Corporate Governance in the Banking Sector of Bangladesh

Empirical Study on the Effects of Corporate Governance Variables on Financial Performance

of Listed Banking Companies in Bangladesh

Submitted To
Dr. M. Farid Ahmed
Professor
Department of Finance
Faculty of Business Studies
University of Dhaka

Submitted By
Md. Nurul Hoque
ID: Fin-01-15-044
Master of Professional Finance (1st Batch)
Department of Finance
Faculty of Business Studies
University of Dhaka

Date of Submission: July 22, 2017

Master of Professional Finance (MPF)

University of Dhaka
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.
Signature of the Supervisor

2
 Letter of Transmittal

July 22, 2017

Dr. M. Farid Ahmed
Professor
Department of Finance
University of Dhaka

Dear Sir,

I am very elated to put forward this dissertation paper on Corporate Governance in the
Banking Sector of Bangladesh: Empirical Study on the Effects of Corporate Governance
Variables on Financial Performance of Listed Banking Companies in Bangladesh as an part of
my MPF program. I would like to articulate that this paper was very compliant for me to make
out corporate governance in banking sector in Bangladesh. I have explored the secondary data
on deposits, advance, total assets, equity, net income, number of branches, number of
employees and non-performing loan of all the selected scheduled banks. Therefore, it was a
fabulous opportunity for me to work on this debated topic and I am very gratifying to you for
giving me this type of floor.

I had geared up this paper with the help of secondary data that I have obtained from annual
reports of the selected banks and related literatures respectively. I am prepared to make
available you any complementary information, if necessary.

Regards,

Md. Nurul Hoque

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 Acknowledgement

This paper, required for my MPF program, would have never been realized unless the officious
contribution of a few persons, organizations & related literatures is motorized. The euphony of
all the required knowledge about this paper would have been impossible without them. The
first gratitude goes to the Almighty Allah who has helped me to make each attempt fruitful. I
had the awesome privilege of getting special assistance from the honorable supervisor, Mr. Dr.
M. Farid Ahmed, Professor, Department of Finance, and University of Dhaka. He has been very
spry, devoted & strict in preparation of this report.

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 Executive Summary

Corporate governance is a key element in improving the economic efficiency of a firm. Good
corporate governance also helps to ensure that corporations take into account the interests of
a wide range of constituencies as well as of the communities within which they operate.
Further, it ensures that their Boards are accountable to the shareholders. Good Corporate
governance is a necessary condition for a sound financial system in banking sector. It can
contribute substantially to a shared working environment between banks and its supervisors. It
supports not only a well managed banking system but also necessary to protect depositors'
interest. The financial crisis provided a lesson on how the collapse in the global banking sector
impacts the entire world economy e.g. shrink in world Gross Domestic Product, huge number of
bankruptcies, massive bailouts from tax payers, losses of millions of jobs, large decline in trade
flows, and foreign direct investment and reduced credibility of the global financial system is
questioned among others. Therefore, Banks in particular, being the most important vertebrae
of a countrys economic backbone, require sound CG practice and proper monitoring of their
compliance compared to other industries. A large number of reforms have been proposed and
initiated by both various multilateral and country specific government and regulatory bodies
especially after the financial crisis to improve the global corporate governance principles and
standards. Risk management, executive compensation, capital requirements, and financial
sector tax (i.e. banking tax) are some of the aspects where both developments and debate are
continuing. This research paper at first briefly discusses various aspects of corporate
governance framework. Considering all these aspects, different disclosure issues have been
selected to examine the actual corporate governance practices by Banking Sector in
Bangladesh. In the first chapter of thesis paper, the researcher has introduced the concept of
corporate governance and tried to show the rationale & objectives of the study. In chapter two,
the procedure of collecting data has been discussed & how the researcher has gone through
the whole paper is elucidated here. Apart from these, in the literature review part under
chapter three encompasses the previous writing on this issue which has been quite useful for
preparing thesis paper. Besides, the elements of Corporate Governance & its position in
Bangladesh have been explained in Chapter four. Chapter fiver covers the history of corporate

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governance in Bangladesh, current status of corporate governance in Bangladesh and the
characteristics of corporate governance in Bangladesh. Chapter six includes the overview of the
banking sector in Bangladesh. Empirical data from banking sector in Bangladesh has been
analysed to figure out the research questions in chapter seven. Finally, researchers will come
out with some conclusions and recommendations on the research topic.

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 Table of Contents
Acknowledgement ........................................................................................................................................ 4
Executive Summary....................................................................................................................................... 5
List of Tables ............................................................................................................................................... 11
List of Figures .............................................................................................................................................. 11
List of Acronyms .......................................................................................................................................... 12
Chapter One-Introduction .......................................................................................................................... 13
1.0 Introduction .......................................................................................................................................... 14
1.1 Origin of the Study ................................................................................................................................ 15
1.2 Statement of the problem .................................................................................................................... 15
1.3 Rational of the Study............................................................................................................................. 15
1.4. Objectives of This Study ....................................................................................................................... 17
1.5 Scope of the Study ................................................................................................................................ 18
1.6 Limitations of the study ........................................................................................................................ 18
1.7 Structure of the Study ........................................................................................................................... 19
1.8 Timescale of the Dissertation ............................................................................................................... 20
1.9 Conclusions ........................................................................................................................................... 20
Chapter Two-Research Design and Methodology ...................................................................................... 21
2.0 Introduction .......................................................................................................................................... 22
2.1 Research Philosophy ............................................................................................................................. 22
2.2 Research Approach ............................................................................................................................... 22
2.3 Research Method and Strategy ............................................................................................................ 23
2.4 Sample Design ....................................................................................................................................... 23
2.5 Data Collection ...................................................................................................................................... 24
2.6 Time Reference ..................................................................................................................................... 24
2.7 Econometric Model............................................................................................................................... 24
2.8 Tobins q ................................................................................................................................................ 25
2.9 Conclusions ........................................................................................................................................... 25
Chapter Three-Literature Review ............................................................................................................... 26
3.0 Introduction .......................................................................................................................................... 27
3.1 Literature Review .................................................................................................................................. 27
3.2 Conclusions ........................................................................................................................................... 31

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Chapter Four- Brief Overview of Corporate Governance ........................................................................... 32
4.0 Introduction .......................................................................................................................................... 33
4.1 Corporate Governance: Definition........................................................................................................ 33
4.2 Corporate Governance: Importance ..................................................................................................... 34
4.3 Importance of Good Corporate Governance for banking sector .......................................................... 34
4.4 Elements of Good Corporate Governance ............................................................................................ 35
4.5 Two Alternate Corporate Governance Models ..................................................................................... 36
4.5.1 The Anglo-American Model ........................................................................................................... 36
4.5.2 The German-Japanese Model ........................................................................................................ 37
4.6 Comparison Between the two Corporate Governance Models ........................................................... 37
4.7 Conclusions ........................................................................................................................................... 38
Chapter Five- Corporate Governance in Bangladesh.................................................................................. 39
5.0 Introduction .......................................................................................................................................... 40
5.1 The Historical, Political and Social Background of Bangladesh............................................................. 40
5.2 The Business Environment of Bangladesh ............................................................................................ 42
5.3 The Existing Corporate Governance Regime in Bangladesh ................................................................. 43
5.3.1 Corporate Legal Environment in Bangladesh................................................................................. 44
5.3.2 Regulatory Control of the Securities and Exchange Commission of Bangladesh .......................... 45
5.3.3 Financial Reporting, Accounting and Auditing Standards.............................................................. 45
5.3.4 Capital Markets in Bangladesh....................................................................................................... 46
5.4 Characteristics/features of the Bangladesh corporate governance ..................................................... 47
5.4.1 Corporate ownership structures .................................................................................................... 47
5.4.2 Inadequate Bankruptcy Laws ......................................................................................................... 48
5.4.3 Lack of initiatives to drive for CG from the International Investor Community ............................ 48
5.4.4 Accounting standards, audit and disclosure .................................................................................. 49
5.4.5 Inconsistency between Companies Act, BAS and SEC Requirements............................................ 49
5.4.6 Limited or No Disclosure regarding Related Party Transactions ................................................... 49
5.4.7 Weak Regulatory System ............................................................................................................... 50
5.4.8 Capital Market Role ....................................................................................................................... 50
5.4.9 General Meeting Scenario ............................................................................................................. 50
5.4.10 Board Committees ....................................................................................................................... 51
5.4.11 The Board of Directors ................................................................................................................. 51

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 5.4.12 Lack of Shareholders Activism .................................................................................................... 52
5.4.13 Market for Corporate Control ...................................................................................................... 52
5.4.14 Weak Pressure Groups................................................................................................................. 52
5.4.15 Lack of Auditor Independence ..................................................................................................... 52
5.4.16 Poor Audit Report ........................................................................................................................ 53
5.5 Reforms initiated by the government and regulatory bodies to improve the CG practices ................ 53
5.6 Conclusions ........................................................................................................................................... 54
Chapter Six- Overview of the Banking Sector in Bangladesh ...................................................................... 55
6.0 Introduction .......................................................................................................................................... 56
6.1 Historical Background ........................................................................................................................... 57
6.2 List of Banks in Bangladesh ................................................................................................................... 57
6.3 Function of Commercial Banks of Bangladesh ...................................................................................... 60
6.4 Islamic Banking...................................................................................................................................... 60
6.5 Contribution of Commercial Bank in Bangladesh ................................................................................. 61
6.6 Expansion of Bank Branches of Rural Areas.......................................................................................... 61
6.7 Credit Disbursements............................................................................................................................ 62
6.7.1 Credit Disbursement between Private and Public Sector .............................................................. 62
6.7.2 Credit Distribution in Agriculture and Industry ............................................................................. 65
6.7.3 Industrial Loan ............................................................................................................................... 65
6.7.4 Agricultural Credit Disbursement and Recovery............................................................................ 66
6.7.5 Disbursement of SME Loan ............................................................................................................ 66
6.7.6 Borrowing of the Government from Banking System.................................................................... 67
6.7.7 Credit, Investment and GDP .......................................................................................................... 68
6.8 Risk Management ................................................................................................................................. 68
6.8.1 Capital Adequacy ........................................................................................................................... 68
6.8.2 Asset Quality .................................................................................................................................. 69
6.8.3 Reasons behind the Increase of NPLs ............................................................................................ 70
6.8.4 Economic Implications of NPLs ...................................................................................................... 70
6.8.5 Earnings .......................................................................................................................................... 72
6.8.6 Implications of Risk Management and Stress on Fiscal System..................................................... 73
6.9 Financial Reform ................................................................................................................................... 75
6.9.1 Liberalisation of Interest Rate and Financial Inclusion .................................................................. 75

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6.10 Conclusions ......................................................................................................................................... 77
Chapter Seven- Empirical Analysis and Findings......................................................................................... 78
7.0 Introduction .......................................................................................................................................... 79
7.1 Data Analysis ......................................................................................................................................... 79
7.2 Empirical results .................................................................................................................................... 81
7.3 Conclusions ........................................................................................................................................... 86
Chapter Eight- Recommendations .............................................................................................................. 87
8.0 Introduction .......................................................................................................................................... 88
8.1 Recommendations for Banks ................................................................................................................ 88
8.1.1 Commitment to Good CG Practices ............................................................................................... 88
8.1.2 Good Board Practices..................................................................................................................... 88
8.1.3 Strong Control Environment and Processes .................................................................................. 91
8.1.4 Strengthening transparency and disclosure .................................................................................. 91
8.1.5 Protecting the shareholders right .................................................................................................. 92
8.1.6 Improving clients CG practices...................................................................................................... 93
8.2 Recommendations for Role of Other stakeholders .............................................................................. 93
8.2.1Government and regulators ........................................................................................................... 93
8.2.2 Shareholders .................................................................................................................................. 94
8.2.3 Stock Exchange .............................................................................................................................. 95
8.2.4 Chartered Accountants Bodies ...................................................................................................... 95
8.2.5 Institutional Investors .................................................................................................................... 95
8.2.6 Credit Rating Agencies ................................................................................................................... 95
8.2.7 Banking Associations...................................................................................................................... 95
8.2.8 Researchers & Academics .............................................................................................................. 96
8.2.9 Media ............................................................................................................................................. 96
8.2.10 International Organizations promoting CG.................................................................................. 96
8.3 Conclusions ........................................................................................................................................... 96
Chapter Nine-Conclusions........................................................................................................................... 97
9.0 Conclusions ........................................................................................................................................... 98
References ................................................................................................................................................ 100
Appendices................................................................................................................................................ 103

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List of Tables
SL No Particulars Page
No
1 Table 1: Comparison between two corporate governance models 38
2 Table 2: Corporate Ownership Structure of listed banks 48
3 Table 3: Banking system structure in Bangladesh 56
4 Table: 4: Comparative position of the Islamic Banking Sector 61
5 Table 5: Targets and Achievements 62
6 Table 6: Growth of credit in Private and Public Sector 63
7 Table 7: Capital to Risk Weighted Assets Ratio (CRAR) by Types of Banks (%) 69
8 Table 8: Gross NPLs to Total Loans Ratios by Types of Banks (%) 69
9 Table 9: Expenditure-Income Ratio (EIR) by Type of Banks 71
10 Table 10: Loan Scrap in Banking Sector 75
11 Table-11: Descriptive Statistics: 2006-2015 79
12 Table-12: Correlation Matrix: 2006-2015 81
13 Table 13: Regression Analysis 81
14 Table 14: Regression Coefficients (Considering ROA as dependent variable) 82
15 Table 15: Regression Coefficients (Considering ROE as dependent variable) 82
16 Table 16: Tobins Q Ratio 84

List of Figures
SL No Particulars Page
No
1 Figure 1: Research Approach 22
2 Figure 2: Research Methods and Strategy 23
3 Figure 3: Functions of commercial bank of Bangladesh 60
4 Figure 4: Growth of Credit in Private Sector (quarterly) 64
5 Figure 5: Scenario of Industrial loans 65
6 Figure 6: Scenario of Agriculture Loans 66
7 Figure 7: Disbursement of SME Loan by All Banks 67
8 Figure 8: Borrowing of the Government from Banking System 67
9 Figure 9: Consequences of Non-performing Loan in the Economy 70
10 Figure 10: Loan Loss Provisions of Banking Sector 71
11 Figure 11: Return on Assets (ROA) for all Banks (percent) 72
12 Figure 12: Return on Equity (ROE) for all Banks (percent) 73
13 Figure 13: Share of Classified Loan to Total Outstanding 74
14 Figure 14: Interest Rate Spread 76
15 Figure 15: Expansion of Bank Branches in Rural Areas 77
16 Figure 16: Trend of Tobins Q of Banking Sector in Bangladesh 85

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List of Acronyms
AGM- Annual General Meeting

BB- Bangladesh Bank

BEI- Bangladesh Enterprise Institute

BIS- Bank for International Settlements

CG- Corporate Governance

CRAB- Credit Rating Agency of Bangladesh

CRISL- Credit Rating Information and Services Limited

CSE- Chittagong Stock Exchange

CSR- Corporate Social Responsibility

DSE- Dhaka Stock Exchange

GDP- Gross Domestic Product

ICAB- Institute of Chartered Accountants of Bangladesh

IOSCO -International Organization for Securities Commissions

ICMAB- Institute of Cost and Management Accountants of Bangladesh

ID- Independent Director

IFC- International Finance Corporation

IMF- International Monetary Fund

OECD- Organization for Economic Co-operation and Development

RTPs- Related Party Transactions

SCBs -State-Owned Commercial Banks

BSEC- Bangladesh Securities and Exchange Commission

WB- World Bank

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Chapter One-Introduction

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1.0 Introduction
The Global financial crisis has brought into focus the need for better supervision & governance
in the banking industry. Banks are corporations & their firm value depends on good governance
as any other firms. Corporate governance in banks is also of interest to businesses that are
dependent on bank finance. The cost of funds in efficiently governed banks is found to be
lower. From policy perspective bank regulators would have interest in sound corporate
governance mechanism in banks from financial system stability perspective. Bank Corporate
governance is particularly important in le4ss developed countries like Bangladesh because
economic development & growth is dependent to a large extent on well functioning, stable &
soundly managed banking system. The obvious function of code of corporate governance is to
improve the quality of corporate governance practices in Bangladesh. The code does this by
defining best practice of corporate governance & specific steps that organizations can take to
improve corporate governance. In addition, the code provides a standard that can be used to
measure firms progress towards the goal of best practices. However, a problem which is how
the CCG can be fully implemented needs to be considered. Full implementation of the code in
all banks of Bangladesh would undoubtedly take a number of years & would require the
cooperation of a vast number of relevant stakeholders. The purpose of this study is to assess
whether the corporate governance practices in Bangladesh have undergone significant
improvement after the introduction of the code or not. To achieve the objectives of the study,
we do content analysis of the annual reports of banks in Bangladesh the code & various
elements of corporate governance. The study is important for several reasons. First, we
contribute to the existing literature on corporate governance in banks by providing evidence
from an unexplored country like Bangladesh. As already indicated above, some existing
literature supports that improved corporate governance practice in banks leads to better
allocation of resources within an economy and contributes to growth. Second, the findings from
the assessment of the compliance with the Code of corporate governance would help the
Securities and Investment Commission in Bangladesh as well at the Bank of Bangladesh to take
suitable policy measures to further strengthen the corporate governance of banks in
Bangladesh. These positive findings are also expected to help the banking industry in

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Bangladesh to further strengthen the corporate governance practices so as to achieve worlds
best practice.

1.1 Origin of the Study

Master of Professional Finance (MPF) program under Department of Finance requires
undergoing Thesis Paper to be submitted within the period of Six months. This thesis has been
supervised and examined by the supervision of the renowned teacher. Objective of the
program is to expose the students to the organizational work environment & make the
students knowledgeable on specific area through research. Under this program, each student is
required to work with a topic to study on reporting purpose. My supervising teacher, Dr. M.
Farid Ahmed, professor, Department of Finance, University of Dhaka authorized me to prepare
thesis paper as a requirement part of MPF Program.

1.2 Statement of the problem

The reporting of corporate governance is a very crucial issue now-a-days. But the practices of
corporate governance by Bangladeshi companies are not satisfactory. However, credibility of
the reported figures and quality of implementation remain open to discussion. Recently, we
have found frauds occurring in the banking sector & because of that Common People including
businessmen & other stakeholders are getting concerned. In this case, it is quite obligatory to
maintain the code of corporate governance fully to tackle all these fraudulent activities. And it
is known to all for the development of a country the role of banking sector plays outstanding
role. So, they have to practice corporate governance on a priority basis.

1.3 Rational of the Study

Bank governance has become a prominent issue ever since the collapse of many banks during
and after global financial crisis. For instance, 80 American banks died between 2007 and 2009
due to onslaught of global financial crisis and a number of banks have become moribund
throughout the globe. Recent bank failures, high incidents of loan defaults, bank insolvency
have lighted the importance of good governance. Therefore, regulators in developing countries
like Bangladesh have become more concerned about the financial heath and governance of
banking industry.

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A large body of empirical studies on corporate governance has emerged during the last decade
which focused mainly on the relation between corporate governance and firm performance.
The issue of bank governance and bank performance has received inadequate attention,
particularly in developing countries like Bangladesh. The nature of bank business is different
than that of non-bank business: bank receives deposits and provides loans; bank uses money of
depositors to create riskier assets. Depositors bear the risk of losing money as they do not know
how banks used their money. For example, demand deposits which are short-term liabilities are
invested in long term assets such as home loans for 20 years. Good governance in the banking
industry is required to maintain public trust and confidence in the banking industry; to run an
efficient financial system without excessive risk exposures; to establish an efficient and reliable
depository and financing system to fuel the wheels of the economy. The diverse stakeholders
such as directors, investors and depositors have direct interest in bank performance unlike the
non-banking firms.

Bank intermediates between savers (depositors) and borrowers and influence money demand
and supply in the economy. Regulators make sure that deposits do not lose money and
borrowers return money and that economy does not suffer in any way and as such they interact
with the banks for day to day operations through banking laws and regulations. Unlike non-
financial institutions, banks are subject to dual monitoring: one by the regulatory bodies and
the other by the bank board. The monitoring and oversight of the regulators and the
compliance of banks with regulatory requirements provides an alternative governance
mechanism which is absent in non-financial industry. It follows that effective supervision of
banking industry by the regulators can work as complementary force for good governance.
Apart from monitoring, regulators such as central bank of a country intervene in the
management of banks in terms of makeup of board of directors and their responsibilities
relating to supervision of banking activities. For instance, Bangladesh Bank- central bank of
Bangladesh- capped the number of directors of bank board to thirteen directors and provides
approval to the appointment of bank CEOs.

