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5.4.4 Exercise accountability to shareholders and be responsible to relevant
stakeholders...................................................................................................................... 20
5.5 Disclosure and Transparency of Rajshahi Krishi Unnayan Bank: ............................ 20
5.6 Internal Corporate Governance Audit of Rajshahi Krishi Unnayan Bank: ............... 21
5.7 Risk Management System ......................................................................................... 22
5.7.1 Elements of a Sound Risk Management System: .............................................. 22
5.7.2 Essential criteria for ensuring sound risk management ..................................... 22
5.7.3 Optimal Risk Management Organogram ........................................................... 23
5.8 Risk Management Process ........................................................................................ 24
5.8.1 Steps of Risk Management Process: .................................................................. 24
5.8.2 Identifying Risks ................................................................................................ 24
6 Chapter 6: Findings and Analysis .................................................................................... 26
6.1 Corporate Governance Issues in Bangladesh ............................................................ 26
7 Chapter 7: Conclusion...................................................................................................... 27
8 Chapter 8: Recommendations .......................................................................................... 28
9 Bibliography .................................................................................................................... 29
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1 Chapter 1: Introduction of the Study
1. General objective.
2. Specific objectives.
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1.4 Limitation of the study
Some problems were faced while preparing this report. Those are:
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3 Chapter 3: Company Profile of Rajshahi Krishi Unnayan Bank
(RAKUB)
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3.3 Capital Investment
RAKUB is a governmental banking institute, So the main sources of capital are government
fund, as on 31st December, 2012, the details about the capital are as follows-
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3.4 Organizational Structure
The Head Office of the bank is stationed at Rajshahi. The branch-network comprises 376
branches including one in Dhaka, Five zonal and thirteen offices. The bank has a training
institute located at Rajshahi. Total workforce of 4117 as on 30-04-2014 was composed of 2008
officers and 2109 other staffs. Regional offices stationed in district headquarters control
branches under them. There are independent regional audit offices for conducting regular audit
in branches as well as in regional and zonal.
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3.5 Employee Summary:
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3.6 Regulatory Body:
The board is vested with the responsibility of formulation of policy in line with attainment of
growth in agriculture and economic development of the region through agricultural credit
support. The board of directors is constituted by seven members, all appointed by the
government. Besides, for emergency decisions there is an executive committee constituted of
the chairman of the board and two other members: the managing director and one of the
directors elected by the board. The managing director is the chief executive of the bank.
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3.7 RAKUB at a Glance
01) Establishment : 15th March, 1987.
02) Authorized Capital : Tk. 750.00 (in crore).
03) Paid up Capital : Tk. 570.00 (in crore).
04) Reserve : Tk. 20.85 (in crore)
05) Area of RAKUB:
a. Area : Rajshahi & Rangpur Division
b. Spread : 34,513 Square.K.M.
c. District : 16
d. Upazilla : 123
e. Union : 1092
i) SACP : 452
ii) Non- SACP : 640
f. Total Populations : About 4.00 crore
g. Total No. of Family : 51 lakhs.
h. Agricultural Family : 32 lakhs.
06) Total Branch : 367
i) Municipal : 66
ii) Union : 301
07) Total manpower : 3269
i) Officers : 2039
ii) Workforce : 1230
08) Zonal /Regional office : 18
09) Regional Audit office : 18
10) Regional officer : 13
11) Zonal officer : 5
12) Loan disbursement:
Target : Tk. 52.50 (in crore)
Achievement : Tk. 57.44 (in crore)
Performance : 109%
13) Loan Recovery:
Target : Tk. 50.00 (in crore)
Achievement : Tk. 24.29 (in crore)
Performance : 48.58%
14) Website : www.rakub.org.bd.
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4 Chapter 4: Theoretical Framework of Corporate Governance
Corporate governance is concerned with holding the balance between economic and social
goals and between individual and communal goals. The corporate governance framework is
there to encourage the efficient use of resources and equally to require accountability for the
stewardship of those resources. The aim is to align as nearly as possible the interests of
individuals, corporations and society” (Sir Adrian Cadbury, 2000).
