growth trend through the indicators like strong management
efficiency, proper corporate governance and their timely services to their clients.
On the basis convincing reasons, Eastern Bank Limited (EBL) management believes that in the
coming years the bank will try it s level best to sustain good corporate governance and maintain
rest of the years. With the current performance of the bank and they will certainly make Eastern
Bank Limited (EBL) one of the best private bank in Bangladesh.
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8. REFERENCES:
1. Eastern Bank Limited, Bangladesh. report on 2014, 2013, 2012.
2. Asian Development Bank, ADB 2013, „Corporate Governance and Finance in East Asia, A
Study of Indonesia, Republic of Korea, Malaysia, Philippines and Thailand‟, A Consolidated
Report, Asian Development Bank, Manila, Philippines, Volume 1, p.5.
3. Andres, PD & Vallelado, E 2014, „Corporate governance in banking: The role of the board
of directors‟, Journal of Banking & Finance, 32 (2008) 2570–2580, Department of Financial
Economics and Accounting, University of Valladolid, Avenida Valle Esgueva 6, 47011
Valladolid, Spain. The online version is available at
http://www.ppge.ufrgs.br/giacomo/arquivos/gov-corp/andres-vallelado-2008.pdf. (Accessed
on 7January 2015).
4. Basel Committee on Banking Supervision, February 2006, Enhancing Corporate Governance
for Banking Organizations, section II, Bank for International Settlements, CH-4002
5. Basel, Switzerland. The online version is available at http://www.bis.org/publ/bcbs122.pdf.
(Accessed on 5 January 2015). Basel Committee on Banking Supervision, September 1997,
Core Principles for Effective Banking Supervision, section II. Bank for International
Settlement, Basel, Switzerland. The online version is available at
http://www.bis.org/publ/bcbs30a.pdf. (Accessed on 5 January 2015).
6. Bushman, RM & Smith, AJ 2014, „Transparency, Financial Accounting Information, and
Corporate Governance‟, FRBNY Economic Policy Review, Vol. 9, No. 1, pp. 65-87.
7. Claessens, Stijn. 2014, Corporate Governance and Development. Global Corporate
Governance Forum. Focus 1, The International Bank for Reconstruction and Development/
The World Bank,1818 H Street NW, Washington, DC 20433.
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