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There is very little literature which focused mainly on bank governance issue and most of the
existing literature focused mainly on non-bank firm governance and have narrowly focused on
the bank governance issues. As such the objective of this paper is to narrow down this gap and
to contribute to the body of knowledge relating to bank governance. Particularly, this paper
investigates the impact of governance on bank performance in Bangladesh which is an
emerging economy in South Asia, where institutional, regulatory and legal environment are
different than those in force in developed economies. In order to promote good governance in
the banking sector, regulatory response was provided by the Bangladesh bank and other
regulatory organizations. The Companies Act 1994 is the law which mainly governs
incorporated entities in Bangladesh. The act provides for certain supervisory functions and
rights to the shareholders to attend meetings, appoint and remove directors, and to obtain
financial information as well as to approve the balance sheet annually. The other prominent
legal and regulatory frameworks were provided by the Banking Companies Act 1991, the
Financial Institutions Act 1993, the Securities and Exchange Commission Act 1993, and the
Bankruptcy Act 1997 etc.

These legal and regulatory frameworks were found to be inadequate and inefficient for
promoting good governance in Bangladeshi banking sector. Bangladesh Bank - the central bank
of the country - promulgated codes of corporate governance for banks in 2003. It distilled rules
and regulations relating to responsibilities and authorities of the Chairman, CEO and Board of
Directors. Other prominent features of this bank governance were related to instituting
committees such as Audit Committee and guidelines for appointment of bank directors.
Therefore, this study contributes to the literature as the first paper that explicitly investigates
the impact of these latest governance directives unleashed by the Bangladesh Bank on the
performance of Bangladeshi banking sector in terms of good governance.

1.4. Objectives of This Study

The primary objective of the study is to examine the impact of corporate governance variables
on financial performance of banks in Bangladesh. The other objectives re:
To determine the commitment to implement good corporate governance practices among
the banks in Bangladesh.

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 To find out whether Banking Sector gives full disclosure on their financial statements or not.

To know the role, duties and responsibilities, composition, structure, practices, remuneration,
and performance evaluation and training of the members of different Board of Directors.

To identify the control environment and processes of the banking sector of Bangladesh

To determine the level of disclosures, the accuracy and timeline of the financial position,
condition and prospects, and other non-financial information of the banks in Bangladesh. To be
familiar with the rights of the shareholders in the banking sector to assess the status of
monitoring banks client on their CG practices

To go through Code of governance by Bangladesh Bank and Bangladesh Securities & exchange
Commission with a view to getting sufficient knowledge on that.

Finally, to develop a set of recommendations for addressing the major concerns derived from
the analysis.

1.5 Scope of the Study

The study will focus on the impact on corporate governance variables on financial performance
of the listed banks in DSE with other related factors like the matters of corporate governance
like board size, no of independent directors, no. of members of audit committee, board
meetings etc. held during the year of my analysis of these companies. After that I have run
regression analysis containing variables.

1.6 Limitations of the study

There are some limitations regarding this thesis paper-

The first limitation is the source of information. There is no well furnished publication
about the corporate governance in the DSE and SEC library.
Official of Banks are reluctant to give necessary information for thesis purpose.
It has not been possible for me to conduct this research for all banks. As, time is limited,
I have gone through only twenty Banks that might not represent actual information in
all cases.

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 Corporate Governance is a huge area & requires Professional knowledge. But without
professional knowledge on the basis of academic knowledge I have worked on it.

1.7 Structure of the Study

Chapter One: Chapter 1 contains background of the study, rationale of the study, problem
statement, aim and objectives of the research, research questions and scope of the study. Finally,
it reveals the structure of the study.

Chapter Two: Research design and method, research philosophy and data collection method of
the study will be covered in this chapter.

Chapter Three: Literature review related to corporate governance in the banking sector in
Bangladesh is covered in this chapter. Different theories, approaches and options for the
corporate governance will also be covered here.

Chapter Four: This chapter includes brief overview of corporate governance and models of
corporate governance.

Chapter Five: This chapter covers the history of corporate governance in Bangladesh, current
status of corporate governance in Bangladesh and the characteristics of corporate governance in
Bangladesh.

Chapter Six: This chapter includes the overview of the banking sector in Bangladesh.

Chapter Seven: Empirical data from banking sector in Bangladesh will be analysed to figure out
the research questions. The findings will be compared with the previous studies to assess the
corporate governance.

Chapter Eight & Nine: Finally, researchers will come out with some conclusions and
recommendations on the research topic.

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1.8 Timescale of the Dissertation
The thesis will follow the timeline mentioned below.

Part of the dissertation January February March April May June

2017 2017 2017 2017 2017 2017

Research topic
finalization and
proposal submission

Literature review

Collection of data

Analysis of data

Write-Up

Revise and edit and

final completion

Submission of the
thesis

1.9 Conclusions
This chapter contains background of the study, rationale of the study, problem statement, aim
and objectives of the research, research questions and scope of the study. Finally, it reveals the
structure of the study.

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Chapter Two-Research Design and Methodology

21
2.0 Introduction
In this chapter, it will focus on the methodology used for completing the research process and
conclusion. An introductory summary and adequate explanation will add to complete the study.
In here, it focuses on the quantitative research approach that is selected to achieve the findings of
the study. How information and data are collected will be discussed in further section of the
study.
2.1 Research Philosophy
There are different research philosophies based on different angles. These angles are based on
the perspective, approaches etc. (Creswell, 2008). According to Saunders and Thornhill (2011),
research philosophies are categorized in four angles. This categorization will include
Interpretivism, positivism, ontology and epistemology.

This study is based on corporate governance in the banking sector in Bangladesh. To get the
fruitful outcome of the study, researcher will apply positivism research philosophy to collect and
analysis of the data with empirical studies. In this study, only positiivism research philosophy is
most suitable to accomplish the purpose of analysis of the data with empirical studies.

2.2 Research Approach

Research approach consists of the plan and process of the study that are considered as steps of
thesis such as data collection, analysis and interpretation (Teddlie and Tashakkori, 2009).
Researcher can be categorized in two types. One kind of researcher seeks to developed
hypothesis, analysis, consent about developed hypothesis that is developed previously. The other
one type of researcher is working in developing new idea rather than using previous theories
(Merrill and Creswell, 2013). On the other hand, research approach also can be categorized in
two types similarly as researchers. Research approaches included inductive and deductive
approach. This categorization is based on the several arguments.

Figure 1: Research Approach, Source: Merrill and Creswell (2013)

22
In this study, Researcher followed deductive approach to analyse regression model to find out
the answer for research questions of the study.

2.3 Research Method and Strategy

Research method is highly dependent to the data collection and outcome of the study that is
desired by the researcher. The research methods can be categorized in three categories such as
qualitative, quantitative and mix research strategy (Hesse-Biber and Leavy, 2011). Qualitative
and quantitative methods are followed in different end continuum. On the other hand, research
strategies also can be categorized in three categories. These research strategies included survey
research strategy, case study research strategy and experiment research strategy etc.

Figure 2: Research Methods and Strategy (Hesse-Biber and Leavy, 2011).

Quantitative research method bases on deductive research approach and objectivist in nature.
Quantitative method has the narrow angle focus lens on the subject matter. Quantitative research
method deals with the quantitative data resulting statistical report through statistical tools. On
the other hand, qualitative research method bases on inductive research approach and
constructivist in nature. Qualitative method has the wide-angle focus lens on the subject matter.
Qualitative research method deals with the qualitative data resulting narrative report through
searching for patterns, themes and holistic features.
In this study, researcher followed quantitative research method to analyze the findings of the
previous studies with related to this research topic.
2.4 Sample Design
The sample of the study represents 30 schedule banks in Bangladesh.

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2.5 Data Collection
The secondary data on deposits, advance, total assets, equity, net income, number of branches,
number of employees and non-performing loan of all the scheduled banks in the study have
been collected from secondary sources.

2.6 Time Reference

The time reference of the study was 2006-2015. This period was selected mainly because all the
30 banks are in operation during this period.

2.7 Econometric Model

To investigate the effects of corporate governance variables on financial performance of
Bangladeshi listed banking companies; this study uses the following dynamic panel regression
models:

ROA= a+b1B.SIZE+b2I.DIR+b3A.COM+b4B.MET+b5DER+b6GPO+b7FIO

ROE= a+b1B.SIZE+b2I.DIR+b3A.COM+b4B.MET+b5DER+b6GPO+b7FIO

Here,

Dependent variables
ROA Return on Assets
ROE Return on Equity

Independent variables
B.SIZE No. of Board Members
I.DIR No. of independent directors
A.COM No. of members of audit committee
B.MET No. of board meeting held in this year
DER Debt-equity ratio (in times)
GPO General public ownership (in percentage)
FIO Financial institutional ownership (in percentage)

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2.8 Tobins q
The Tobin's Q ratio is a ratio devised by James Tobin of Yale University, Nobel laureate in
economics, who hypothesized that the combined market value of all the companies on the stock
market should be about equal to their replacement costs. The Q ratio is calculated as the market
value of a company divided by the replacement value of the firm's assets.

Tobins Q Ratio: (Market value of the Company/ Total Asset Value)

= (market value of equity + market value of liabilities)/ (Book value of equity + Book value
of liabilities)

It is also a common practice to assume equivalence of the liabilities market and book value,
So, Tobins Q Ratio (Market Value of Equity/Book Value of Equity)

2.9 Conclusions
The above discussion is all about research design and method, research philosophy and data
collection method of the study.

25
Chapter Three-Literature Review

26
3.0 Introduction
Literature review related to corporate governance in the banking sector in Bangladesh is
covered in this chapter. Different theories, approaches and options for the corporate
governance will also be covered here.

3.1 Literature Review

Corporate Governance has proved an issue since people began to organize them for a common
purpose. How to ensure the power of organization is harnessed for the agreed purpose, rather
than diverted to some other purpose, is a constant theme. The institutions of governance
provide a framework within which the social and economic life of countries is conducted.
Corporate governance concerns the exercise of power in corporate entities
(www.ccg.uts.edu.au). There are probably as many definitions of corporate governance as
there are corporations. The earliest definition of Corporate Governance is provided by the
Economist and Noble laureate Milton Friedman in 1970. Accounting and Reporting of UNCTAD
Secretariat presented a report in 2004 (which was prepared after conducting a survey on
30companies representing different geographical regions and industry) that found increasing
convergence among national and international corporate governance codes and guidelines but
it also reported significant deviation in terms of disclosure practices and content of disclosure.

Asian Corporate Governance Associations (ACGA) (2007) used the incidence of 24 governance
rules to construct a Governance Index to proxy for the level of shareholder rights at about
1500 large firms in the USA during the 1990s. They found that firms with stronger shareholder
rights had higher firm value, higher sales growth, higher profits, lower capital expenditures, and
made fewer corporate acquisitions. But except for size and, to a lesser extent, ownership
structure, ownership structure had not been found consistent and significant relations between
disclosure quality of governance practices and firm performance or other corporate governance
variables such as the proportion of unrelated director, the CEOs plurality of offices and the
level of financing activity in Canada. Similarly, a number of attempts have been made by various
researchers throughout the world regarding the determinants of corporate governance.

27
Armstrong (2010) provided empirical and theoretical evidence that companies with greater
growth opportunities, greater needs for external financing, and more concentrated cash flow
rights practice higher quality governance and disclose more and the strength of their influence
depends in part on the countrys legal environment. On the other hand, in Italian financial
market, governance features are affected by shareholders composition, balance sheet data
and company features. Armstrong (2010) provided empirical evidence that the absence of a
large empirical block holding and a high need for external financing are the firm characteristics
associated with the adoption of the Canadian guidelines and when it comes to voluntarily
adopting the U.S. Sarbanes-Oxley Act (SOX) provisions, firm size becomes an important
determinant.

From the context of Bangladesh, Afroze and Jahan (2005) made a study on voluntary
disclosures on corporate governance in Bangladesh by taking 75 sample companies. They found
that only 9 companies (12%) disclosed several issues on corporate governance in their annual
reports covering issues like Internal Financial Control (including management structure,
financial reporting, asset management, functional reporting), Statement of directors
responsibilities for preparation and presentation of financial statements, Board Committees
and Rights and relations with shareholders. Besides, they also found 5 companies to highlight
legal issues, 9 to disclose about business ethics, 7 companies to report on the shareholders
dialogue, 5 to report on community relations, 14 to report on environmental sustainability and
no companies to report on human rights and labor standards. There has been found significant
statistical relationship between company size measured by annual turnover and corporate
governance disclosures after a survey of 30 companies. After conducting a questionnaire survey
of 151 companies in 2002, Centre for Policy Dialogue (CPD) reported the adoption of corporate
governance policy in 66.7 percent of the companies and compliance with national and
international benchmarks in 43.3 percent of the companies.

Afroze and Jahan (2005) conducted an extensive survey of 100 sample companies of DSE
and/or CSE (Chittagong Stock Exchange) and found significant relationship between corporate
governance disclosures and some corporate attributes such as multinational affiliation, linkage

28
of auditor with big four audit firms, concentrated ownership by sponsors and banking
companies influence. In their survey, they considered 25 issues in developing corporate
governance disclosure index. The present study has been conducted considering 45 different
issues that not only cover these 25 issues but also other important issues considered by
UNCTAD. According to Bangladesh Enterprise Institute (2006), Comparative Analysis of
Corporate Governance in South Asia report, Bangladeshi corporate governance norms and
practices lagged behind the other large countries of the region. Along with raising awareness
for the importance of corporate governance, the report recommended reforms to create
motivation for transparency and accountability that will ultimately contribute to improved
corporate governance. Some of these issues were exposed in the 1996 stock market crash
which left investors wary of the capital market for many years.

More recently, a paper by Siddiqui (2010) highlighted the persistent weaknesses in the
Bangladeshi corporate governance regime. The author notes that the the corporate sector in
Bangladesh is characterized by high ownership concentration, lack of shareholder involvement
[and]; the reluctance of firms to raise capital through the stock markets, and reforms that are
still only at initial stages. For instance, the Siddiqui paper explains that Bangladesh has failed to
develop a recognized code of corporate governance. The only comprehensive code of
corporate governance developed so far has been through the BEI, a donor-funded private
sector think-tank without any statutory or regulatory power. The author points out that unlike
the Cadbury Code or the Combined Code in the UK, the BEI code has not been adopted by any
stock markets. The Code, however, recommends that the Securities Exchange Commission
(SEC) apply a 'comply-or-explain' approach to company compliance with the Code and
incorporate it into the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange's (CSE's)
Listing Requirements. Although the BEI was instituted as an independent private sector body,
the author criticizes that the BEI taskforce on CG included members from the Bangladesh
Government and other important regulatory agencies, including the Chairman of the SEC. In
addition, though not formally put together as a code, the banking sector is governed by the
Bangladesh Bank circulars relating to formulation of audit committees, corporate governance,
and appointment of the board of directors. Also, in 2006, the SEC issued an order relating to

29
corporate governance applicable only to companies listed on the stock exchanges implemented
on a comply-or-explain basis.

The capital market in the Bangladesh is regulated by the SEC. Established in 1993, the SECs
objective is to protect investors, promote and develop capital markets in Bangladesh, and
regulate the securities market. In 1999, the Asian Development Bank (ADB) initiated a USD 1.07
million project to strengthen the regulatory capacity of SEC. Other regulatory agencies include
the Registrar of Joint Stock Companies (RSJC), the Bangladesh Bank, the DSE, the CSE, and the
Institute of Chartered Accountants of Bangladesh (ICAB). The SEC and RSJC exhibited many of
the faults of government agencies in Bangladesh, including insufficient staff and expertise. The
BEI report also indicated that the SEC has not been judicious in its use of powers and has
appeared to be arbitrary and excessive at times. According to a 2008 ADB Improvement of
Capital Market and Insurance Governance Project program administration memorandum, a
capital markets reform project is underway in Bangladesh. The entire project, which is divided
into two parts, is expected to reach completion in 2009. Part 1 of the project has been designed
to create "sound and efficient capital markets to help accelerate economic growth and poverty
reduction", while Part 2 aims at enhancing the capacity and governance of the insurance sector.
The capital reforms part will have four components addressing the SEC, the stock exchanges,
the market intermediaries, and the Investment Corporation of Bangladesh (ICB), respectively.

The second strand of literature looks at how better governance practices in banks can help their
financial development and growth. Siddiqui (2010) discussed economics-based research
focused primarily on the governance role of financial accounting information and propose
future research ideas. As presented in their study, a framework that isolates three channels
through which financial accounting information can affect the investments, productivity, and
value-added of firms namely the use of financial accounting information by managers and
investors, the use of financial accounting information in corporate control mechanisms and the
use of financial accounting information to reduce information asymmetries among investors.

The third strand looks at corporate governance practices in banks from the perspective of its
impact on performance and efficiency of the banks themselves. International Corporate

30
Governance Network (2010) has examined the corporate governance in banking: the role of the
board of directors. They pointed out that bank board composition and size are related to
directors ability to monitor and advice management and that larger and not excessively
independent board might prove more efficient in monitoring and advising functions, and create
more value. International Corporate Governance Network (2010) has also examined board of
directors size, independence and performance: an analysis of private commercial banks in
Bangladesh. This study has examined the impact of board size and the independent directors
on the performance of the local private commercial banks in Bangladesh. The study has found
that statistically significance positive relationship existed between the proportions of the
independent directors and the performance of the banks.

Siddiqui (2010) highlighted the corporate governance practices in Bangladesh. The study has
pointed out that good corporate governance has implication for company behavior towards
employees, shareholders, customers & banks. He has suggested that improving corporate
governance can provide significant rewards to both individual companies and countries. Khan
et al. (2010) have examined board composition and firm performance from Bangladesh
perspective. The study has also examined the influence of corporate board composition in the
form of representation of outside independent directors on firms economic performance in
Bangladesh. The finding of the study has provided an insight to the regulators in this quest for
harmonization of internal corporate governance practices. Khan et al. (2010) suggested that
banks have two related characteristics that inspire a separate analysis of the corporate
governance of banks. First, banks are generally more opaque than nonfinancial firms. Although
information asymmetries plague all sectors, evidence suggests that these informational
asymmetries are larger with banks.

3.2 Conclusions
Literature review regarding corporate governance has been discussed above and the next
chapter will cover the brief overview of corporate governance in general.

31
Chapter Four- Brief Overview of Corporate Governance

32
4.0 Introduction
This chapter includes brief overview of corporate governance and models of corporate
governance. It also covers the elements of corporate governance.

4.1 Corporate Governance: Definition

Different authors view the meaning of corporate governance differently. For example, one
school of thought describes corporate governance as a system by which companies are
directed and controlled; another school views corporate governance as structures and
processes for decision making, accountability, control and behavior at the governing body; to
others corporate governance is about finding ways to ensure effective decision making (Bank
for International Settlements, 2010). But it must be kept in our mind that the fundamental
concern of corporate governance is to ensure the conditions whereby a firms directors and
mangers are held accountable, ensure better and effective protection to all stakeholders.

The definition of corporate governance is largely affected by the size of the economy,
differences in the legal, regulatory, institutional, financial and political framework, status of the
capital market, and Stakeholders perception etc. However, irrespective of the differences, the
inherent meaning of corporate governance remains same across the world. Organization for
Economic Cooperation and Development (OECDs) definition on corporate governance has
been accepted by the most of the countries. OECD defined corporate governance as the system
by which business corporations are directed and controlled. David (2009), in his research paper,
defined corporate governance as Corporate governance refers to that blend of law, regulation,
and appropriate voluntary private sector practices which enables the corporation to attract
financial and human capital, perform efficiently and thereby perpetuate itself by generating
long term economic value for its shareholders, while responding the interest of stakeholders
and as a whole. Thus finally we can say that corporate governance refers to the structures and
processes for the direction and control of the companies.

Corporate governance concerns the relationships among the management, Board of Directors,
controlling shareholders, minority shareholders and other stakeholders. Good corporate
governance contributes to sustainable economic development by enhancing the performance
of companies and increasing their access to outside capital.