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).
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The IMF has recognized 12 areas and associated standards as useful for the operational work
of the Fund of the World Bank. These comprise:
Accounting
Auditing
Anti-money laundering and countering the financing of terrorism
Banking supervision
Corporate Governance
Data dissemination
Fiscal transparency
Insolvency and creditor rights
Insurance supervision
Monetary and financial policy transparency
Payments systems
Securities regulation
The corporate governance framework should protect and facilitate the exercise of shareholders’
rights. Basic shareholder rights should include the right to:
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4. Participate and vote in general shareholder meetings;
5. Elect and remove members of the board; and
6. Share in the profits of the corporation.
The corporate governance framework should ensure the equitable treatment of all shareholders,
including minority and foreign shareholders. All shareholders should have the opportunity to
obtain effective redress for violation of their rights. The principles also state that:
The corporate governance framework should recognize the rights of stakeholders established
by law or through mutual agreements and encourage active co-operation between corporations
and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
The corporate governance framework should ensure that timely and accurate disclosure is made
on all material matters regarding the corporation, including the financial situation,
performance, ownership, and governance of the company.Disclosure and transparency should
be the cornerstone of corporate governance laws and codes. Business organizations should
disclose their financial and operating results, ensuring that their shareholders and other
stakeholders understand the nature of the organization’s operations, current state of affairs and
future direction in terms of developments.
The board of directors should also disclose the inherent risks and estimates used in preparing
the financial and operating results in order to give investors a clear understanding of the board
and management’s business judgment.
There are four broad theories to explain and elucidate corporate governance. These are:
Agency Theory
Stewardship Theory
Stakeholder Theory
Sociological Theory
Agency Theory
Agency theories arise from the distinction between the owners (shareholders) of a company or
an organization designated as "the principals" and the executives hired to manage the
organization called "the agent." Agency theory argues that the goal of the agent is different
from that of the principals, and they are conflicting. The assumption is that the principals suffer
an agency loss, which is a lesser return on investment because they do not directly manage the
company. Part of the return that they could have had if they were managing the company
directly goes to the agent. Consequently, agency theories suggest financial rewards that can
help incentivize executives to maximize the profit of owners.
Stewardship Theory
Stewardship theories argue that the managers or executives of a company are stewards of the
owners, and both groups share common goals. Therefore, the board should not be too
controlling, as agency theories would suggest. The board should play a supportive role by
empowering executives and, in turn, increase the potential for higher performance. Stewardship
theories argue for relationships between board and executives that involve training, mentoring,
and shared decision making
Stakeholder Theory
Stakeholder theories are based on the assumption that shareholders are not the only group with
a stake in a company or a corporation. Stakeholder theories argue that clients or customers,
suppliers, and the surrounding communities also have a stake in a corporation. They can be
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affected by the success or failure of a company. Therefore, managers have special obligations
to ensure that all stakeholders (not just the shareholders) receive a fair return from their stake
in the company. Stakeholder theories advocate for some form of corporate social responsibility,
which is a duty to operate in ethical ways, even if that means a reduction of long-term profit
for a company. In that context, the board has a responsibility to be the guardian of the interests
of all stakeholders by ensuring that corporate or organizational practices take into account the
principles of sustainability for surrounding communities.
Sociological Theory
The sociological theory has focused mostly on-board composition and wealth distribution.
Under this theory, board composition, financial reporting and disclosure and auditing are of
utmost importance to realize the socio-economic objectives of corporations that is to promote
equity and fairness in society.
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5 Chapter 5: Corporate Governance of RAKUB
As a public organization corporate governance becomes a very vital element because the
company depends on the public investment. For that, they need to keep focus on stakeholder.