33
4.2 Corporate Governance: Importance
For emerging market countries, improving corporate governance can serve a number of
important public policy objectives. Good corporate governance reduces emerging market
vulnerability to financial crises, reinforces property rights, reduces transaction costs and the
cost of capital, and leads to capital market development. Weak corporate governance
frameworks reduce investor confidence, and can discourage outside investment. Also, as
pension funds continue to invest more in equity markets, good corporate governance is crucial
for preserving retirement savings. Over the past several years, the importance of corporate
governance has been highlighted by an increasing body of academic research. Studies have
shown that good corporate governance practices have led to significant increases in economic
value added (EVA) of firms, higher productivity, and lower risk of systemic financial failures for
countries.

4.3 Importance of Good Corporate Governance for banking sector

Various research findings recommended that companies with good governance practices
perform better in commercial terms across the world. Adopting corporate governances best
practices improve access to external financing, lower the cost of capital, improve operational
Performance, increase firm valuation, improve share performance, and reduce the risk of
corporate crises and scandals. Good corporate governance also ensures the interest of every
stakeholders including the investors by offering premium price, companies with higher access
to finance and reduction of risks resulting improved profitability, the public sector through the
development of stronger capital market, increased investment, and high economic growth, and
a business relationship among the stakeholders which is based on the pillars of good corporate
governance i.e. transparency, accountability, fairness and responsibility. It is important to note
that commercial banks and other deposit-taking financial institutions have special governance
risks and complexities since: (i) banks take large amounts of risk bearing obligations on their
books, and hence weak internal controls and accountability can cause urgent and rapid crises;
(ii) the collapse of a bank will usually destroy value for its public depositors, not just
shareholders, and may even require a costly bail-out by the fiscal authorities, and; (iii) there is
the systemic risk that the collapse of a single bank can undermine the entire banking system.

34
Because of these special governance risks, banks are usually required by law or regulation to
have certain specific governance structures and reporting standards.

4.4 Elements of Good Corporate Governance

Good board practices Control environment

Clearly defined roles and authorities Independent audit committee established

Duties and responsibilities of directors Risk-management framework present Internal

Should be understood control procedures

Board is well-structured Internal audit function

Appropriate composition and mix of skills Independent external audit conducts audits

Appropriate board procedures Management information systems established

Director remuneration in line with best Compliance function established

Practice

Transparent disclosure Well-defined shareholder rights

Financial information needs to be disclosed Minority shareholder rights are formalized

Disclosure of Non-financial information Well-organized general assembly conducted

Financials reports prepared according to Policy on related-party transactions

IFRS & IAS Policy on extraordinary transactions

High-quality annual report should be Clearly defined and explicit dividend policy

published

Web-based disclosure

Board commitment

The board discusses corporate governance issues and has created corporate governance

committee

The company should have a corporate governance chairman

A corporate governance improvement plan needs to be created

Allocation of appropriate resources

Policies and procedures should be formalized and distributed to relevant staff

Development of corporate governance code

publicly recognized corporate governance leader

35
4.5 Two Alternate Corporate Governance Models
Much literature emerged in the 1990s focusing on the two most dominant corporate
governance models, the Anglo-American model and the German-Japanese model. This
literature compared the two models and documented them as control mechanisms to reduce
the agency problems (Chowdhury, 2002). The two models emerged from different ownership
financing patterns and hence have fundamental differences. These differences will be discussed
in the next two sections.

4.5.1 The Anglo-American Model

The Anglo-American model is recognized as a market based system of corporate governance,
and is distinguished both by the attributes of the prevailing legal and regulatory environment,
and by its arms length financing arrangements which is most common in the Anglo-American
countries (such as United States, United Kingdom, Canada, Australia and New Zealand)
(Farooque et al., 2007). Under this model share ownership is widely dispersed. Shareholders
are protected by explicit contracts and managers are monitored by an external market for
corporate control. Boards of directors are usually dominated by outsiders known as
independent directors. It is argued that due to the dispersed nature of the shareholding, and
typically strong management control over a firm, it is very hard for shareholders to be
successful in bringing a vote to remove management or to achieve a threat of removing the
management by the shareholders. In companies identified with the Anglo-American model,
strong management control leads to a high degree of information asymmetry. Therefore the
protection of shareholders interests in this model is very poor because shareholders influence
on management is weak. Consequently, jurisdictions where this model of corporate financing
prevails rely heavily on laws and transparency to enforce shareholders rights. Shareholders
rights under this model are protected largely by a liquid equity market, and regulations on
information disclosure etc.
Under the Anglo-America model finance is provided by large number of investors and
unsatisfactory firm performance often ends up in shareholders selling shares or takeovers
playing a key governance role (Goobey, 2004). As a result, institutional relationships matter

36
less and the market becomes a more dominant medium of governance, hence its identification
as a market based system of corporate governance.

4.5.2 The German-Japanese Model

The German-Japanese model or bank centered relationship based model of corporate
governance is distinguished as control-oriented financing. This model is common in Europe
and East Asia, and uniquely emphasizes the long term relationship between firms and investors.
This model allows corporations to use both a large portion of debt and a large portion of equity
in the same firm. In these situations the main bank provides a significant share of finance and
governance. As corporations under this model keep a close relationship with banks and the
banks provide a significant share of funds and governance, the banks are in the position to
monitor the corporation. Hence, this model is also known as the bank centered relationship
based model.
Countries fitting with this model typically have concentrated ownership and less liquid financial
markets. Under this model, managers are supposedly monitored by the core investors; it may
be a bank, a combination of banks, a non-bank financial institution, other corporations, large
corporate shareholders or other inter-corporate relationships (Greuning and Bratanovic, 2009).
Even under this model some of the banks hold the supervisory position of the corporate
boards. Therefore, this system reduces the cost of acquiring information about the firms, and
so assists in reducing the information asymmetry.
It is argued that since the financial markets are usually underdeveloped in emerging market
countries, banks are typically the most important source of external financing, and hence this
German-Japanese model is most suited to this environment.
4.6 Comparison Between the two Corporate Governance Models
The Anglo-American Model or market based system, and the German-Japanese Model or bank
centered relationship based system of corporate governance System is compared in Table 1
below, which has been adapted from international Corporate Governance Network (2009).

37
SL Mechanisms
No
1 Ownership Structures
2 Share of Control
Oriented Finance
3 Financial Markets
Anglo-American German-Japanese
Arms Length Control Oriented
Widely dispersed Concentrated in the hands of banks,
financial institution, other corporations
or dominant shareholders
Low High
Large, highly liquid Not necessarily small, but less liquid

4 Monitoring by Little Substantial

financial institution
5 Monitoring by Little Substantial
individual
shareholder
6 Shares of all firms Large Small
listed on the stock
exchanges
7 Ownership of debt Dispersed Concentrated
and equity
8 Investors Portfolio Oriented Control Oriented
Orientation
9 Shareholders Right Strong Weak

10 Use of mechanism Limited Frequent

for separating control
and capital base
11 Dominant Agency Between Shareholders and Between Controlling and Minority
Conflict Management Shareholders
12 Creditors right Strong Strong for close creditors, weak for
arms length creditors
13 Role of board of Important Limited
directors
14 Role of Insolvency Potentially important Quite limited
and Bankruptcy
15 Board Independence/ Little More
Power over
management
16 Market for corporate Hostile takeover is the correction Takeover restricted
control mechanisms
Table 1: Comparison between two corporate governance models

4.7 Conclusions
This chapter has included brief overview of corporate governance and models of corporate
governance in above discussion.

38
Chapter Five- Corporate Governance in Bangladesh

39
5.0 Introduction
In Bangladesh, corporate governance is still in its initial stage. Most of the companies depend
on the banks as their major source of financing. Capital market in Bangladesh is still at an
emerging stage with market capitalization amounting to only 6.5% of GDP with low investor
confidence on corporate governance and financial disclosure practices in many companies
listed in the stock exchanges. The neighboring countries are well ahead vis--vis Bangladesh in
terms of depth of capital market.

However, Awareness of the importance of corporate governance in Bangladesh is growing.

Securities and Exchange Commission of Bangladesh issued a notification on Corporate
Governance Guidelines (CG Guidelines) for the publicly listed companies of Bangladesh under
the power vested on the Commission by Section 2 of the Securities and Exchange Ordinance,
1969. The CG Guidelines were issued on a comply or explain basis, providing some breathing
space for the companies to implement on the basis of their capabilities. Nevertheless, the
overall framework for investor protection and CG has a number of important weaknesses that
have hindered the capital market development.CG practices in Bangladesh is gradually being
introduced in most companies and organizations. A considerable percentage of the top
management does not fully understand the concept of CG. However, Bangladesh has lagged
behind its neighbors and the global economy in CG. One reason for this slow progress in
adopting CG is that most companies are family oriented. Such concentrated ownership
structures affects the effectiveness of corporate governance mechanisms, which weaknesses
cannot be rectified by laws and regulations.

Motivation to disclose information and improve governance practices by companies is also felt
negatively. There is neither any value judgment nor any consequences for CG practices. The
current system in Bangladesh does not provide sufficient legal, institutional and economic
motivation for stakeholders to encourage and enforce CG practices.

5.1 The Historical, Political and Social Background of Bangladesh

Bangladesh is a developing country in Asia. It was liberated in 1971 after fighting a long war.
Soon after the independence the then government adopted socialism as the economic and

40
political framework to ensure the so called economic justice or distributive justice. Socialism
was constitutionally accepted as one of the four fundamental principles of the state.
Government of Bangladesh in an order, the Government of Bangladesh Nationalization Order,
1972, nationalized all large and medium sized industries including the banking and insurance
sectors. Application of the Companies Act 1913 was suspended. Through nationalization, the
government gained control over 92% of the total industrial assets in the country. These
industries were most commonly known as the State Owned Enterprises (SOEs) or Public Sector
Enterprises. By 1974, there were 350 such enterprises on which the government exercised
control. Consequently the activities of the Dhaka Stock Exchange, the symbol of capitalism,
were suspended. The government preserved the right to nationalize any private enterprise
whenever felt necessary. As a result, there was no provision for growing the private sector
enterprises. The economy was similar to that of a socialist country. Bangladesh became one of
the poorest countries and its economy one of the slowest growing economies in the world.

Socialism and the nationalization policy of the then government in Bangladesh failed. State
Owned Enterprises (SOEs) suffered from huge accumulated losses because of corruption,
mismanagement and a lack of effective monitoring. The World Bank stated that the biggest
public failure in Bangladesh was due to the SOE sectors in Bangladesh. The socialist experience
only lasted until the change of regime on 7th November 1975. Socialism was then omitted from
the constitution and the market economy policy was adopted as an economic phenomenon.
The new regime took steps to rehabilitate the private sector and facilitate industrialization,
such as a revision of investment policy, and a reduction of charges on industrial loans by the
Development Financing Institution (DFI) to help the private sector entrepreneurs on a priority
basis. Export oriented industries and agricultural production were encouraged as a new
development strategy (Watson and Bertin, 2007). These strategies encouraged both the
domestic and foreign private entrepreneurs. The denationalization of the public sector
enterprises and adoption of the market economy by that government brought in the new era of
industrialization. The activity of Dhaka Stock Exchange (DSE) resumed in 1976 only with nine (9)
listed companies. The new regime denationalized a number the state-owned enterprises; which
were nationalized immediately after the independence. It continued until in recent years and

41
within the period of 1976-1992 about 500 state owned enterprises (SOEs) were denationalized
(Privatization Commission of Bangladesh, 2013).

5.2 The Business Environment of Bangladesh

Since the inception of privatization in 1976, many of the corporate bodies, including major
portions of the banking and jute sectors, paper and textile mills, telecommunications, railways
and airlines industries were either reserved for the government sector or could not be
denationalized due to various difficulties, and so they continued to remain under government
control. These enterprises presented a very painful experience to the nation. For example, The
Adamjee Jute Mills Corporations Ltd., the largest jute mill in the world collapsed in 2002 costing
the jobs of 17,000 workers, because of a failure of corporate governance in terms of
mismanagement and corruption. In the last 30 years that enterprise had an accumulated loss of
Taka 11,080 million, approximately equivalent to 221.6 million Australian dollars. Soon after the
adoption of market economy and the rehabilitation of the private sector, it experienced a huge
growth. For example the industrial GDP increased from 7.19% in 1974 to 10.88% in 1980. It
increased to 30% in 2011-12 (Bangladesh Economic Review, 2013).

Although the performances of the State Owned Enterprises (SOE) were very poor even before
the growth of private sector, the SOEs could not survive the competition from the huge
growth in private sector enterprises over this period. Consequently the focus of corporate
governance has shifted from the public sector to the private sector. This was also encouraged
by other environmental factors such as the stock market collapse in 1996 at Dhaka and
Chittagong Stock Exchanges, along with inefficiencies and underperformance causing collapses
of some privatized jute and textile mills. These failures highlighted greatly the importance of
good corporate governance in the private sector in Bangladesh.

The spread of share ownership in public limited companies in Bangladesh is not wide, and the
economic power of the businesses is concentrated in dominant shareholder groups. A few
shareholders account for a significant portion of total share value and most companies are
managed and owned primarily by founding family members, holding company (or cross
shareholding) or institutional investors leading to very high degrees of concentration of

42
ownership control. Apart from the controlling ownership by foreign investors, government and
institutions, the joint stock companies in Bangladesh are mainly controlled by founding family
members.

Due to underdeveloped, poor and less liquid stock market operations, there is a lack of
effective corporate governance practice, poor legal enforcement and an excessive reliance on
bank financing. Consequently, the control of the companies remains in the hands of sponsors,
directors, and founding family members leading to a concentrated shareholding and control.
Most of these concentrated owners hold a position in the company management and board,
leading to poor monitoring of corporate governance practices. Erkens et al (2006) documented
that the boards of the Bangladeshi firms are mostly family dominated and executive
management is family aligned. This is typical of circumstances found in the countries affected
by the Asian Crisis as ADB documented that,

weaknesses in corporate governance in these countries appear to owe much to

highly concentrated ownership . under-developed capital markets, and the weak
legal and regulatory framework for investor protection

5.3 The Existing Corporate Governance Regime in Bangladesh

Many developing countries the enforcement of law in Bangladesh is either very poor or difficult
to enforce. The degree of compliance with existing financial regulation is historically very low in
Bangladesh. An independent survey in late 2006 with the help of Securities and Exchange
Commission, Bangladesh revealed that about 55 percent of companies do not comply with the
good practice guidelines and only about of 33 percent companies appointed the independent
directors (Bangladesh Enterprise Institute, 2006). Such poor law enforcement is exemplified by
occurrences of the 1996 Bangladesh stock market collapse, in which a syndicate of company
directors and brokers had proceedings brought against them by the Securities and Exchange
Commission of Bangladesh. Subsequently there is no evidence of punishment to these company
directors and the brokers of the syndicate, because the proceedings were abandoned due to
poor enforcement of the law. This example suggests that the investors protection is very low in
Bangladesh, and so poor corporate governance is of increased concern.

43
The first instance of corporate governance disclosure in Bangladesh is Padma Textile, a
subsidiary of the BEXIMCO group of companies, who published two pages in their annual report
on corporate governance, stating recognizing the importance of it, the board and other senior
management remained committed to high standards of corporate governance. Thereafter the
report contains a series of statements about internal financial control, management
structure of the company, financial reporting, etc. However companies in Bangladesh are
not required to report information on corporate governance in their financial reports (OECD,
2003). The corporate governance practices were only made mandatory for the first time in
Bangladesh following the SECB announcement of Corporate Governance Notification in 2006.

5.3.1 Corporate Legal Environment in Bangladesh

The corporate legal framework in Bangladesh consists of certain Acts and Ordinances,
numerous subordinate legislative instruments such as orders, notifications, rules, regulations
and circulars, which are issued by the Government, the Bangladesh Bank, the Securities and
Exchange Commission (SECB), the National Board of Revenue (NBR) and other governmental
agencies. Moreover the stock exchanges, chambers of commerce and other self-regulatory
agencies in the private sector also form a part of the legal and regulatory framework for
corporate governance in Bangladesh.

On 1st January 1995, the new Companies Act of 1994 came into effect. Among several types of
legislation, the Companies Act 1994 is the main governing law for the companies in
Bangladesh. This law was put in effect to provide more accountability and openness in
managing the companies, leading to greater confidence in the corporate environments.
However, that Act does not say anything regarding the ultimate share ownership, directors
qualifications, age, composition of the board and the leadership structures in the board and
management, particularly the role of chairperson5 and CEO, directors responsibility etc.
Rather, the law is very much related to the formation, management and liquidation of
companies.

The capital markets in Bangladesh are regulated by several types of legislation, including the
Trust Act 1882, Capital Issues (Continuance of Control) Act 1947, Securities and Exchange

44
Ordinance 1969, Securities and Exchange Rules 1987, Securities and Exchange Commission Act
1993, Securities and Exchange Commission (Amendment) Act 1993, Securities and Exchange
Commission (Brokers, Stock-Dealers, Stock-Brokers and Authorized Representative) Regulation
1994, Securities and Exchange Commission (Merchant Bankers and Portfolio Managers)
Regulation 1994, Securities and Exchange Commission (Mutual Funds) Regulation 1994,
Prohibition of Insider Trading Regulation 1995, Initial Public Offering (IPO) Rules 1998, The
Depository Act 1999 and Margin Rules 1999. Moreover, there are some specific rules and
regulations which are issued by SECB from time to time for controlling the operation of stock
exchanges, companies and share markets.

5.3.2 Regulatory Control of the Securities and Exchange Commission of

Bangladesh
The Securities and Exchange Commission, Bangladesh (SECB) was established on 8th June 1993
under the Securities and Exchange Commission Act, 1993. The SECB holds very wide-ranging
powers and regulates the activities of the capital market in Bangladesh including licensing and
regulation of capital market participants and intermediaries such as stock exchanges, brokers
and dealers, merchant banks and portfolio managers. Much of the powers of the SECB are
aimed at proper disclosure to investors, which is at the heart of good corporate governance. It
provides policy direction to the industry and administers the securities legislation and acts as an
administrative tribunal for decisions on the capital markets. Listed companies are required to
submit the copy of their Annual Report and the proceedings of their annual general meeting to
the SECB.

Besides regulating the capital markets, the SECB has the other objectives of promoting
investors awareness including investment guidelines and the correct format for lodging a
complaint, caution notices regarding the circulation of fake shares, an investors education
program and the provision of training for intermediaries of the securities market.

5.3.3 Financial Reporting, Accounting and Auditing Standards

Two professional accounting bodies, the Institute of Chartered Accountants of Bangladesh
(ICAB) and the Institute of Cost and Management Accountants of Bangladesh (ICMAB) regulate
the accounting profession in Bangladesh. ICAB is the national professional accounting body of

45
Bangladesh established under the Bangladesh Chartered Accountants Order (Presidential Order
Number 2 of 1973). The Institute of Cost and Management Accountants of Bangladesh (ICMAB)
was established in 1977 under the Cost and Management Accounting Ordinance mainly to
regulate the Cost and Management Accounting profession in Bangladesh. Both the accounting
bodies are fostering the acceptance and observance of International Accounting Standards (IAS)
and International Financial Reporting Standards (IFRS) and their adoption as Bangladesh
Accounting Standards (BASs). The Companies Act 1994 allows the members of both ICAB and
ICMAB to audit companies to ensure that their accounts conform to all Bangladesh Accounting
Standards.

To ensure the transparency, accountability and good governance in the corporate sector
effective from February 2000, the Securities and Exchange Commission Bangladesh by a
notification on 29th December 1997 required all listed companies to abide by Accounting
Standards adopted by ICAB and ICMAB as Bangladesh Accounting Standards (BASs). Thus these
accounting standards are mandatory for all companies listed in Dhaka and Chittagong Stock
Exchanges.

5.3.4 Capital Markets in Bangladesh

The Bangladeshi capital market is one of the smallest in Asia, and has a lot of problems
including a non-developed securities market, investor non-awareness, a lack of research, non-
professionalism of the brokerage business and market intermediaries, and a tendency towards
unethical gains by insider trading and a lack of transparency (Chowdhury, 2002).

By the end of June, 2006 there were 303 securities of 256 companies listed on the DSE with a
market capitalization of Taka 225.30 billion. The All Share Price Index at Dhaka Stock Exchange
was introduced on 16th September 1986. The Dhaka Stock Exchange is a self regulated non-
profit organization. Its activities are regulated by its Articles of Association and rules and
regulations and by-laws along with the Securities and Exchange Ordinance, 1969, Companies
Act 1994 and Securities and Exchange Commission Act, 1993.

The Chittagong Stock Exchange (CSE) was established as a Public Limited Company in April
1995. Similar to Dhaka Stock Exchange, the activities of Chittagong Stock Exchange are

46
regulated by its Articles of Association and rules and regulations and by-laws along with the
Securities and Exchange Ordinance, 1969, Companies Act 1994 and Securities and Exchange
Commission Act, 1993. By the end of June 2006 there were 213 securities of 196 companies
listed with CSE with a market capitalization of Taka 196.34 billion.

5.4 Characteristics/features of the Bangladesh corporate governance

In view of the features of the corporate governance practices described in this section, the
characteristics of the Bangladesh corporate governance situation are summarized below.

5.4.1 Corporate ownership structures

Ownership structure of a corporation is basically divided into three categories. These are
institutional ownership, managerial ownership and individual ownership. Institutional owners
include pension funds, mutual funds, life insurance companies, trust departments of
commercial banks, property and casualty insurance companies, closed-up funds and savings
institutions. Normally they include the companys share as their portfolio investment. Though
they are small in number, institutional investors control most of the dollar votes and have a
large impact on securities price than the individual investors. Managerial ownership consists of
directors, managers and other management team members, who hold the companys shares
directly. Concentrated ownership falls in this category, where family members control the
majority portion of shares. The third group of investors is the individual owners. This group
constitutes a major pie of the total shareholding as compared to developed countries.
Nevertheless, they do not control much of dollar vote. Hence, no effective control mechanism
could be placed on managerial decision making.

However, in Bangladesh, general practice is that the corporate structure is dominated by family
members. Such practice hinders the level of fairness, accountability and transparency. It is seen
that ownership holding by top shareholders classified by industry that ownership in Bangladesh
is largely concentrated in few hands. It is observed that these top shareholders belong mostly
to controlling family.

47
Category 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sponsor 42.43 42.43 42.38 41.54 41.49 40.68 39.89 39.81 39.79 37.87
Ownership

Govt. 3.27 3.27 3.60 3.60 3.60 3.96 3.96 3.96 4.15 4.15
Holding
Institutional 24.67 24.18 23.69 23.69 23.22 22.75 22.30 21.85 21.13 19.29
Holding

Foreign 1.60 1.76 1.76 1.94 1.94 2.13 2.13 2.34 2.53 4.47
Holding
General 28.02 28.30 28.58 29.15 29.74 31.22 31.85 32.17 32.41 34.21
Public
Table 2: Corporate Ownership structure, Authors own calculation based on data collected from
annual reports of the selected banks

In table 2, it is seen that sponsors dominate the ownership structure ranges from average
37.87% to 42.43% and control the decision making of the organization. Second highest
ownership type is general shareholder which is average 28.02% to 34.21% of the total
ownership. It also has been shown that sponsorship ownership decreased from 42.43% in 2006
to 37.87% in 2015. On the other hand, general public ownership increased from 28.02% in 2006
to 34.21% in 2015. Nevertheless, the domination of the sponsors/directors is still prevailed in
the ownership structure and decision making of the organization.

5.4.2 Inadequate Bankruptcy Laws

Bankruptcy laws and processes are inadequate in terms of provisions and not strong in terms of
enforcement in Bangladesh. No country can have good CG standards with poor bankruptcy laws
and processes. Besides, inefficient foreclosures and securitization processes have compounded
the problems in Bangladesh.

5.4.3 Lack of initiatives to drive for CG from the International Investor

Community
Most companies in Bangladesh have a pessimist approach in attracting foreign investment. As a
result, there is a lack of drive from the international investor community for better corporate

48
governance. We do not get the proper accounting disclosure or some other relevant matters
from multinational Companies.

5.4.4 Accounting standards, audit and disclosure

The scenario of internal audit; accounting standards and disclosure and its impacts on CG and
management practices in Bangladesh are mixed. There are now elements of both positive
scopes and new challenges and risk for the corporations in these areas. Following the tradition
of English law, Bangladesh accounting standards are not based on codified law, but rely on
Generally Accepted Accounting Principles (GAAP) developed by accounting profession. These
principles are primarily shareholder oriented and are independent of tax considerations. In
Bangladesh the companies have to make disclosure of information required by law. Disclosure
requirements for Initial Public Offerings are defined by the Companies Act and the orders under
the Securities and Exchange Ordinance, 1969. Periodic disclosure requirements are mentioned
in the Securities and Exchange Rules, 1987.

5.4.5 Inconsistency between Companies Act, BAS and SEC Requirements

The companies Act, 1994 provides, among others, provisions regarding preparation and
publication of financial statements, disclosures and auditing. However, in many cases, the Act
lacks clarity with regard to statutory requirements on disclosures in the financial statements of
listed companies.

Moreover some accounting requirements mentioned in the Act are incompatible with
International Accounting Standards (IAS) which is required by the SEC. For example, contrary to
IAS, the Companies Act requires capitalization of gains and losses arising from changes in
foreign exchange rates under all circumstances. Another inconsistency is that the Companies
Act does not require a consolidated balance sheet for a holding company but it is required
under the IAS. Inconsistencies between IAS and the Companies Act need to be eliminated.

5.4.6 Limited or No Disclosure regarding Related Party Transactions

Related party transactions are not disclosed properly in the financial statements. It is an
impediment towards achieving good CG in Bangladesh.

49
5.4.7 Weak Regulatory System
Bangladesh still follows the legal system inherited from the British administration. Currently,
the Companies Act of 1994 is the law that governs the incorporated domestic corporations and
institutions. The other significant laws which has important role in governing the corporate
sectors are: Securities and Exchange Ordinance 1969, Bangladesh Bank Order 1972, Bank
Companies Act 1991, Financial Institutions Act 1993, Securities and Exchange Commission Act
1993 and the Bankruptcy Act, 1997. Here, weak regulatory system along with board
interference with the management retards the improvement of CG in the country.

5.4.8 Capital Market Role

Capital market facilitates good governance through information production and monitoring.
The capital market of Bangladesh consists of two stock exchanges: Dhaka Stock Exchange (DSE)
and Chittagong Stock Exchange (CSE).Bangladesh does not have depth in its equity market.
Besides, there is no development of Bond market. The capital market of Bangladesh is still a
weak link in the movement towards strengthening CG. The overall performance measures of its
stock market show low trading volume, intermittent bumps, not many new offerings and
unsteady valuations more on the declining side than otherwise. Recent stock market scandals
have seriously eroded investor confidence in the stock market. One vital aspect is that capital
market in Bangladesh does not react significantly to corporate performance in terms of higher
stock valuation for accurate disclosure and poor stock price for failure of accurate and full
disclosure. There is little incentive in becoming a public company and listing on the stock
exchange in Bangladesh. Companies with good reputations can get bank financing relatively
easily than through share issue. Moreover, there are no bonds, fixed income or debt
instruments in the capital market. This means there are no pressure groups for enforcing CG
principles. Unlike the private mutual funds, the state-owned investment Company Investment
Corporation of Bangladesh (ICB) has not, until recently, been required to publish the net asset
value of its mutual funds or submit performance reports to the SEC.

5.4.9 General Meeting Scenario

General meetings of a company, in particular the Annual General Meeting (AGM) are the
primary platform where shareholders can raise their concerns and make their influence felt

50
over the management towards attaining good governance. Although a good number of
provisions in the Act provided sufficient leverage to allow shareholders a voice in companies,
most companies in Bangladesh, are closely held. Small groups of shareholders own or control
the majority of shares, and by using that majority, control the decision making processes of the
companies. In number of studies it has been found that there is a negative correlation exists
between good CG and defaulting in holding annual general meetings in due time.

5.4.10 Board Committees

Board committees (audit, remuneration and nomination) are of critical importance in CG. Audit
Committee is now being treated as a principal player in ensuring good CG and rebuilding public
confidence in financial reporting. The role of Audit Committee, among others are: monitoring
integrity of financial statements, reviewing internal financial controls, recommending
appointment of external auditor and reviewing auditor independence and objectivity and audit
effectiveness. The Remuneration Committees responsibilities include establishment and
review of the Managing Directors remuneration package and senior management salary
packages. Remuneration Committee assists the Board to attract, retain and motivate high
caliber executives and director through proposing remuneration that commensurate to their
performance. Despite significant importance of the board committees (as described), few
boards (except for banks) has Audit Committees and almost none has nomination or
Remuneration Committees in Bangladesh.

5.4.11 The Board of Directors

The Companies Act, 1994 provides for many stringent rules in respect of any negligence,
default, breach of duty or trust on the part of director, manager or officer of a company.
However, experience suggests that these are more honored in the breach than observance. In
an overwhelming majority, the board is heavily dominated by sponsor shareholders who
generally belong to a single family. The boards are actively involved in management. Most
independent directors represent current or former government officials or bureaucrats. They
are appointed directors to assist company in getting licenses or as payback for previous favors.
In the context of Bangladesh, independent directors do not act as an advocate for minority
shareholders or as a source of innovative ideas.

51
5.4.12 Lack of Shareholders Activism
Shareholder rights are today recognized across the globe as relevant to efforts for improving
and strengthening CG. The average non-controlling or minority shareholders do not possess
significant level of education, understanding and sophistication required to exert pressure on a
company to change behavior. The number of shareholders with sufficient knowledge and skills
to understand company operations and to hold management and the board of directors
accountable is very low. Moreover, general shareholders do not pay attention on issues of
performance, business strategy, future business plans, disclosures and processes that could
give them a greater voice in the policy decisions of a company. In fact, there is very little
awareness about shareholders rights and responsibilities. Shareholders activism is still an
illusion in Bangladesh.

5.4.13 Market for Corporate Control

A market for corporate control plays an important monitoring function in CG, as poorly
managed companies will become takeover targets. In Bangladesh, there seems to have less
initiative market for corporate control. Recently, Bangladesh Bank & SEC are trying to regulate
the code of corporate governance in the listed companies.

5.4.14 Weak Pressure Groups

Shareholders, investor associations, institutional investors and the financial press can play
significant role in ensuring better CG. Each of these potential pressure groups is weak in
Bangladesh. The numbers of journalists who possess knowledge on financial reporting are
limited and there are lacks of investigative reports. Similarly public shareholders are not
organized under a common platform (such as shareholder associations) to demand better
corporate governance. Unlike institutional investors in most capital markets across the globe,
the few State-owned Enterprises (SOEs) lack performance spirit and motivation to force
companies to improve CG as well as performance.

5.4.15 Lack of Auditor Independence

Auditors in Bangladesh are not considered independent to attest to the validity of the financial
statements of corporate entities. They have some fiduciary or financial relationship with the
management. Thus, most of the time we see the issue unqualified reports A study shows that

52
most of the companies conduct regular audit for effective implementation of the core labor
policies.

5.4.16 Poor Audit Report

Audited financial reports are rarely reliable and free from the control of the owners. Despite
irregularities (in respect of non compliance with the applicable IASs) in the audit report, the
auditors issue unqualified audit report on the financial statements.

5.5 Reforms initiated by the government and regulatory bodies to

improve the CG practices
Corporatization of the state-owned commercial banks (SCBs) and delegating full autonomy to
the SCBs board

Appointment of directors from the depositors to protect the shareholders right.

Implementation of the capital adequacy framework (Basel II) from January 2010.

Permission from the Bangladesh bank to raise capital through debt instruments (termed as
subordinated debt) instead of issuing only rights and bonus shares to the commercial banks for
boosting their capital in line with Basel II requirement

Directions from the Bangladesh Bank to all commercial banks to organize training
programmes for all its directors on banking rules and regulation to effectively execute their
duties and to go online by December 2010.

Introduction of incentive bonus for the Chief Executive Officers (CEOs) of all banks

Guideline to submit the stress test reports by the banks to the BB twice in a year with an
objective to check out banks financial strength and see how it will stay afloat in difficult times

Commitment to give the Credit Information Bureau (CIB) reports by the Bangladesh Bank on
online to the banks and financial institutions from June 2010 on a trial basis

New bill on Alternative Dispute Resolution (ADR) passed by the parliament to settle loan
default cases out of court

53
 Mandatory credit rating requirement for the large private, public entities including the banks

Proposal on separate pay scale for the Bangladesh Bank officials to reduce high employee
turnover (average 20% of the new recruited assistant director left the office primarily for
benefits)

New momentum of privatization programme and proposal to form of a permanent bank

reform committee to strengthen the banking system and reduce risks

5.6 Conclusions
This chapter has covered the history of corporate governance in Bangladesh, current status of
corporate governance in Bangladesh and the characteristics of corporate governance in
Bangladesh.

54
Chapter Six- Overview of the Banking Sector in Bangladesh

55
6.0 Introduction
Banking sector of Bangladesh is one of the major sectors, which contributes significantly to
the national economy. The sector comprises a number of banks in various categories.
Considering ownership the sector can be classified in to four major categories - such as
Nationalized Commercial Banks (NCBs), Specialized Banks (SPBs), Private Commercial Banks
(PCBs), and Trans-National Banks (TNBs) (Islam, 2001).
The commercial banking system put on vital role in Bangladesh's financial sector. Bangladesh
Bank is the Central Bank of Bangladesh and the principal regulator of the sector. Bangladesh
have total of 55 states owned, private, foreign and specialize Banks. The banking system
consists of four state-owned commercial banks, 31 private commercial banks, 10 specialized
development banks, and 10 foreign commercial banks. The Nobel Prize for Grameen Bank is
a specialized micro-finance institution, the concept of microcredit revolution and a major
contribution to poverty alleviation and empowerment of women in Bangladesh. Structure of
the banking sector by the type of banks is shown in table 3 below:
Banking System Structure (Billion Taka)
Bank Types No No of Total % of Deposit % of
of Branch Asset Asset s Deposi
Bank es s s ts
s
National
Commercial Banks 4 3384 786 32.7 654.1 35.2
Govt. Owned
Development
Finance
Institutions 10 1354 187.2 7.8 100.2 5.4
Private 3
Commercial Banks 1 1776 1147.8 47.7 955.5 51.3
Foreign 1
Commercial Banks 0 48 284.9 11.8 150.8 8.1
Total 5
5 6562 2406.7 100.0 1860.6 100.0
Table 3: Banking system structure in Bangladesh, Source: Bangladesh Bank, 2013.

56
6.1 Historical Background
After the independence, banking industry in Bangladesh started its journey with 6
nationalized commercialized banks, 2state owned specialized banks and 3 foreign Banks. In
the 1980s banking industry achieved significant expansion with the entrance of private
banks. Now, banking sector in Bangladesh is primarily of two types:
A). Schedule Bank
B). Non-schedule Bank
A). Scheduled Bank: The banks which get license to operate under Bank Company Act,
1991 (Amended in 2003) are termed as Scheduled Bank. State-owned commercial banks,
private commercial banks, Islamic commercial banks, foreign commercial banks and some
specialized banks are Scheduled Bank.
B). Non-Scheduled Bank: The banks which are established for special and definite
objective and operate under the acts that are enacted for meeting up those objectives are
termed as Non-Scheduled Bank. These banks cannot perform all functions as like as
scheduled banks. Grameen Bank, Probashi Kallyan Bank, Karmasangsthan Bank, Progoti
Co-operative Land Development Bank Limited (progoti Bank) and Answer VDP Unnayan
Bank are Non-Scheduled Bank.

6.2 List of Banks in Bangladesh

A) Central Bank
B) State- owned Commercial Banks
C) Private Commercial Banks
D) Foreign Commercial Banks
E) Specialized Development Banks
A). Central Bank:
Bangladesh Bank
B). State-owned Commercial Banks:
Sonali Bank Limited
Rupali Bank Limited

57
 Agroni Bank Limited
Janota Bank Limited
C). Private Commercial Banks:
United commercial Bank Limited
Mutual Trust Bank Limited
BRAC Bank Limited
Eastern Bank Limited
Dutch Bangla Bank Limited
Dhaka Bank limited
Islami Bank Bangladesh Limited
Uttara Bank Limited
Pubali Bank Limited
IFIC Bank Limited
National Bank Limited
The City Bank Limited
NCC Bank Limited
Prime Bank Limited
Southeast Bank Limited
Al-Arafah Islami Bank Limited
Social Islami Bank Limited
Standard Bank Limited
One Bank Limited
Exim Bank Limited
21 Bangladesh Commerce Bank Limited
22 First Security Islami Bank Limited
23 The Premier Bank Limited
24 Bank Asia Limited
25 Trust Bank Limited
26 Shahjalal Islami Bank Limited

58
27 Jamuna Bank Limited
28 ICB Islami Bank
29 AB Bank
30 AB Bank
31 Marcantile Bank Limited
D). Foreign Commercial Banks:
Citibank
HSBC
Standard Chartered Bank
Commercial Bank of Ceylon
State Bank of India
Habib Bank Limited
National Bank of Pakistan
Woori Bank
Bank Alfalah
ICICI Bank
E). Specialized Development Banks:
Bangladeshi Krishi Bank
Rajshahi Krishi Unnayan Bank
Progoti Co-operative Land Mortgage Bank Limited
Grameen Bank
The Dhaka Mercantile Co-operative Bank Limited (DMCBL)
Bangladesh Development Bank Limited
Bangladesh Somobay Bank Limited (Cooperative Bank)
Ansar VDP Unnyan Bank
Basic Bank Limited
Karmasangstan Bank

59
6.3 Function of Commercial Banks of Bangladesh
Function of Commercial Banks in Bangladesh

Receiving Deposit Advancing Loans

Current Saving Fixed Marketing Bank Cash Credit

Account Account Deposit Loans Overdraft

Short term
Loans

Long term
Loans

Medium
term Loans

Figure 3: Functions of commercial bank of Bangladesh

6.4 Islamic Banking

Alongside the conventional interest bearing banking system, Bangladesh entered into an
Islamic banking system (profit-loss sharing) in 1983. At present, out of 48 banks in
Bangladesh, 6 private commercial banks are operating as full-fledged Islamic banks and 10
conventional banks are partially involved in Islamic banking in a total of 21 branches. The
Islamic banking industry continued to show strong growth since its inception in 1983 to June
2007 in tandem with the growth in the economy, as reflected by the increased market share
of the Islamic banking industry in terms of assets, financing and deposits of the total banking
system. The entire picture is given at Table 3. Total deposits of the Islamic banks and Islamic
banking branches of the conventional banks stood at Taka 286.5 billion at end June 2007.
This was 23.6 percent of the deposits of all private commercial banks and 14.3 percent of
the deposits of the total banking system at the end of June 2007. Total investment of the
Islamic banks and the Islamic banking branches of the conventional banks stood at Taka
265.4 billion at end June 2007. This was 26.9 percent of all private banks and 17.2 percent of
the total banking system of the country.

60
 Particulars Islamic banks Islamic Banking Private All Banks

Branches Commercial Banks

Number of 5 10 30 48

Banks

Number of 330 21 1854 6596

Branches

Number of 12109 390 38426 99287

Employees

Deposits 263.1 23.4 1214.6 2005.8

Investments 249.6 15.8 987.7 1541.9

(Credits)
Table: 4: Comparative position of the Islamic Banking Sector, Source:
Research Department of Bangladesh Bank, 2013

6.5 Contribution of Commercial Bank in Bangladesh

Banks promote capital formation

Investment in new enterprises
Promotion of trade and industry
Development of agriculture
Balance development of different savings
Influencing the economy activity
Implementation of monetary policy
Export promotion cells
6.6 Expansion of Bank Branches of Rural Areas
The avowed strategy of government in promoting financial inclusion has witnessed little
realization as private and foreign banks have made hardly any progress in setting branches in
remote and rural areas of the country though they control almost 75 per cent of the banking
sector. For example, between February 2008 and December 2012 the percentage of
branches of bank in rural areas decreased from 57.94 to 57.20 percent, whereas the share of

61
branches of bank in urban areas increased from 42.06 to 42.80 percent. Disparity also exists
between the level of commitment of state owned commercial banks and that of private and
foreign commercial banks. As of December 2012, for example, 63.97percent branches of
state owned commercial banks were located in rural areas, as opposed to only 38.08 percent
branches of private commercial banks. The foreign banks have yet to establish any branch in
rural areas as of December 2012.
6.7 Credit Disbursements
This section observes the disbursement, recovery, and trends of growth of credit to different
sectors of the economy, such as private and public sector, agriculture, SME, and industry sector.
Three problems have mainly gained prominence in case of credit disbursement. First, the
amount of non-performing loan is increasing, requiring higher allocation as provision. Second,
lack of profitability is reducing the taxable income of the government from the banking sector.
Third, state owned banks have continued to be dependent of recapitalization from the
government.