Rajshahi Krishi Unnoyan Bank is public company but the corporate governance is very
important for the company, because there is a huge amount of money of normal people is
managed by them. The stakeholders are mainly the officers, customers, media person, staffs of
the organization, policy makers and government. Rajshahi Krishi Unnoyan Bank is a
government bank, so the government has taken the responsibility of corporate governance. The
officers are one of the most important stakeholders in the corporate governance. They are the
part of the corporate governance. They run the whole system of the corporate governance. They
have to put maximum effort in this area. All the officers are very careful about the corporate
governance. They all maintain the chain of command and maintain the line. The decision-
making system is also relying on this corporate governance. The model of corporate
governance is very common in this bank. There are many departments. They all have same
kind of organogram. The principle also recognized the rights of the stakeholders as established
by law which encourage active Cooperation between the corporation and the stakeholders in
creating wealth and sustainability of such enterprise. There rights include: opportunity to
amends any violation of their right; provide stakeholders with relevant information to enable
them participate actively and permit performance enhancing mechanism for stakeholder
participation; include disclosure and transparency of information. It stipulated that all the
material matter regarding the governance and performance of the corporation should be
disclosed. It also underscore the importance of applying high quality standards of accounting
disclosure and auditing: disclosure should include the financial and operating results; company
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objectives; major share ownership and voting rights; members of the board and key executives
and their remuneration; governance structure and policies information should be prepared,
audited and disclosed in accordance with quality standards, while the channels for
disseminating information should be fair timely and cost-effective. The people who are
involved in the bank activities are all the part of corporate governance. The people have to put
interest about the corporate governance because they have invested huge amount of money and
the money is depending on their decision. Everybody is look forward to them and their
decisions.
Corporate governance will be very successful if the management of rights and equity of
shareholders are properly maintained.
These are the rights of any shareholders of the company. The board member and the executive
committee should have proper look on these matters. The RAKUB try to fulfill this
shareholders rights. They take all the steps and decisions to satisfy their shareholders. They are
maintaining a very good equity among the shareholders. So, there is no problem in the
management system about the shareholders. The board members are also care about the risk
issues of all the shareholders. The corporate governance of RAKUB practice this kind of
governance which is control the risk of shareholders and take minimal decisions which will
averse all the risks. They cannot averse the systematic risks, but the decisions and good practice
of corporate governance help them a lot. It is very helpful to maintain the equity of balance and
the rights of them. The board members have practiced very good corporate governance which
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is prioritizing the shareholders position. They know about the game of market and they are
helping the main player. They are confirming the voting powers the dividend factors and they
also keeping the transparency in their all activities. These are the main factors to keep the peace
and maintain all the things. Corporate governance is based on these structures.
Trusteeship: The board of directors’ act as trustees to the property and welfare of the
company. Hence, the board must use the company’s property for the long-run gain of the
company, but not for their personal use.
Feed forward and Feedback: The board has to obtain information from the
external environmental factors and feed that information forward to various key points in
the company in order to prevent possible hurdles and mistakes in the process of achieving
organizational goals. Further, the board also obtains the information from internal sources
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of the organization, and feeds it forward to prevent possible failures in decision-making by
the top-level executives.
Link between the Company and External Environment: The board acts
a vital and continuous link between the company and external environment like
government, other companies, social and economic institutions etc.
Determine the company's vision and mission to guide and set the pace for its current
operations and future development.
Determine the values to be promoted throughout the company.
Determine and review company goals.
Determine company policies
Review and evaluate present and future opportunities, threats and risks in the external
environment and current and future strengths, weaknesses and risks relating to the
company.
Determine strategic options, select those to be pursued, and decide the means to
implement and support them.
Determine the business strategies and plans that underpin the corporate strategy.
Ensure that the company's organizational structure and capability are appropriate for
implementing the chosen strategies.
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Communicate with senior management.
Ensure that communications both to and from shareholders and relevant stakeholders
are effective.
Understand and take into account the interests of shareholders and relevant
stakeholders.
Monitor relations with shareholders and relevant stakeholders by gathering and
evaluation of appropriate information.