6.7.1 Credit Disbursement between Private and Public Sector

The target of credit in private sector in the current MPS (Monetary Policy Statement) has been
set at 15.5 percent by December 2013. This target is 3.0 percentage points less than the target
(18.5 percent) of previous monetary policy statement.

Particulars Target Actual

Credit to the Private Sector
The credit in private sector to The rate of growth on credit
grow by 15.5 percent in to private sector declined to
December 2013. 8.89 percent in July-May
2012-13 from targeted 18.5 of
previous MPS.

Net Domestic Assets
Target set at 16.8 percent by The net domestic assets
December 2013. increased by 8.69 percent till
July-April, 2013* against the
target of 18.4 percent in
previous MPS

Table 5: Targets and Achievements, Source: Unnayan Onneshan, 2013

62
In contrast, the rate of growth of actual disbursement of credit to the private sector in July to
September, 2013 -14 over July to September, 2012-13 are 10.18 percent, representing a 5.32
percentage point gap. If the current trend continues, the gap may further widen in September
to December, 2013-14. Growth of credit in private sector registered at 11.07 percent in
September 2013 over September 2012 and it was lower than the growth of 19.88 percent
witnessed at the same time of the previous year. Growth of credit in this sector slowed in
recent time mainly due to consecutive contractionary monetary policy taken by Bangladesh
bank as well as recent political ambiguity in the country. In public sector it has observed a
negative rate of growth of 43.15 percent in July-September, 2013-14 over July-September,
2012-13, which also grew at a negative rate of 4.95 percent over July-September, 2011-12.
Domestic credits recorded an increase of 11.52 percent at the end of September, 2013 against
the increase of 17.72 percent in corresponding period of the last year.
Particulars Sep. Sep. Jul-Sep 2013-14 Jul-Sep 2012-13

2013 2012 over over Jul-Sep

2011-
over over Jul-Sep 2012-13
12
Sep. Sep.

2012 2011

Domestic 11.52 17.72 9.9 15.77

Credit

Credit in 11.07 19.88 10.18 16.68

private

sector

Credit in - - -43.15 -4.95

public

sector

Table 6: Growth of credit in Private and Public Sector, Source: Authors calculation based on
Statistics Department, Bangladesh Bank 2013

63
Growth of credit in private sector has been declining over the years after October-December,
2012 and projection says that in the first quarter of the 2013, and in the last quarter of the
2014 rate of growth of credit in private sector might decline from 2.21 percent in July-
September, 2013 to 1.98 percent in October-December, 2013.

Figure 4: Growth of Credit in Private Sector (quarterly), Source: Authors calculation based on
monthly economic trend, November 2013 Bangladesh Bank
At the end of September 2013, total liquid assets stood Tk. 182439.61 crore compared to Tk.
174171.33 crore at the end of June 2013. Excess of liquidity of the banking business reached
over Tk. 83000 crore at the end of November 2013 whereas this was Tk. 80000 crore in July,
2013. Excess of liquidity of the banking sector has been increasing over the months mainly due
to a noticeably low level of demand for credits by the private sector. Loan taking by the
business community is seen because of decreasing trend for the forthcoming general election,
consecutive contractionary monetary policy taken by Bangladesh Bank and long-persisting
problems in supplying gas and power. At present, the economy has been suffering from regular
strikes and blockades since beginning of the year. Another reason behind the slow growth of
credit is the rigid attitude in giving loans due to a number of scams occurred this year as well as
mismatch between credit and deposit growth. If this situation continues, then economy might
contract further. Growth of credit in private sector went down to 11 percent in fiscal year 2012-
13 compared to nearly 20 percent in the previous fiscal year.

64
6.7.2 Credit Distribution in Agriculture and Industry
The disbursement of credit in both agriculture and industry sector in recent times is seen as
decreasing trend which is alarming for the economy. The rate of growth of the disbursement of
the industrial term loan and agricultural credit stood negative in the first quarter of the FY
2013-14.

6.7.3 Industrial Loan

The rate of growth in the industrial term loan has been experiencing an irregular movement with
negative rate of growth since April-June, 2011. Adequate capital is needed for fast industrialisation
of a country. Loan is one of the most important factors of capital formation, mainly for developing
country like Bangladesh. The disbursement of industrial term loan stood Tk. 8880.79 crore in the
first quarter of the current FY 2013-14, which is the lowest among the last five quarters, whereas it
was Tk. 9720.3 crore in the first quarter of the previous FY 2012-13. In the first quarter of the
current FY 2013-14, disbursement of the industrial term loan decreased by Tk. 1632.48 crore
compared to the last quarter of the previous FY 2012-13. The rate of growth of the disbursement of
the industrial term loan stood negative at 15.53 percent in the first quarter of the FY 2013-14,
compared to the positive rate of growth of 4.49 percent in the last quarter of the FY 2012-13. If the
trend remains as usual, the disbursement might decline to Tk. 8657.887 crore as well as the rate of
growth might become negative and will reach at 2.51 percent in the second quarter of the current
FY 2013-14. Recovery of the industrial term loan has been increasing but at an insignificant amount.
The condition of the recovery of the industrial term loan has been improved by insignificant amount
since the last quarter of the previous FY 2012-13.

Figure 5: Scenario of Industrial loans, Source: Authors calculation based on Major Economic
Indicators, November 2013, Bangladesh Bank

65
6.7.4 Agricultural Credit Disbursement and Recovery
The rate of growth of agricultural credit disbursement and recovery of credit has been
experiencing lower trend as well as negative rate of growth after September, 2013. The
disbursement of agricultural credit stood at Tk. 1086.56 crore in October, 2013, whereas it was
Tk. 1149.04 crore in September, 2013. In August, 2013, the disbursement of agricultural credit
also decreased by Tk. 399.08 crore. The rate of growth of the disbursement of the agricultural
credit stood negative 5.4 percent in October 2013, where as it was positive 143.2 percent in the
September 2013. Recovery of the agricultural credit disbursement has also been increasing at
an insignificant amount. If the trend remains as usual, the disbursement, recovery and rate of
growth of the agricultural credit disbursement might decline to Tk. 1007.36 crore, Tk. 1180.32
crore and 7.3 percent respectively in November, 2013.

Figure 6: Scenario of Agriculture Loans, Source: Authors calculation based on Major Economic
Indicators, November 2013, Bangladesh Bank

6.7.5 Disbursement of SME Loan

Although the total loan given by state owned commercial banks, foreign banks, and non-bank
financial institution, except the specialized banks sector, increased to Tk. 473242.7 crore at the
end of September, 2013 from Tk. 466162.3 crore at the end of June 2013, SME loan as a
percentage of total loans has been increasing at an insignificant amount. Even though the total
SME loan decreased by Tk. 9451.91 crore at the end of September 2013 from Tk. 24398.34
crore at the end of September 2012, the rate of growth of SME loan was negative at 5.25
percent in March, 2013. Especially, state owned banks observed a negative growth of 38.47
percent at the end of September 2013 compared to September 2012. According to the
historical track record, total loans and SME loans might increase to Tk. 480342.4 crore and Tk.
110319 crore in December 2013, from Tk. 473242.7crore and Tk. 108599.5 crore in
November2013, respectively.

66
 Figure 7: Disbursement of SME Loan by All Banks, Source: Authors calculation based on Major
Economic Indicators, November 2013, Bangladesh Bank
Lower disbursement of credit as well as lower recovery in agricultural, industrial, and SME
sector not only impact in the present time and increase the default loan but also might impact
on the medium term in the economy results in contracts the economy.

6.7.6 Borrowing of the Government from Banking System

Borrowing of government from the banking system has been on the increase since July-
September. As the borrowing increases every year, its expenditure is also going up due to
higher interest payment. However, in the first quarter of 2013, government borrowed Tk.
465409.7 crore from the banking system, which is Tk. 38225.3 crore lower than the last quarter
of the previous year when this amount was Tk. 427184.4 crore. In September 2013, borrowing
from the banking system decreased to Tk. 152731.0 crore from Tk. 153868.9 crore in August,
2013. This borrowing results in recapitalisation by government in the SCBs.

Figure 8: Borrowing of the Government from Banking System, Source: Authors calculation
based on Monthly Economic trends November, Bangladesh bank 2013

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6.7.7 Credit, Investment and GDP
The failing of the government to achieve growth of credit target is contributing to lower
investment. At the same time, the incremental capital output ratio (ICOR) that measures
investment required to increase GDP has deteriorated in the past few years. For example, the
government would require investment rate to rise at 32.0 percent of GDP for achievement of
7.2 percent GDP rate of growth in FY 2013-14, if the ICOR remains same of the outgoing year.
This tendency of the ICOR is also necessitating greater investment, and thus further growth of
credit in the private sector. Moreover, if the existing policies remain unchanged, the savings-
investment gap might increase sharply and might continue to increase in the upcoming fiscal
years. This gap might increase5.47 percent and 5.81 percent of the nominal GDP in FY 2013-14
and FY 2014-15. Low credit delivery is likely to have an adverse effect on this gap as well.
6.8 Risk Management
Risk management comprises of capital adequacy, asset quality, non-performing loan,
expenditure- income ratio and return on Asset (ROA), return on Equity (ROE) and non-
performing loan (NPL) which indicates the lack of presence of prudential surveillance on the
financial sector and profitability of bank. Here, ROA is the ratio of net earnings of a year to
average whole assets of a business in a financial year while ROE means the measurement of the
rate of return on the ownership interest of the common stock owners and the term NPL refers
to the loan that is in default.

6.8.1 Capital Adequacy

Capital adequacy is determined by Capital to Risk Weighted Assets (CRAR) which is most
important. Currently, a banking company is to maintain 10 percent of Risk Weighted Assets
(RWA) or Tk. 200 crore whichever is higher as its minimum required capital. Shortfall of capital
by the four state-owned commercial banks (Sonali, Janata, Agrani and Rupali banks) imposed a
condition that government would have to restore capital position under the extended credit
facility loans driven by International Monetary Fund (IMF). To meet the requirement of the IMF,
finance ministry decided to revise the recapitalisation of bank proposals. After that revision,
banking division will distribute Tk. 4100 crore in the first phase against their capital shortfall of
Tk. 8863 crore.

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 Types of Banks 2007 2008 2009 2010 2011 2012

SCBs -7.12 6.93 9.02 8.92 11.68 8.13

DFIs 10.36 -5.29 0.36 -7.25 -4.49 -7.78
PCBs 10.63 11.43 12.12 10.08 11.49 11.38
FCBs 22.73 23.81 28.13 15.63 20.97 20.56
Total 7.37 10.05 11.67 9.31 11.35 10.46
Table 7: Capital to Risk Weighted Assets Ratio (CRAR) by Types of Banks (in percent), Source:
Bangladesh Bank, 2013
Table: 7 shows that DFIs and SCBs are unable to meet the required capital over the period
except SCBs in 2011 and DFIs in 2007. Most of the time SCBs possessed negative capital
adequacy due to provision of shortfall, over burden expenditure and write off. The 4 SCBs also
fails to meet the capital adequacy requirement. On the other hand, FCBs acquired 20.56
percent capital to its risk weighted assets in the year of 2012 which is the highest among all.
However, FCBs achieved very strong capital adequacy percentages over the period. PCBs
dropped from 11.49 percent in the year of 2011 to 11.38 percent in 2012 which is not
satisfactory. This indicates that state owned commercial banks are in vulnerable situation
compared to private and foreign commercial banks.

6.8.2 Asset Quality

At the end of the second quarter of 2013, non-performing loans of the banking sector reached
from 8 percent in March to nearly 12 percent. Net Non-Performing Loans to total loans are
higher in state owned commercial banks (SCBs) and development financial institutions (DFIs). In
2011, net-NPLs were 0.34 and 16.95 percent in state owned commercial banks (SCBs) and
development financial institutions (DFIs) respectively whereas in 2012, the percentages stood
too high as 12.82 and 20.4 respectively. Overall net NPLs was 0.70 percent in 2011 which
increased to 4.38 percent in 2012. Increasing of NPLs means the increasing of risk on
investment. The new MPS might increase the NPLs and subsequently might be acute for the
new banks.
Year SCBs DFIs PCBs FCBs Total
2007 29.87 28.58 5.01 1.43 13.23
2008 25.44 25.45 4.44 1.9 10.79
2009 21.38 25.91 3.92 2.27 9.21
2010 15.66 24.15 3.15 2.99 7.27
2011 11.27 24.55 2.95 2.96 6.12
2012 23.87 26.77 4.58 3.53 10.03
Table 8: Gross NPLs to Total Loans Ratios by Types of Banks (in percent), Source: Bangladesh
Bank, 2013

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6.8.3 Reasons behind the Increase of NPLs
High percentage of non-performing loans in the banks generally causes credit crunch i.e.
shrinkage in credit flow from the supply side of the bank. At the same time, comparatively poor
administration, lack of transparency, week regulations, weak monitoring cell, interest rate
spread and rent seeking behaviour of the politician are also noticeable causes for increasing
NPLs. NPLs reduce banks profitability, as banks cannot take interest income from their
classified loans. It also reduces loanable funds by preventing recycling.

6.8.4 Economic Implications of NPLs

Higher non-performing loan reduces current revenue, resulting high loss of loss provision and
high cost of loan which causes low investment and decrease of economic growth. Mechanism
of the contraction of the economy for nonperforming loan:

Figure 9: Consequences of Non-performing Loan in the Economy

Only increased cost of loan is not liable for low investment demand, consecutive contractionary
monetary policy taken by Bangladesh Bank and present political turmoil are also liable. It is
obvious that NPLs reduce banks profitability, as banks cannot appropriate interest income
from their classified loans. NPLs reduce loanable funds by stopping recycling. Banks need to set
aside a portion of their income as loan loss reserve to make up bad debt. A bank with a high
percentage of NPLs suffers from erosion of the capital. All those adverse impact of NPLs on
banks financial health such as low profitability and low capital base are clearly reflected in
Bangladesh banking sector. Expenditures- incomes ratio (EIR) is the indicator of sound
management of banking sector. This are explained below by different types of banks. The

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reason behind high EI ratio of DFI and SCBs are mainly because of loan loss provision, high
administrative, overhead expenses, interest suspense for classified loan and the lack of
presence of prudential surveillance of the banking sector. Internal control system and high-
quality management contributes to lower the EIR in PCBs; on the other hand, FCBs business is
mostly based on important cities and their operating cost is low for which they have low EIR.
Types of Banks 2007 2008 2009 2010 2011

SCBs 100 89.6 75.6 80.7 62.7

DFIs 107.7 103.7 112.1 87.8 88.6
PCBs 88.8 88.4 72.6 67.6 71.7
FCBs 72.9 75.8 59 64.7 47.3
Total 90.4 87.9 72.6 70.8 68.6
Table 9: Expenditure-Income Ratio (EIR) by Type of Banks, Source: Bangladesh Bank, 2013
The gap between required provision and the provision maintained has been experiencing a
negative trend over the years since 2005, except in 2009 and 2011. In 2012, required provision
was Tk.24239 crore against the provision maintained Tk. 18977 crore results in shortfall was Tk.
5262 crore whereas in 2011, there was surplus in case of loan loss provisioning. A business as
usual projection says that in 2013, the shortfall of required provision and the provision
maintained might increase which is an alarming situation for the banks profitability.

Figure 10: Loan Loss Provisions of Banking Sector, Source: Source: Authors calculation based on
Major Economic Indicators, November 2013, Bangladesh Bank

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6.8.5 Earnings
Return on Assets (ROA) indicates the productivity of the assets i.e. how much income is earned
from per unit of assets. According to Basel-__ accord, ROA should be more than 1 percent. On
the other hand, return on Equity (ROE) is another important measure of earning and
profitability determination which indicates net income after tax to total equity. State owned
commercial banks (SCBs) have achieved nearly zero percent of ROA over the period of 2007 to
2012. The scenario is much worst in case of Development Financial Institutions (DFIs) while
most of the time ROA was less than 1 percent in 2010 to 2012. In 2012, overall ROA in the
banking sector was 0.60 percent where as it was 1.3 percent in 2011. It these trends continue
then overall ROA in the banking sector might decrease to 0.55 percent in 2013. Insignificant
profit during this period has occurred due to the worst ratio of ROA scenario in SCBs and DFIs.
The position of foreign commercial banks (FCBs) was strong enough over the whole period. The
DFIs' situation is not found better due to the operating loss incurred by Bangladesh Krishi Bank
(BKB) and Rajshahi Krishi Unnayan Bank (RAKUB).

Figure 11: Return on Assets (ROA) for all Banks (percent), Source: Bangladesh Bank, 2013
Higher value of ROE is an indication of high productivity of equity. Overall ROE in banking sector
was 14.3 percent in 2011 which reduced by 6.5 percentage points in 2012. Projection says that
if the current trend of ROE in the banking sector persists, then ROE might decrease to 6.80 in
2013. Reduction of ROE ratio in banking sector indicates that share holder profits are declining
gradually. In 2010, the position of state owned commercial banks (SCBs) was the worst among
the other types of banks and ROE of state owned commercial banks was -11.87 percent. The
negative value means huge loss in the business of SCBs. Private commercial banks (PCBs)

72
possessed a good progress of 10.17 percent in 2012. On the other hand, foreign commercial
banks
(FCBs) hold a consistent level of ROE which was 17.29 percent in 2012. DFIs were also in a
worse situation in 2010, probably due to huge provision shortfall and net loss in that year.

Figure 12: Return on Equity (ROE) for all Banks (percent), Source: Bangladesh Bank, 2013

6.8.6 Implications of Risk Management and Stress on Fiscal System

Presently, return on equity and return on assets of banking sector are low, which indicate the
low profit of the bank and this might be lesser collection of taxes since bank is the number one
source of tax under large tax unit of NBR and NBR collects the major portion of revenue from
banking sector. In addition, the revenue target might fail to achieve the revenue target since
lesser investment is witnessed from lower growth of credit.
6.8.7 Loan Classification and Provisioning
Gross and/or net non-performing assets or loans (NPA/NPL) are considered as the most
important indicators identifying problems with asset quality. Government dictated the credit
disbursement in the early years and political influence also played its part in the decision
making for sanctioning loans from the banking sector. Besides, State Owned Enterprises also
borrowed from the banking sector and these loans were never fully repaid. The privatization
process along with the financial sector reforms with globalisation necessitated further impetus
in the process of reform. The reforms should continue for a smooth functioning of the financial
market.

73
Loans that are not paid on time and are nominated as troubled assets by banks are classified
loans. Classified loans are usually issued according to terms and regulations of the bank. The
extent of default loans increased in the third quarter due to tightening the loan classification
guideline, sluggish business activities during the political uncertainty and interruption in energy
supplies. The percentage share of classified loan to total outstanding loan has been increasing
in every six year. At the end of September 2013, the percentage share of classified loan to total
outstanding loan was 12.79 percent, whereas it was 11.91 percent at the end of June, 2013. If
the trend remains as usual, the percentage share of classified loan to total outstanding might
increase to 14.21 percent at the end of December 2013.
The classified loans increased by Tk.4400 crore or 8 percent to Tk.56700 crore in the July-
September quarter from Tk.52300 crore of the April-June quarter of this year, according to
Bangladesh Bank data. The total classified loan was Tk.51000 crore in March this year, which
was Tk.29000 crore in June, 2012.The classified loans increased due to tightening the guideline.
Besides, sluggish business during the political uncertainty and lack of gas and electricity pushed
the classified loans up. According to the Financial Stability Report (FSR)-2012 brought out by
Bangladesh Bank, it seems that the classified loans in the state-owned banks are high due to
the nature of their operations (lack of efficiency in fund management, extending obligatory
financing towards social and economical priority sectors and politically motivated lending).

Figure 13: Share of Classified Loan to Total Outstanding, Source: Major Economic Indicators,
November 2013, Bangladesh Bank
Embezzlement of Hall-mark, Bismillah Group and BASIC bank has become talk of the country in
recent times. This loan scrap is alarming for our banking as well as the financial sector. A brief
description of loan scrap is given below:

74
 Name of
Amount (Taka) Name of Branch
Company Mark Tk.2,554crore
Hall
Group Ruposhi Bangla branch of Sonali Bank
Bismillah Tk.1100crore Four private banks (PrimeBank, Jamuna Bank,
Group Shahjalal Islami Bank and Premier Bank
BASIC Tk.1500crore
By Dilkusha, Gulshan and Shantinagar Branch
Bank
Table 10: Loan Scrap in Banking Sector, Source: The daily star, April, September and July 2013
Limited
6.9 Financial Reform
Financial liberalisation (FL) refers to the regulation of domestic financial markets and the
liberalisation of the capital account. It is generally believed to improve financial sector
development, which in turn, will enhance economic growth. The liberalization process began
with the privatisation of state owned enterprises in 1976 in the backdrop of a significant
deterioration of the economic condition. Formally, the financial sector reform programme was
launched in 1984 with the appointment of the national commission on money, banking and
credit (NCMBC).

6.9.1 Liberalisation of Interest Rate and Financial Inclusion

The Bangladesh Bank (BB) introduced a flexible market oriented interest rate policy in January
1990, abolishing the earlier system of centrally administered interest rate structure and
providing for sector specific concessional refinance facilities. Banks are now free to fix their
rates of interest on their deposits of different types after withdrawal of restriction about the
floor rate of interest in 1997. Banks are also free to fix their rates of interest on lending except
for export sector, which has been fixed at 7 percent per annum with effect from January 10,
2004. A high spread could also mean that the deposit rates are unusually low which discourage
savings and reduce resources available to finance bank credit. Although liberalisation held in
Bangladesh earlier but interest rate spread(IRS) did not decrease as well as lending rate is still
now so high and business persons are not capable of taking loan with high rate of interest. This
means that Bangladesh did not get the opportunity of the liberalization of rate of interest. It is
more likely that the IRS in Bangladesh is indicative of interactions of the factors: (i) high costs of

75
intermediation as a consequence of large non performing loan (NPL) (ii) practice of setting
higher than competitive deposit interest rates resulting in high lending rates and hence IRS. The
interest rate spread has seen many ups and downs in this year and in the month of October
2013, the rate was below 5 percent. But the fact is that, in April 2013, it was also seen below 5
percent and after that it increased as earlier trend. In both the case, it is seen that advances
remain relatively too high and this is the obstacle of taking loan by the business community.

Figure 14: Interest Rate Spread, Source: Major Economic Indicators, November 2013,
Bangladesh Bank
It is possible to reduce the IRS to some extent by increasing operating efficiency in the banking
sector through reducing overhead costs and the proportion of NPL could contribute in reducing
IRS and strengthening of capital market could be an alternative mode of mediating private
savings, and in this way it is possible to make the sector more competitive in the medium-to-
long run. Moreover, even after following the financial liberalization thesis for more than
decades, wide disparity exists between rural and urban communities in terms of financial
inclusion. The avowed strategy of government in promoting financial inclusion has witnessed
little realisation as private and foreign banks have made hardly any progress in setting branches
in remote and rural areas of the country though they control almost 75 per cent of the banking
sector. For example, between February 2008 and December 2012 the percentage of branches
of bank in rural areas decreased from 57.94 to 57.20 percent, whereas the share of branches of
bank in urban areas increased from 42.06 to 42.80 percent. Disparity also exists between the
level of commitment of state owned commercial banks and that of private and foreign
commercial banks. As of December 2012, for example, 63.97percent branches of state owned
commercial banks were located in rural areas, as opposed to only 38.08 percent branches of

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private commercial banks. The foreign banks have yet to establish any branch in rural areas as
of December 2012.

Figure 15: Expansion of Bank Branches in Rural Areas, Source: Bangladesh Economic Review
2008 and 2013

6.10 Conclusions
This chapter has covered the overview of the banking sector in Bangladesh.

77
Chapter Seven- Empirical Analysis and Findings

78
7.0 Introduction
Empirical data from banking sector in Bangladesh will be analysed to figure out the research
questions.

7.1 Data Analysis

The sample companies used in this study are banking companies listed on the Dhaka Stock
Exchange (DSE) in Bangladesh. As at December 31, 2015, a total of 30 banking companies were
listed on the main board of the DSE. The study is conducted on ten years data from 2006 to
2015 of the companies under study. The study primarily collected data from the published
annual reports of the company. Besides, the companieswebsites and DSE websites were the
supplementary sources of data for the study. The reason for considering data from 2006 is that
the Bangladeshi listed banking companies, in compliance with Bangladesh Banks (Central Bank)
directives, instituted audit committees and additional regulatory reforms only from 2006 and
we want to examine their impact on banks financial performance.
The dependent variable is corporate performance and twp measurements, viz., return on assets
(ROA) and return on equity (ROE) are taken into account as proxies for accounting-based
measure of performance and market-based measure of performance. All performance data
refer to the end of the respective financial years as reported in the companiesfinancial
statements. As interest expenses of a bank are considered as operating expenses, profit before
taxation has been taken into account in calculating return on assets. Similarly, a higher ROE and
a higher ROA indicate effective use of companys assets in serving shareholders economic
interests. The nature of the panel data used in this study is unbalanced since data is not
available for all the sample companies over the entire sample periods.
Variable Obs Mean Std. Dev. Min Max
B.SIZE 239 14.16318 3.99613 6 27
I.DIR 218 1.188073 1.045704 0 4
A.COM 238 3.869748 1.045307 3 8
B.MET 201 18.73134 6.851092 5 40
DER 242 12.43476 15.04883 1 230.9772
GPO 235 .409381 .2009804 0 .95765
FIO 217 .144972 .1159217 0 .6458
ROE 258 .1636377 .1105189 -1.0495 .4896
ROA 258 .0156629 .0226914 -.13583 .237
Table-11: Descriptive Statistics: 2006-2015

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Notes: The sample contains 10 Bangladeshi listed banking companies over the period 2006-2015. B.SIZE = number
of board members, I.DIR =number of independent directors, A.COM = number of members in audit committee,
B.MET = number of board committee meetings, DER = debt-equity ratio (in times), GPO = general public ownership
(in percentage), FIO = financial institutional ownership (in percentage), ROE= return on shareholders equity (in
percentage), ROA = return on total assets (in percentage).

Table-11 presents summary statistics for the key variables used in this study over the period
2006 to 2015. There is a wide variation in corporate governance and financial performance
measures across the banking companies. The average value of ROA and ROE are 1.57%, 16.36%
and respectively, indicating consistent increase in accounting as well as market return in
Bangladeshi listed banking sector. The average board size is 14.16, which is more or less within
the size as recommended by Bangladesh Bank but still the number is high in at least 25 percent
companies. As per rule, the maximum number of board members will be 13, however, where
the number of directors is more than this number, shall be allowed to complete their present
tenure of office. The number of independent directors, on an average is 1.19 ranging from 0 to
4, suggesting that there are some companies where there is even no independent director at all
in their board; although, SEC rules recommend maintaining at least one-tenth of the total or
minimum one independent director in every company. The average number of audit committee
member is 3.87. It is said that the directors are businessmen having directorships in at least 5
other multi-faceted companies. The same trend is observed while surveying annual reports for
this study.
In respect of ownership, the average value of institutional ownership is 14.5%, indicating poor
holdings suggesting negligible voting power in selecting directors in the board. The average
proportion of general public ownership is 40.94% and standard deviation is 20.1%, indicating
defuse ownership pattern among the general public who hold lesser proportion of ownership in
most of the companies.
On an average, the board members meet 18.73 times per year; however, there are no
companies that do not hold any board meeting. The overall mean for debt-equity ratio is 15.05,
indicating that the investment of depositors and creditors in the banking business is on an
average 15.05 times as much as the investment of the shareholders. It also implies that in every

80
Taka of assets in the business, the depositors and creditors claim is fifteen times larger than the
common shareholder.
| B.SIZE I.DIR A.COM B.MET DER GPO FIO ROE ROA
B.SIZE |1.0000
I.DIR |-0.0434 1.0000
A.COM |0.2218* 0.3126* 1.0000
B.MET |0.0519 0.1318 0.0902 1.0000
DER |-0.1701* 0.1790* -0.0288 -0.2025* 1.0000
GPO |0.045 -0.0332 -0.0882 0.1208 -0.1936* 1.0000
FIO |0.1073 0.0884 0.1271 0.0505 -0.1608* -0.1558* 1.0000
ROE |0.0926 -0.1418* -0.1704* -0.2073* 0.1716* 0.0342 0.0203 1.0000
ROA |0.1073 -0.1172 -0.1153 -0.0647 -0.0689 0.1200 0.0276 0.5373* 1.0000

Table-12: Correlation Matrix: 2006-2015, Notes: *indicates 5% level of significance.

Table 12 shows the pair-wise correlation matrix for the variables reported in this study. This
correlation matrix examines the pattern of relationships between the variables under
consideration. Among the independent variables, the coefficients of correlation between
A.COM and I.DIR (0.3126), and between ROA and ROE (0.5373) are higher than the co-efficient
of correlation between other corporate attributes but did not reach beyond 0.80 in any way.
One of the suggested rule of thumb for multicollinearity test is that if the pair-wise or zero-
order correlation coefficient between two repressors is high, say, in excess of 0.8, then
multicollinearity is a serious problem. The estimated pair-wise correlation coefficient is less
than 0.73 and thus the explanatory variables are unlikely to have multicollinearity problems.
7.2 Empirical results
Table 13, 14 and 15 summarizes dynamic panel regression results of 26 Bangladeshi listed
banking companies, for the dependent variables, return on assets (ROA) and return on
Shareholders equity (ROE) respectively.
Equation Obs Parms RMSE "R -sq" F p
ROA 161 8 .0280054 0.0594 1.380394 0.2174
ROE 161 8 .1199524 0.1207 3.001523 0.0056
Table 13: Regression Analysis
Table 13 shows that the model 1 and model 2 has explanatory power of 5.94 and 12.07
respectively. The panel regression models explains 5.94 percent and 12.07 percent of the
variation of profits (ROA) and (ROE) of Bangladesh banking industry by the seven explanatory

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variables such as No. of Board Members (B.SIZE), No. of independent directors (I.DIR), No. of
members of audit committee (A.COM), No. of board meeting held in this year (B.MET), debt
equity ratio (DER), general public ownership (GPO) and financial institutional ownership (FIO).
Coef. Std. Err. t P>|t| [95% Conf. Interval]
B.SIZE .1057196 .0760581 1.39 0.167 -.0445401 . .2559792
I.DIR -.0013102 .0022379 -0.59 0.559 -.0057314 .003111
A.COM -.0041502 .0024343 -1.70 0.090 -.0089595 . .000659
B.MET -.0002063 .0003421 -0.60 0.548 -.0008822 .0004697
DER -.0000378 .0005024 -0.08 0.940 -.0010304 .0009548
GPO .0166086 .0115694 1.44 0.153 -.0062478 .0394649
FIO .0094509 . .0194309 0.49 0.627 -.0289366 .0478384
_cons .0142022 .0177573 0.80 0.425 -.020879 .0492834
Table 14: Regression Coefficients (Considering ROA as dependent variable)
Coef. Std. Err. t P>|t| [95% Conf. Interval]
B.SIZE .00597 .0030025 . 1.99 0.049 .0000384 .0119016
I.DIR -.0076314 .0095854 -0.80 0.427 -.0265683 .0113055
A.COM -.0213413 .0104267 -2.05 0.042 -.0419401 -.0007425
B.MET -.0029259 .0014655 -2.00 0.048 -.005821 -.0000307
DER .0041417 .0021521 1.92 0.056 -.0001099 .0083933
GPO .1079583 .0495538 2.18 0.031 .0100603 .2058564
FIO .1442154 .0832263 . 1.73 . 0.085 -.0202057 .3086365
_cons .1057196 .0760581 1.39 0.167 . -.0445401 .2559792
Table 15: Regression Coefficients (Considering ROE as dependent variable)
Board members are found to have positive and significant influence on bank performance
measured by ROE; the relationship becomes significant and positive. The effect remains
positive but insignificant while banks performance is measured by ROA. These results are not
consistent with the findings of earlier studies who suggest that the market perceives larger
boards as ineffective as they tend to be symbolic rather than being part of the actual
management process.
The board composition variable number of independent director (I.DIR) is turned up to be
significant while bank performance is measured by ROE. However, the estimated coefficients of
IND are found to be consistently negative and significant at least at 5% level, implying that
independent directors dont help Bangladeshi listed banks to improve their performance. This

82
results is not consistent with earlier argument that independent directors protects interests of
minority shareholders against both the CEOs and the block holders actions.
Among the ownership structure variables, general public ownership (GPO) on bank
performance shows significant and positive effect on bank performance.
The estimated coefficients of the number of audit committee meetings are consistently
negative and significant at 5% level for ROE, implying that increasing number of audit
committee members not could significantly raise Bangladeshi banks performance. On average,
each additional member of audit committee could decrease annual ROE of listed banks by
approximately 0.02%. This result is inconsistent with the findings of earlier studies who argue
that audit committees improve firms performance by providing better financial reporting to
control firms financial risk. Therefore, firms that do not comply with audit committee
recommendations may face serious financial irregularities and corporate failures.
The coefficient of variable financial leverage (measured by debt-equity ratio, DER) is found to
have insignificant positive effects on Bangladeshi banks when their performances are measured
by ROA and ROE. Ultimately the average rate of return on assets (1.57%) is very negligible due
to this non-performing asset against higher rate of return on equity (16.36%) that is the effect
of high degree of trading on equity.
Tobins Q: In this study Tobins Q represents the ratio of the market value of a firm share capital
to the replacement cost of the firm's share capital. The numerator of the ratio is the market
valuation means the market value of a firm's outstanding shares. The denominator of the ratio
is the replacement cost means the book value of the equity.
SL No Name 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1 AB Bank 1.98 2.19 2.32 4.49 4.12 1.68 0.92 0.77 0.88 0.72
2 Al-Arafah Islami 1.76 1.82 2.97 6.28 7.74 2.32 1.39 1.10 0.85 0.79
3 Bank Asia 1.27 1.53 1.84 3.01 3.84 1.74 1.34 1.14 0.92 0.88
4 Brac Bank 0.88 1.25 1.97 2.61 4.48 2.65 1.98 1.43 1.04 0.88
5 City Bank 1.32 1.76 2.32 3.65 4.34 1.87 1.38 1.06 0.94 0.86
6 DBBL 2.39 2.55 2.61 4.48 5.13 3.61 1.81 1.66 1.46 1.34
7 Dhaka Bank 1.39 1.48 1.52 2.56 3.08 1.73 1.18 0.86 0.82 0.88
8 Eastern Bank 1.14 1.26 1.34 2.36 3.08 2.04 1.12 0.96 0.83 0.79

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9 EXIM Bank 1.21 1.43 1.76 3.85 4.32 2.21 1.85 1.43 0.88 0.82
10 FSIBL 1.32 1.76 2.01 3.98 4.78 1.76 1.45 1.04 0.95 0.88
11 IBBL 1.47 1.52 2.23 3.86 4.76 2.98 2.04 1.97 1.17 1.02
12 ICB Islami Bank 1.43 1.65 1.98 3.56 4.79 2.32 1.74 1.23 0.98 0.88
13 IFIC Bank 1.32 1.65 2.01 4.05 4.76 2.32 1.56 1.23 1.02 0.98
14 Jamuna Bank 1.45 1.98 2.65 4.07 5.87 2.03 1.98 1.67 1.03 0.98
15 Mercantile 1.41 1.46 1.58 2.51 3.29 1.78 1.06 0.87 0.75 0.72
Bank
16 Mutul Trust 1.23 1.25 1.97 4.08 5.54 1.98 1.23 1.04 0.88 0.76
17 National Bank 1.87 2.03 2.65 4.76 5.54 1.78 1.65 1.38 0.98 0.86
18 NCC Bank 1.02 1.23 1.76 3.98 5.54 1.87 1.23 1.06 0.98 0.85
19 One Bank 1.02 1.23 1.76 3.98 5.54 1.87 1.23 1.06 0.98 0.85
20 Premier Bank 1.76 1.98 2.32 4.67 5.45 1.89 1.65 1.37 0.97 0.89
21 Prime Bank 1.47 1.77 1.65 2.54 3.23 1.81 1.67 1.16 0.82 0.84
22 Pubali Bank 1.23 1.54 1.76 4.34 4.97 1.54 1.34 1.32 0.97 0.78
23 Rupali Bank 1.34 1.57 1.98 3.97 4.76 1.87 1.65 1.24 0.88 0.78
24 Shahjalal Islami 1.04 1.25 1.97 3.87 5.01 2.04 1.98 1.34 0.88 0.78
25 SIBL 1.37 1.53 1.76 4.04 5.54 2.03 1.65 1.24 0.88 0.86
26 Sounth Esat 1.04 1.18 1.24 2.98 3.52 2.14 1.97 1.21 0.84 0.78
27 Standard Bank 1.32 1.65 1.87 3.97 4.64 1.87 1.46 1.04 0.98 0.88
28 Trust Bank 1.63 1.97 2.38 3.99 4.98 1.67 1.45 1.04 0.87 0.78
29 UCBL 1.23 1.54 2.34 4.32 5.12 2.23 1.78 1.47 0.98 0.88
30 Uttara Bank 1.23 1.76 2.01 3.97 4.76 1.78 1.56 1.04 0.98 0.88
Average 1.38 1.63 2.02 3.83 4.75 2.05 1.54 1.21 0.95 0.86
Table 16: Calculation of the Tobins Q Ratio, Source: Annual Reports of the Sampling Banks

From the table-16 it is found that the value of Tobins Q of the all banks is gradually decreasing
over the last few years. The value of Tobins Q of AB Bank Limited (ABL) has a decreasing trend
from 4.12 to below 01 (0.88) over the last three years. The value of Tobins Q of DBL, EBL and
MBL has been decreasing bellow one (01) from the last two years.

The value of Tobins Q of PBL and AAIBL has been decreasing below one (01) from the year
2014. Though the value of Tobins Q of DBBL is decreasing gradually, the value of Tobins Q of
this bank is greater than one (01). The value of Tobins Q of all sample banks fell drastically from

84
the year 2010 to the year 2011 as share market has been crashed in those years. As a result, the
average value of Tobins Q of banking industry also fell drastically from the year 2010 to the
year 2011. Stock is overvalued when Tobins Q greater than one (Q>1) means that the market
value is higher than the company's stated book value. The stock is undervalued when Tobins Q
less than one (Q<1) means the market value is lower than the company's stated book value.
Again, Stock is fairly valued when Tobins Q equal to one (Q=1) means the market value
reflected solely the recorded assets of a company.

5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 16: Trend of the Tobins Q of banking Industry

Again, the average value of Tobins Q of the banking industry is also decreasing and average
value of Tobins Q of the banking industry is lower than one in the year 2014 and 2015. So, the
average stock value of the banking industry is moving from overvalued to undervalue gradually.
Though the average stock value of the banking industry is overvalued in the years 2006 to 2013,
the average stock value of the banking industry is undervalued in the year 2014 and 2015. The
value of Tobins Q of all sampling banks fell drastically from the year 2010 to the year 2011 as
share market has been crashed in those years. As a result, the average value of Tobins Q of
banking industry also fell drastically from the year 2010 to the year 2011. So, the value of the
share fell drastically from the year 2010 to the year 2011. Due to the share market collapse in
2010-2011, the investors have lost confidence regarding share market till now. The study found

85
that the value of Tobins Q of the all banks is gradually decreasing means moving the value of
the stock from overvalued to undervalue. To an investor this value implies that the market
value is lower than the company's stated book value. In other words, the market is selling the
companys assets less than its stated book value. So, the market value is below the cost of its
assets.

7.3 Conclusions
Empirical data from banking sector in Bangladesh has been analysed to figure out the research
questions in the above chapter. The findings have also been compared with the previous
studies to assess the corporate governance.