Promote the goodwill and support of shareholders and relevant stakeholders.
The objective of transparency in the area of corporate governance is therefore to provide these
parties with the proportionate size, complexity, structure, economic significance and risk
profile of the bank. At a minimum, banks should disclose annually the following information:
The recruitment approach for the selection of members of the board and for ensuring
an appropriate diversity of skills, backgrounds and viewpoints; and
Whether the bank has set up board committees and the number of times key standing
committees have met.
In general, the Rajshahi Krishi Unnayan Bank applies the disclosure and transparency section
of the OECD principles. Accordingly, disclosure includes, but not be limited to, material
information on the bank’s objectives, organizational and governance structures and policies
major share ownership and voting rights, and related party transactions.
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5.6 Internal Corporate Governance Audit of Rajshahi Krishi
Unnayan Bank:
The Basel Committee on Banking Supervision is issuing this revised supervisory guidance for
assessing the effectiveness of the internal audit function in banks, which forms part of the
Committee's ongoing efforts to address bank supervisory issues and enhance supervision
through guidance that encourages sound practices within banks.
Banking supervisors must be satisfied as to the effectiveness of a bank's internal audit function
that effective policies and practices are followed and that management takes appropriate
corrective action in response to internal control weaknesses identified by internal auditors.
There is independent assurance to the board of directors and senior management on the quality
and effectiveness of Rajshahi Krishi Unnayan Bank’s internal control, risk management and
governance systems and processes, thereby helping the board and senior management protect
their organization and its reputation.
Rajshahi Krishi Unnayan Bank always try to ensure sufficient standing, skills, assets and
authority within the bank to enable the auditors to carry out their tasks effectively and
objectively.
In this respect-
RAKUB tries to run the function with full and unconditional access to any records, file
data and physical properties of the bank, including access to management information
systems and records and the minutes of all consultative and decision-making bodies;
Rajshahi Krishi Unnayan Bank calls for the function to independently assess the
effectiveness and efficiency of the internal control, risk management and governance
systems and processes;
Rajshahi Krishi Unnayan Bank always involves internal auditors to adhere to national
and international professional standards, such as those established by the Institute of
Internal Auditors;
Rajshahi Krishi Unnayan Bank (RAKUB) necessitates that audit staff collectively have
or can access knowledge, skills and resources commensurate with the business
activities and risks of the bank;
This bank calls for timely and effective correction of audit issues by senior
management; and
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Rajshahi Krishi Unnayan Bank (RAKUB) always requires the function to perform a
periodic assessment of the bank’s overall risk, governance framework including but not
limited to an assessment of:
The effectiveness of the risk management & compliance functions;
The quality of risk reporting to the board & senior management;
The effectiveness of the bank’s system of internal controls.
Rajshahi Krishi Unnayan Bank (RAKUB) is very much efficient to maintain this sequence and
they are always cooperative about the corporate governance. The management tries to provide
all the efforts to make the decisions very quick and maintain a perfect balance in corporate
governance.
Board of Directors
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Board Risk Management Committee (BRMC)
Executive Risk Management Committee (ERMC)
Chief Risk Officer (CRO)
Risk management Division/Department
Risk Management is an iterative process that, with each cycle, can contribute progressively to
organizational improvement by providing management with a greater insight into risks and
their impact. It is a series of multi-steps that, when undertaken in sequence, enable continual
improvement in decision-making.
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2. Identifying prospective risks:
Prospective risks are those that have not yet happened, but might happen sometime in the
future.
Methods for identifying prospective risks include:
Brainstorming with staff or external stakeholders
Researching the economic scenario (macro or micro both local and global)
Conducting interviews with the relevant people and/or organizations
Undertaking surveys of staff or clients to identify anticipated issues or problems or
risks
Reviewing policy, process, systems
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6 Chapter 6: Findings and Analysis
In the developed countries, stock market plays the key role in resource mobilization through
financial intermediation, but in the developing countries where efficient form of stock market
is yet to flourish, banking sector has been playing a substantial role in that regard through
transferring fund from surplus unit to deficit unit. Since independence the banking sector in
Bangladesh has never been in good shape. Although operations of state-owned commercial
banks flourished across the country, mismanagement coupled with excessive political
influence restricted their due role in the economy.