86
Chapter Eight- Recommendations

87
8.0 Introduction
This chapter will cover some valuable recommendations regarding the corporate governance
practices in the banking sector in Bangladesh.

8.1 Recommendations for Banks

8.1.1 Commitment to Good CG Practices
As CG practices are not familiar to all, banks should initiate massive awareness campaign (e.g.
Seminar, workshops etc.) Highlighting the meaning and the business case of good CG and Also,
to identify solutions to overcome the barriers of implementing good CG practices. Banks can
form partnership with various research and training institute.
_ Ultimate responsibility for ensuring CG lies with the board of banks. Banks can therefore
Delegate or appoint someone with formal responsibility to ensure good CG practices within the
banks.
_ Despite the facts that the regulators have provided a guideline on CG, the guidelines are more
general and basic in nature. Bank should develop its own code of CG to ensure that they are in
line with international best practices. In addition, code of ethics and board Charter serves very
important documents for ensuring good CG, and banks in Bangladesh Can think of developing
such documents in the long run.
_ Regular interaction between the chairman and the CEO of the banks on CG compliance and
Developments can establish a CG culture within the banks and this might give a direction to
others to facilitate the CG reform process in the banks.

8.1.2 Good Board Practices

_ Although the functions of the board are in major cases in line with best practices, certain
Areas need to be given special attentions. For example, board plays a minor role in Overseeing
and managing the risk management and internal audit function of the banks. Board members
also have limited information about how the banks manage the risk and Conduct the internal
audit. Therefore, board should consider overseeing these functions to ensure the best interests
of the stakeholders in greater detail. Succession planning is another area where the directors
should look into in future to ensure the smooth operations of the banks.

88
_ The board structure in Bangladesh is unitary and there is lack of consensus in different laws
regarding the number of members who can sit in the board. The company act requires that the
Board should have at least 3 members, whereas SEC has a range of 5 to 20 members. Revised
Bank Company Act included 13 members as the maximum board size and 6 years term limit for
the directors. However, since the approval process of the Act is delayed, banks have the Power
to appoint more than 15 members, a regular practice at this moment. In addition, there is no
provision for the number of positions one person can hold at different banks and directors are
not liable to disclose their involvement. This gives an opportunity to a Single person to sit on
many boards in Banks. Bangladesh Bank also published the fit and proper test criteria for both
the directors and senior management of the banks, however, Proper implementation is a big
challenge. It was also observed in some banks that more Than 2 members belong to same
family or relatives. Banks in Bangladesh should constitute their board with an appropriate mix
of skills and experience and should think of balancing the board with young and female
representation.
_ One of the requisite actions of SECs guideline on CG is that the banks should have at least
One Independent Director (ID) in the board. While a number of banks have not yet
Incorporated ID into its board, the independence of some existing independent directors has
also raised a debate among the stakeholders. Besides, perception of having ID into the board is
still in elementary stage. Awareness on the benefits of having ID into the board is of utmost
importance and bank should perceive that appointing ID will certainly add value and might
provide greater access to capital.
_ Although all the banks in this survey has audit committees of the board, the role of
committee are not in line with international best practices. Also, most of the audit committees
are composed of non-executive directors and in major cases are not the independent directors.
Banks should encourage audit committees' members to understand the role of the committees
and should provide proper incentives. In this regard, international guidelines/principles on CG
can serve as a reference document for knowing the role of audit committees. In addition, an
independent director should be appointed to lead the committees who can provide his or her
independent judgment for the best interest of the banks stakeholders.

89
_ Most of the banks do not have either nomination/CG or remuneration committees. For the
banks to become the leader in the industry and remain sustainable, both remuneration and CG
committee should be established.
_ Regular board meeting provides an important platform to the directors to set the strategy
and monitor the legal and regulatory compliance and policy implementation. Frequency of
board meetings in banks is in line with best practices; however, there are certain areas that
need to be improved for an effective board meeting e.g. the status of the timing and type of
documents shared with the board members before the board meetings. Bank should inform the
board members well in advance and circulate the agenda and the issues to be discussed at the
meeting so that the members can prepare themselves to actively take part in the discussions.
The role of corporate secretary is of utmost importance and needs to be further enhanced.
_ The position of chairman of the board and CEO/MD is separated by the regulations; however,
in some cases the board intervened in the day-to-days activities of the management.
Therefore, boards should emphasize more on developing strategy and policy framework for the
banks, and monitor the compliance of those policies and empower the day-to-day management
decisions to the management.
_ Board members receive fees for attending the board meeting and chairing different
committees. The maximum amount is set by the regulators, which is considered to be lowest
among the region and this brings a very little motivation for the directors to give their full time
and commitment in setting strategy and guiding the banks. Therefore, performance based
remuneration should be incorporated in the banks and remuneration policy for both the
directors and managements should be developed and shared with stakeholders.
_ Majority of the banks conduct performance evaluation at the management level in line with
best practices. However, the evaluation of the members of the board and the board as a whole
is not a common phenomenon in Bangladesh. Banks should initiate performance evaluation of
the board to ensure that the board achieve its purposes and are best able to protect the
interest of the stakeholders. Self evaluation of the board can be a starting point for the board
to evaluate its performance.

90
_ Although most of the banks consider CG practices as very important for banking business,
majority of the banks does not organize training programme on various aspects of good CG
practices for its directors. In addition, orientation programme to the members of the board is a
rare example. Bank should consider organizing seminars, workshops sessions on CG for its
board members and also, should arrange orientation sessions for the new members.

8.1.3 Strong Control Environment and Processes

_ Banks' long term sustainability largely depends on how the banks manage its core risks,
control the internal environment, and conducting factual internal and external audit. For
ensuring this, the role of management is as important as the role of board. Although a large
number of banks have risk management committees at the management level, board should
establish its own risk management committee, develop risk management policy in consultation
with management to oversee and guide the management for managing risks efficiently. The
board should also give enough time to ensure proper alignment of banks strategy with risk-
appetite and internal risk management structure. The risk management policy should also be
disclosed to ensure accountability and transparency, internal control and internal audit of the
banks.
_ Function and reporting relations of the risk management functions, internal control and audit
function should also be streamlined since some banks have multiple relationships and
sometimes not in line with best practices. For example, best practices call for management to
design and execute and the board to oversee the control function.
_ Since auditor rotation is mandatory for the banks in every three years, banks should consider
the quality of the audit instead of just changing the firms and should think of partnering with
firm with international audit experience. External auditors in any cases should not be given any
opportunity to perform services other than audit.

8.1.4 Strengthening transparency and disclosure

_ Banks should disclose both the financial and relevant non-financial information into its
website to facilitate the stakeholders e.g. supervisor, shareholders, media, researchers to have
an access to banks information.

91
_ The annual report of the banks serves as the most comprehensive documents of the banks
and shared with a wide range of stakeholders. Therefore, in addition to covering the financial
information of the company, the annual report should also include relevant nonfinancial
information for example, dividend policy, remuneration policy, policy on CSR and CSR practices,
risk management framework and policy, ownership structure, board charter, shareholders
rights protection among others.
_ Banks disclosure policy should be shared and approved by the shareholders in AGM.
Disclosure should be done on time and should provide accurate picture of the banks.
_ Banks should accelerate the pace of implementing the international accounting standards i.e.
IFRS.

8.1.5 Protecting the shareholders right

_ Shareholders have the right to elect and dismiss directors of the banks but the nomination
Process is not very transparent. Before seeking approval from the shareholders, directors Skills,
qualifications, and experience should be shared with the shareholders to ensure that they know
the people who are running their banks. Recent development on appointing directors from the
shareholders to protect the interest is an excellent initiative to protect shareholders right,
however, the process of selecting the directors need to be further scrutinized.
_ Shareholders' (including the minority shareholders) rights are protected in law. However,
because of the ownership concentration with small groups own or control the majority of
share, shareholders voice in most cases not often heard. Also, proper implementation of the
regulations is a big challenge. Banks should develop a Shareholder Handbook highlighting the
rights and responsibilities of the shareholders and share the book with each and every
shareholder. The handbook should cover information such as classes of shares, rights of the
shareholders including the minority shareholders, general meetings objective and procedures,
areas where shareholders approve certain decisions of the banks, and role of regulators in
protecting the shareholders rights among others.
_ Shareholder participation at the Annual General Meeting is relatively low. Bank should inform
the shareholders through proper channels (e.g. both electronic and print media), giving enough
time so that shareholders can attend the meeting. Shareholders should also be allowed to vote

92
electronically and in advance if they are unable to attend the AGM in addition to existing voting
practices by showing-of-hands or in proxy.
_ Banks can establish a shareholder desk at its own premises to receive feedback, suggestions
or even grievances. They should also take action on the feedback from shareholders and
communicate the actions to the shareholders. Bank can also arrange seminars to hear the voice
of the shareholders.
_ Banks should develop Related Party Transaction (RTPs) policy and should share it with
shareholders for approval. Banks should develop dividend policy and should share the policy
with shareholders in addition to providing timely dividend.
_ To promote shareholder activism, an autonomous institute can be established.

8.1.6 Improving clients CG practices

_ Being the largest source of finance for the business sectors in Bangladesh, Banks should play a
leadership role in promoting CG practices among its clients. Banks should include clients CG
assessment as key criterion and should give proper weight for its credit decision.
_ Banks should periodically review the CG practices of its clients and should provide feedback to
improve clients CG practices.
_ Banks should arrange incentive programmes for clients who have showed significant
improvements in CG practices. For example, banks can arrange award programmes for clients
with best CG compliance and share this information with other clients to improve the CG
culture amongst its clients.
8.2 Recommendations for Role of Other stakeholders
Ensuring good CG practices is a challenging task and is rewarding in the long run as well. The
role of banks is as important as the role of other stakeholders in establishing an effective CG
framework in the banking sectors. In addition to the above mentioned recommendations,
establishing a good CG culture also demands that the others stakeholders should also play an
effective role.

8.2.1Government and regulators

(e.g. Bangladesh Bank (BB), Securities and Exchange Commission (SEC), and relevant ministries).
_ Both BB and SEC should revise their CG guidelines and include internationally

93
acknowledged principles and guidelines.
_ Rules regarding the size of the board and eligibility of the directors are highlighted in the
Company Act 1994, fit and proper test criteria of Bangladesh Bank and the guidelines on CG
issues by the SEC. Regulators should work together to streamline these regulations.
_ BB should provide request banks to establish nomination and remuneration committees at
the banks to ensure the transparency of directors nomination process and remuneration
structure.
_ BB should motivate the government to pass the revised bank company act and to accelerate
the process of establishing the Financial Reporting Council. In addition, they should also
strengthen its monitoring of CG compliance of the banks.
_ BB should organize a global conference on CG in Bangladesh with presence from the global
leaders on CG to share the international best practices and developments around the world.
_ BB should also collaborate with other central banks in the region to explore a certification
programme for the directors through which bank directors of one country are eligible to sit to
the board of others country. This will motivate the directors towards CG education.
_ BB should initiate regular discussions with the banks on the business case of good CG
practices. They should also offer technical assistance.
_ Although SEC has instructed to make video recording mandatory, the effectiveness of these
remains a challenge. SEC can send representatives to oversee the AGM of the banks.
_ Local Credit rating firms should be requested to form partnership with firms with
international experience.
_ Full autonomy to the important regulators especially the BB and the SEC should be given to
set the tone at the policy level.

8.2.2 Shareholders
Being the owners of the company should dedicate time to learn the international CG best
practices and consider CG for investment decisions. Shareholders can establish a platform
where they can raise their voice in a coordinated way and should continue to pressurize the
banks to disclose the financial, operational and governance information. They should also act
constructively in raising their voice.

94
8.2.3 Stock Exchange
(DSE, CSE)-can form partnership with other regional and international stock exchanges to learn
and share the best CG practices. With recent entry to some large mutual funds, and proposal to
offload shares of some state-owned enterprises, stock exchanges should expand its operation
and accelerate its investors awareness programme on a wide scale.

8.2.4 Chartered Accountants Bodies

(ICAB & ICMAB)ICAB has recently partnered with ICAEW to update its curriculum for the
chartered accountants in Bangladesh. They should also provide international training on the
role of auditor, ethics in auditing and due diligence etc among others to ensure proper
disclosure of both financial and non-financial information of the Banks. There are only four
audit firms with international affiliations. ICAB should encourage other audit firms to form
partnership with international audit firms to ensure best practices.

8.2.5 Institutional Investors

Institutional Investors can act as a pressure group for implementing CG in banks. They should
consider good CG practices as investment decisions.

8.2.6 Credit Rating Agencies

Role of Credit rating agencies is particularly important for knowing the governance status of the
Banks. Although it is challenging to codify the CG status, they should consider going beyond the
number while rating the banks and incorporate the qualitative information on CG as much as
possible. They can develop certain criteria and can include certain points on CG compliance in
their credit rating.

8.2.7 Banking Associations

Two associations (Bangladesh Associations of Banks-owners and associations of Bankers
Bangladesh- CEOs/MDs) should arrange regular dialogue with key stakeholders to share the
developments, challenges for ensuring CG practices within the banking sectors. They should
also engage in conducting comprehensive research and can form partnership with other
training institutes to provide training on CG issues for both the members of the Board and the
senior management officials.

95
8.2.8 Researchers & Academics
Researchers & Academics should continue to identify and explore the areas of improvements
and provide priority based suggestions to improve the CG practices. In addition, they can share
the CG developments and best practices with a wide group of stakeholders.

8.2.9 Media
Role of media in promoting CG practices through sharing CG developments, writing success and
failure stories etc. are crucial for establishing a good CG culture. Media should investigate the
financial, operational and governance practices and should report to publish the information.

8.2.10 International Organizations promoting CG

International Organizations can provide technical assistance as well as share the best practices
with a cross range of stakeholders to promote CG practices. They can form partnership with
local institutes to provide training on various aspects of good corporate governance to the
board members, senior managements and media people.
8.3 Conclusions
The above recommendations have been provided by the researcher for the good corporate
governance in the banking sector in Bangladesh

96
Chapter Nine-Conclusions

97
9.0 Conclusions
The study investigates the extent of compliance with the statutory norms and guidelines
relating to corporate governance and the influence of corporate governance mechanisms on
financial performance of the 30 listed banking companies in Bangladesh. Accounting based
measures such as ROA and ROE are used to measure the financial performance of these
banking companies over the period 2006-2015. Estimated results in this study confirm a
significant negative association between number of independent directors and Bangladeshi
banks financial performance.
The results indicate that a good number of companies complies 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) they are implying remarkable shortfall in corporate governance practice in Bangladeshi
banking sector. The board is seen to have been prevalently dominated by the outside non-
independent directors having multiple directorships and the companies are actually run by the
independent managers having no duality and no ownership interest. The rate of return on
shareholders equity is constantly much higher. The debt equity ratio is gradually decreasing
due to decreasing rate of interest on depositors investments in banks.
In this study, various aspects of rules and regulations of corporate governance, its practices and
the influences on the companies performance in the banking sector in Bangladesh have been
examined and analyzed. Based on the analysis, certain findings have come out and some
suggestions have been put forward to improve the situation prevailing in the arena of
corporate governance and practices. This study makes several contributes to the growing
literature on corporate governance. There are few studies regarding corporate governance
mechanisms and companies performance in developing countries. Very few such studies can
be found in the context of financial sector in Bangladesh. From this perspective, the study has
immense value to the planners and regulators. The study will provide additional support for the
view that while much emphasis on corporate governance mechanisms is necessary to safeguard
the interest of stakeholders, good corporate governance on its own cannot make a company
successful. Companies need to balance corporate governance structure with key drivers of

98
performance by taking and implementing strategic decision and risk management with the
efficient utilization of organizations resources.
Using different alternative performance measures this study empirically finds that a very few
governance variables have significant positive effects on financial performances of Bangladeshi
banking companies. The results in the context of developing countries that corporate
governance of an organization ensure conformance but does not directly ensure performance,
rather helps to achieve performance. Good corporate governance with the goal of providing
strategic plan and effective risk management and efficient utilization of organizations
resources can achieve performance.

99
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Appendices
Appendix 1: List of Relevant Laws and Regulations in Bangladesh
Accountants
Chartered Accountants Ordinance, 1961 (Ordinance No.X of 1961)
Bangladesh Chartered Accountants Order, 1973 (P.O.42No.2 of 1973)
Cost and Management Accountants Ordinance, 1977 (Ordinance No.LIII of 1977)
SEC Order No. SEC/CFD-71/2001/Admin/08 dated 28 March 2001
SEC Order No. SEC/CFD-71/2001/Admin/02/05 dated 3 January 2002
Bangladesh Bank circular on auditors
Banks and Financial Institutions
Bangladesh Bank Order, 1972 (P.O. No.127 of 1972)
Bangladesh Banks (Nationalisation) Order, 1972 (P.O. No.26 of 1972) as amended by
Bangladesh Banks (Nationalisation) (Amendment) Ordinance, 1977 (Ordinance No.28 of 1977)
Bank Company Act, 1991 (Act No.XIV of 1991), as amended in 1991, 1993, 1995, 1997, 1999
and 2001
Financial Institutions Act, 1993 (Act No.XXVII of 1993) 44
Financial Institutions Regulations Rules 1994
Foreign Exchange Regulation Act, 1947 (Act No.VIII of 1947)
Money Laundering Prevention Act 2002 (Act No.VII of 2002)
Negotiable Instruments Act, 1881 (Act No.XXVI of 1881)
Negotiable Instruments (Amendment) Act, 1994 (Act No.XIX of 1994)
Bankruptcy
Bankruptcy Act, 1997 (Act No.X of 1997)
Bankruptcy Rules, 1997
Company
Companies (Foreign Interests) Act, 1918 (Act No.XX of 1918)
Undesirable Companies (Second) Ordinance, 1958 (Ordinance No.XLIX of 1958)
Companies Act, 1994 (Act No. XVIII of 1994)
Debt Recovery Court
Artha Rin Adalat Ain [Money Loan Court Act], 1990 (Act No. IV of 1990)

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 Artha Rin Adalat Bidhan [Money Loan Court Rules], 1990
Insurance
Insurance Act, 1938 (Act No.IV of 1938) as amended by Insurance (Amendment) Act, 1990
(Act No. XXVI of 1990) and Insurance (Amendment) Act, 1993 (Act No.XII of 1993)
Insurance Rules 1958 (as amended by SRO No. 201-Law/2002 dated 22 July 2002)
Insurance Corporations Act, 1973 (Act No.IV of 1973) as amended by Insurance Corporations
(Amendment) Ordinance, 1984 (Ordinance No.LI of 1984) and Insurance Corporations
(Amendment) Act, 1990 (Act No.XXIX of 1990)
Securities
Securities Act, 1920 (Act No.X of 1920)
Securities and Exchange Ordinance, 1969 (Ordinance No.XVII of 1969)
Securities and Exchange Ordinance (Amendment) Act 2000 [Amendment of Ordinance No.
XVII of 1969]
Securities and Exchange Commission Act, 1993 (Act No. XV of 1993)
Securities and Exchange Commission (Amendment) Act) 2000 *Amendment of Act No.XV of
1993]
Securities and Exchange Rules 1987 dated 28 Sep 1987 (SRO 237-L/87)
Securities and Exchange (Amendment) Rules 1987 dated 15 Dec 1999 (Notification
No.SEC/SMED/98-551/1560)
Securities and Exchange (Amendment) Rules 1987 dated 4 Jan 2000 (Notification
No.SEC/LSD/SER-1987/149)
Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Regulations
dated 24 Apr 1996 (SRO 59-Law/96)
Eligibility of Merchant Banker and Portfolio Manager (Notification) dated 24 Apr 1996
(Notification No.SEC/Section-7/Law/94-4/115)
Capital Sufficiency of Merchant Banker and Portfolio Manager dated 24 Apr 1996 (Notification
No.SEC/Section-7/Law/94-4/1140)
Securities and Exchange Commission (Stock-Dealer, Stock-Broker and Authorised
Representatives) Rules 2000