Good corporate governance is said to be the most valuable practice for the success of any
business. Many view it as the cornerstone of any business. Ensuring good corporate governance
can help companies avail all the opportunities that come their way, and to properly utilize the
resources. Corporate governance failures have always resulted in massive problems. For
example, in Bangladesh, there are scores of financial scandals where poor corporate
governance was the main issue.
Bangladesh Bank data show that six state-owned banks have the highest amount of
default loans.
23.79 per cent of loans disbursed by specialized Bangladesh Krishi Bank and Rajshahi
Krishi Unnayan Bank have also turned into default loans.
The amount of default loans at two specialized banks—Bangladesh Krishi Bank and
Rajshahi Krishi Unnayan Bank—slightly decreased to Tk 5,241 crore, up from Tk
5,426 crore six months ago.
Analysts and economists say that bad debts in the banking sector has continued to rise
due to two critical factors associated with misgoverned. Most of these default loans are
approved through misuse of socio-metric overlay (in public administration terms),
political considerations, family connections, and director of one bank taking loan from
another bank with the help of a director of another bank and vice versa.
Dr Sadiq has drawn attention to a significant point related to the 'prudential instruments
for portfolio management'. In this context, attention has been drawn to the need for
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selecting Bank Board members based on the "fit and proper test" and the growing
weakness of this in the private banking sector. Consequently, on different occasions
decisions are taken not on "solid business evidence but on connections'. That adds to
the risk and probability of NPLs.
Julfikar Ali, deputy director of Anti-Corruption Commission (ACC), filed the case with
Banani Police Station on August 18 last year, accusing the six ex-bank officials and one
Wahidur Rahman, proprietor of Firoz Group, for misappropriating Tk 152 crore from
the bank between 2009 and 2013.
A Dhaka court today sent Md Jubayer Manjur, a former deputy general manager of
Bangladesh Krishi Bank (BKB), to jail in four corruption cases filed over
misappropriating Tk 430 crore from the state-owned bank
7 Chapter 7: Conclusion
RAKUB is one of the public banks which has sole responsibility for providing services to a
certain geographic area. The corporate governance of a bank has a positive impact on its
performance. Because how well the bank is managed, the better its performance will be.
Recently the bank has been alleged with several money scams which clearly indicate there is a
possibility of poor management of the bank. But this also shed lights on the board of directors
that if they are performing their responsibilities accordingly. RKUB needs to address these
issues and make sure that further these issues do not occur. Management of the bank should be
careful about giving loans without maintaining the proper policies. The number of issues
regarding default loans is rising and RKUB is also involved in several scams. This creates a
blurry image of government's supervision of public banks. These issues should be taken care
of as soon as possible. The proper punishment should be implemented so that in future these
kinds of actions could be discouraged. The reputation of a bank will be highlighted only when
the corporate governance is better managed to uphold the interest of all involved parties.
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8 Chapter 8: Recommendations
Corporate governance is becoming a critical issue. Questions are gradually arising whether
corporate governance practices are being followed in the instructed manner. This situation has
been created due to several issues that recently emerged such as money scams in different
banks including public and private banks as well.
So, there are some recommendations that can be given a thought to improve the corporate
government practices of RKUB on a higher scale.
Board of directors should be consciously free from any kind of political influence.
Regular monitoring practices should be conducted carefully.
Strict actions should be taken instantly after learning about any sorts of financial
misconduct.
Board of members should be selected based on proper criteria not on connections.
Loan giving policies should be carefully constituted so that no person from highest
authority cannot be able to misuse of funds by using the loophole of policies.
Business decisions should be taken on solid business evidence, not on connections to
avoid the increasing number of default loans.
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