104
 Guidelines on Foreign Placement or Allotment of Securities dated 11 Feb 1995 (Notification
No.SEC/Section-7/95-23)
Guidelines on Initial Public Offering to Local Investors dated 8 Feb 1995 (Notification
No.SEC/Section-7/95-22)
Guidelines for Raising of Capital by Greenfield Public Companies dated 13 Jun 1995
(Notification No.SEC/Section-7/95-28)
Credit Rating Companies Rules, 1996 dated 24 Jun 1996 (Notification No.SEC/Section-7/117)
as amended by vide Notification No. SEC/SRMID/2001-1018/Admin-03/02 dated 27 September
2001
Securities and Exchange Commission (Mutual Fund) Rules 2001
Public Issue Rules, 1998 dated 3 Jan 1999 (Notification No.SEC/Sec.7/P/R-98/140)
Rights Issue Rules, 1998 dated 27 Jul 1998 (Notification No.SEC/Section-7/RIR-98/137)
Depository Act 1999 (Act No.6 of 1999)
Depositories Regulations, 1999
Margin Rules, 1999 dated 28 Apr 1999 (Notification No.SEC/Section-5/98-542/141)
Members Margin Regulations 2000
Listing Regulations of the Dhaka Stock Exchange, dated 18 Feb 1997 (Notification
No.SEC/Member- II)
Settlement of Stock Exchange Transaction Regulations, 1998 dated 24 May 1998 (Notification
No.DSE-343/97/910), as amended from time to time
DSE Protection Fund Regulations, 1999 dated 7 Dec 1999
SEC (Acquisition of Substantial Shares, Merger & Take-over) Rules 2002
Automated Trading Regulations 1999
Investors Protection Fund Regulations 1999
SEC (Market Maker) Rules 2000
SEC (Capital Issue of Public Limited Company) Rules 2001
SEC (OTC) Rules 2001
SEC Notification No. SEC/CMRRCD/2001-14/Admin/03/06 dated August 01, 2002

105
 SEC order of 8 October 2002 (on Lock-in on Foreign Sponsors/Placement Shares and
mandatory investing through Portfolio Accounts)
Appendix 2: Forms to be submitted to the RJSC and Other Bodies
Section 15: Certified copy of the order confirming the alteration of Memorandum within 90
days to the RJSC. The alteration is of no effect till registration with the RJSC and if not dont
within the time limit at the expiration of that period the alteration becomes null and void.
Section 36 & 190: Copy of annual list of shareholders and summary of share capital within 21
days to the RJSC. If a company is in default of this it is liable to be fined not exceeding two
hundred taka for everyday.
Section 44: Notice to RJSC for rectification of register of members within 15 days.
Section 53: Notice for change in the structure of share capital to the RJSC within 15 days.
Section 54: Notice for consolidation of shares or stock to the RJSC within 15 days. Fine: not
exceeding two hundred taka.
Section 56: Notice for increase in share capital to the RJSC within 15 days. Fine: not exceeding
two hundred taka.
Section 71(5): Notice for court order on variation of shareholder rights within 15 days. Fine: not
exceeding two hundred taka.
Section 88: Return of copies of special or extraordinary resolution to the RJSC within 15 days.
Fine: not exceeding one hundred taka.
Section 92(1): Consent of directors to act as such cannot act as director till he has filed such
consent with the RJSC.
Section 93(2): A person cannot act as a director unless he has filed to the RJSC a consent to act
as such within 30 days of his appointment.
Section 115(2): Return of change in directorship within 14 days of such change to the RJSC.
Section 138: Copy of prospectus signed by the directors on or before publication to the RJSC
Fine: not exceeding five thousand taka.
Section 150: filing of verified declaration or statement in lieu of prospectus before
commencement of any borrowing powers to the RJSC. Fine: not exceeding one thousand taka.

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Section 151(1)(a): where an allotment of shares is made company must within 60 days file a
return of allotments to the RJSC. Fine: not exceeding one thousand taka.
Section 159 and 160: Particulars of mortgage or charge with the instrument thereof or a
verified copy to the RJSC within 21 days. Void if not registered.
Section 161: filing of particulars in case of series of debentures being created within 21 days to
the RJSC.
Section 167(1): A company has the obligation to file with the RJSC for registration of every
mortgage or charge created by the company and of the issues of debentures of a series to the
RJSC.
Section 169: Notice for appointment of receiver within 15 days to the RJSC.
Section 170: Abstract of receipt and payments during receivers time and notice of ceasement
to act as receiver to be filed annually to the RJSC. Fine: not exceeding five hundred taka.
Section 172: Intimation for satisfaction of mortgage or charges within 21 days to the RJSC.
Section 190: Within 30 days of the annual general meeting three copies of audited and
authenticated balance sheet and profit and loss accounts to the RJSC. Fine: not exceeding one
hundred taka for every days delay.
Section 210(2): Notice of appointment to the auditor within 30 days of such appointment to the
RJSC.
Section 228 & 229: Certified copy of the Courts order sanctioning the compromise agreement
between creditors and company within 14 days to the RJSC.
Section 231: Filing of prospectus or statement in lieu of prospectus on conversion of the status
of any company within 30 days to the RJSC.
Section 233(5): Notice about court order on minority shareholders right within 14 days to the
RJSC.
Fine: not exceeding one thousand taka.
Section 252: Copy of winding up order made by the Court within 30 days to the RJSC.
Section 258(3): Statement of affairs to the official liquidator or the Court within 21 days. Fine:
not exceeding five hundred taka for every day.

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Section 277(2): Report of the Courts order for the dissolution of company to be filed at the
RJSC within 15 days of such dissolution. Fine: The official liquidator liable to a fine not
exceeding one hundred taka.
Section 290: Declaration of solvency by directors to the RJSC on voluntary winding up for
registration before board meeting.
Section 296(3) & 305(3): Copy of accounts of winding up and return of general meeting of the
company within one week of the meeting to be filed with the RJSC.
Section 333: Notice of liquidator about criminal offence of directors to the RJSC Government
and Court.
Section 379: Particulars of foreign companies to be filed with the RJSC for registration.
Appendix 3: Data set for dependent and independent variables

Sl Name Yr B.SIZE I.DIR A.COM B.MET DER GPO FIO ROE ROA
1 Dhaka Bank 2006 5.99 16.23% 14.00% 22.74% 1.22%
1 Dhaka Bank 2007 15 4 5 6.29 11.18% 10.00% 22.53% 1.23%
1 Dhaka Bank 2008 15 1 4 8 10.56 16.65% 16.00% 20.97% 1.18%
1 Dhaka Bank 2009 9.01 22.67% 16.00% 19.32% 1.29%
1 Dhaka Bank 2010 20 3 17 5.19 30.73% 16.00% 25.52% 2.00%
1 Dhaka Bank 2011 21 8 14 5.50 26.98% 18.00% 24.13% 2.22%
1 Dhaka Bank 2012 23 2 7 14 4.45 34.00% 18.00% 8.06% 0.59%
1 Dhaka Bank 2013 17 2 6 17 9.99 35.00% 15.00% 16.45% 1.39%
1 Dhaka Bank 2014 17 2 5 22 10.21 38.00% 17.00% 16.18% 1.34%
1 Dhaka Bank 2015 19 2 4 33 9.63 32.00% 20.00% 11.05% 0.86%
2 Prime Bank 2006 14 1 4 20 7.00 42.40% 13.44% 31.55% 2.05%
2 Prime Bank 2007 14 1 4 27 7.00 34.62% 10.65% 30.68% 1.99%
2 Prime Bank 2008 14 1 4 23 6.45 30.87% 13.94% 20.58% 1.30%
2 Prime Bank 2009 16 1 3 26 10.39 35.25% 14.95% 30.19% 23.70%
2 Prime Bank 2010 20 1 3 19 12.33 35.10% 20.62% 21.06% 2.22%
2 Prime Bank 2011 21 1 3 17 10.56 35.70% 20.95% 20.85% 2.05%
2 Prime Bank 2012 20 3 5 19 9.62 34.97% 20.12% 19.25% 1.24%
2 Prime Bank 2013 20 3 5 17 10.43 35.89% 18.32% 12.88% 0.76%
2 Prime Bank 2014 20 3 5 17 10.61 35.79% 21.92% 8.73% 0.96%
2 Prime Bank 2015 19 3 5 15 11.70 34.68% 25.29% 9.14% 0.84%
3 Bank Asia 2006 13 3 7.59 29.41% 13.78% 27.06% 1.77%
3 Bank Asia 2007 13 3 8.31 27.48% 16.98% 31.63% 2.11%
3 Bank Asia 2008 15 1 3 14 15.01 79.96% 16.82% 23.00% 1.87%
3 Bank Asia 2009 17 1 3 22 12.86 71.63% 25.18% 32.03% 2.18%

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3 Bank Asia 2010 15 3 27 13.90 23.11% 18.92% 32.12% 2.22%
3 Bank Asia 2011 15 3 23 8.43 23.45% 20.45% 16.21% 1.72%
3 Bank Asia 2012 13 3 3 26 9.76 21.78% 21.30% 6.48% 0.70%
3 Bank Asia 2013 13 4 3 29 10.20 22.05% 26.12% 9.14% 0.96%
3 Bank Asia 2014 16 4 4 33 9.84 18.60% 30.24% 12.12% 1.28%
3 Bank Asia 2015 16 3 5 25 10.82 17.62% 30.89% 13.64% 1.26%
4 Southeast Bank 2006 8 0 3 28 4.59 17.98% 1.66%
4 Southeast Bank 2007 9 0 3 33 5.10 19.90% 1.90%
4 Southeast Bank 2008 13 1 3 40 4.14 12.06% 1.09%
4 Southeast Bank 2009 16 1 3 31 3.54 16.51% 1.66%
4 Southeast Bank 2010 16 1 3 22 6.68 19.41% 2.26%
4 Southeast Bank 2011 16 1 5 22 7.16 9.87% 1.32%
4 Southeast Bank 2012 12 1 5 30 8.60 8.33% 0.95%
4 Southeast Bank 2013 12 2 5 20 9.07 55.71% 28.19% 15.41% 1.64%
4 Southeast Bank 2014 13 2 5 23 8.64 58.74% 23.13% 15.63% 1.67%
4 Southeast Bank 2015 13 2 6 27 8.58 37.50% 30.67% 11.28% 1.23%
5 Exim Bank 2006 8.04 29.93% 16.59% 20.90% 1.73%
5 Exim Bank 2007 13 0 4 7 8.52 27.38% 21.63% 23.03% 2.00%
5 Exim Bank 2008 14 1 5 12 7.26 25.72% 21.23% 21.98% 1.83%
5 Exim Bank 2009 19 1 5 13 11.42 24.97% 25.99% 25.22% 2.19%
5 Exim Bank 2010 23 1 5 16 8.08 32.13% 19.18% 27.86% 3.54%
5 Exim Bank 2011 24 1 6 11 7.96 33.56% 17.96% 13.94% 1.65%
5 Exim Bank 2012 15 1 5 14 9.04 32.81% 18.11% 12.59% 1.45%
5 Exim Bank 2013 16 1 6 14 8.48 9.20% 1.06%
5 Exim Bank 2014 16 1 6 12 11.24 32.94% 18.47% 10.74% 1.16%
5 Exim Bank 2015 15 1 5 16 10.57 32.15% 19.43% 8.31% 0.88%
6 AB Bank 2006 8.30 20.61% 1.31%
6 AB Bank 2007 11 5 9 6.00 42.19% 3.41%
6 AB Bank 2008 13 1 5 29 9.53 13.97% 43.44% 40.96% 3.12%
6 AB Bank 2009 13 1 3 20 11.53 35.84% 49.33% 39.84% 3.52%
6 AB Bank 2010 13 1 3 20 8.57 36.85% 48.65% 30.77% 3.08%
6 AB Bank 2011 14 1 5 24 9.30 20.35% 64.58% 9.25% 0.93%
6 AB Bank 2012 14 1 5 29 9.84 28.47% 56.18% 9.31% 0.88%
6 AB Bank 2013 14 3 5 30 11.28 29.66% 54.86% 6.13% 0.53%
6 AB Bank 2014 12 2 6 30 13.03 29.86% 52.86% 6.95% 0.54%
6 AB Bank 2015 12 2 5 24 12.53 26.39% 57.06% 6.03% 0.48%
7 DBBL 2006 26.67 10.00% 0.00% 24.07% 0.93%
7 DBBL 2007 6 3 7 40.08 10.00% 0.00% 24.00% 1.01%
7 DBBL 2008 10 1 5 9 44.98 10.00% 0.00% 29.90% 1.49%
7 DBBL 2009 9 1 4 11 34.81 11.65% 1.36% 30.30% 1.60%
7 DBBL 2010 9 2 4 8 20.23 10.00% 3.00% 35.30% 2.20%

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7 DBBL 2011 8 1 3 9 15.10 8.70% 4.30% 27.00% 1.90%
7 DBBL 2012 9 2 4 8 11.00 7.90% 5.10% 23.40% 1.70%
7 DBBL 2013 9 2 3 14 23.60 8.90% 4.10% 17.00% 1.20%
7 DBBL 2014 7 2 3 13 32.10 10.20% 2.80% 16.20% 1.10%
7 DBBL 2015 7 2 3 14 26.30 6.60% 6.40% 19.30% 1.30%
8 City Bank 2006 6.09 80.64% 19.36% 10.70% 0.60%
8 City Bank 2007 13 0 3 20 6.92 88.24% 13.76% 12.70% 0.70%
8 City Bank 2008 11 0 3 23 9.37 88.03% 11.97% 11.20% 0.80%
8 City Bank 2009 11 0 3 17 9.40 73.85% 26.15% 16.20% 1.20%
8 City Bank 2010 11 0 3 22 6.90 82.00% 18.00% 21.30% 2.20%
8 City Bank 2011 13 0 5 20 5.50 76.70% 9.15% 13.70% 2.00%
8 City Bank 2012 14 0 5 13 6.20 53.69% 15.09% 4.30% 0.60%
8 City Bank 2013 14 0 5 21 7.00 58.89% 9.89% 7.30% 0.70%
8 City Bank 2014 15 1 5 17 6.70 47.00% 21.90% 10.60% 1.40%
8 City Bank 2015 12 1 4 17 7.75 51.04% 23.61% 14.70% 1.80%
9 EBL 2006 5.79 16.07% 3.19%
9 EBL 2007 11 0 3 27 7.29 72.08% 10.83% 11.73% 2.34%
9 EBL 2008 10 1 3 24 10.48 85.74% 10.83% 18.64% 1.68%
9 EBL 2009 10 1 3 28 9.48 85.83% 10.74% 22.10% 1.10%
9 EBL 2010 10 1 3 27 9.84 86.80% 9.77% 23.64% 1.62%
9 EBL 2011 11 1 5 28 19.40 83.45% 9.82% 19.03% 2.52%
9 EBL 2012 12 2 5 26 18.87 55.97% 12.46% 14.44% 1.72%
9 EBL 2013 11 2 5 25 15.86 56.94% 11.49% 14.44% 1.68%
9 EBL 2014 11 2 5 25 14.07 56.94% 11.49% 10.93% 1.28%
9 EBL 2015 11 2 5 25 15.65 57.55% 10.88% 10.95% 1.23%
10 Brac Bank 2006 23.05% 1.43%
10 Brac Bank 2007 7 1 3 13 47.12% 11.16% 23.83% 1.62%
10 Brac Bank 2008 7 1 3 46.18% 9.50% 22.88% 1.64%
10 Brac Bank 2009 7 1 3 45.50% 7.00% 19.19% 1.56%
10 Brac Bank 2010 6 1 3 14 50.00% 5.36% 18.95% 1.55%
10 Brac Bank 2011 6 1 3 13 12.87 44.88% 5.36% 17.90% 1.36%
10 Brac Bank 2012 6 2 3 16.10 44.00% 5.36% 5.47% 0.35%
10 Brac Bank 2013 6 3 4 14.12 45.00% 5.36% 12.60% 0.78%
10 Brac Bank 2014 8 3 4 10.52 43.47% 5.36% 14.11% 1.09%
10 Brac Bank 2015 8 3 3 10.93 47.27% 5.36% 13.32% 1.13%
11 Shahjalal Bank 2006 38.44% 2.17%
11 Shahjalal Bank 2007 23.21% 2.60%
11 Shahjalal Bank 2008 14 1 3 12 50.45% 25.58% 2.22%
11 Shahjalal Bank 2009 20 1 3 15 12.04 53.00% 25.10% 2.08%
11 Shahjalal Bank 2010 20 1 3 13 10.08 55.00% 30.71% 3.01%
11 Shahjalal Bank 2011 20 3 3 22 9.83 58.00% 13.80% 1.26%

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11 Shahjalal Bank 2012 21 2 3 15 10.74 55.00% 17.01% 1.44%
11 Shahjalal Bank 2013 20 2 5 26 12.32 55.28% 12.67% 1.00%
11 Shahjalal Bank 2014 17 2 4 26 12.47 54.88% 6.60% 0.59%
11 Shahjalal Bank 2015 17 2 4 20 8.12 56.17% 10.78% 0.98%
12 Mutual Trust bank 2006 11.83 27.71% 2.10%
12 Mutual Trust Bank 2007 13 0 3 12 10.19 28.90% 27.23% 10.68% 0.72%
12 Mutual Trust Bank 2008 13 0 3 15 11.49 25.90% 30.53% 13.47% 0.86%
12 Mutual Trust Bank 2009 12 0 3 14 9.20 27.55% 30.86% 26.61% 1.79%
12 Mutual Trust Bank 2010 13 0 3 12 11.49 31.14% 29.44% 24.52% 1.79%
12 Mutual Trust Bank 2011 13 0 5 12 11.96 31.58% 28.97% 8.84% 0.61%
12 Mutual Trust Bank 2012 11 0 5 12 10.71 28.60% 23.80% 6.47% 0.39%
12 Mutual Trust Bank 2013 12 2 5 12 11.57 29.62% 22.47% 11.15% 0.59%
12 Mutual Trust Bank 2014 12 2 5 12 10.77 30.47% 25.04% 15.74% 0.88%
12 Mutual Trust Bank 2015 12 2 5 13 12.02 29.82% 25.49% 17.40% 1.04%
13 NCC Bank 2006 9.78 19.62% 1.47%
13 NCC Bank 2007 13 0 3 10.61 39.09% 10.72% 20.23% 1.59%
13 NCC Bank 2008 13 0 3 10.61 35.58% 14.89% 21.76% 1.54%
13 NCC Bank 2009 27 0 3 13.55 32.09% 21.22% 28.49% 2.61%
13 NCC Bank 2010 27 0 3 9.66 42.54% 15.50% 25.35% 2.84%
13 NCC Bank 2011 26 1 3 10.19 59.30% 12.94% 18.98% 2.12%
13 NCC Bank 2012 13 1 4 22 10.47 55.54% 14.12% 11.81% 1.14%
13 NCC Bank 2013 15 2 5 23 10.88 59.55% 10.59% 8.96% 0.91%
13 NCC Bank 2014 15 2 5 27 12.31 59.86% 10.29% 10.93% 1.16%
13 NCC Bank 2015 15 2 5 25 9.25 58.76% 11.75% 9.12% 0.97%
14 One Bank 2006 8.69 47.16% 12.86% 3.12%
14 One Bank 2007 12 0 3 8.91 47.16% 13.05% 1.60%
14 One Bank 2008 11 0 3 9.33 47.16% 13.46% 1.43%
14 One Bank 2009 11 1 3 10 9.08 48.33% 12.63% 1.89%
14 One Bank 2010 11 1 3 14 7.91 52.47% 14.88% 3.63%
14 One Bank 2011 11 1 3 16 9.22 59.71% 14.94% 2.29%
14 One Bank 2012 9 1 3 17 9.13 66.82% 14.31% 1.38%
14 One Bank 2013 10 1 3 17 8.53 68.94% 14.08% 1.43%
14 One Bank 2014 9 2 4 14 9.45 69.66% 12.88% 1.87%
14 One Bank 2015 9 2 4 15 8.46 69.64% 11.32% 1.39%
15 SIBL 2006 23.67% 0.29% 5.88% 0.61%
15 SIBL 2007 14 0 23 35.62% 3.11% 9.01% 1.09%
15 SIBL 2008 14 0 3 23 48.08% 3.39% 10.82% 1.19%
15 SIBL 2009 14 0 2 24 8.88 53.51% 3.81% 12.14% 1.24%
15 SIBL 2010 18 0 3 10.68 59.89% 2.65% 15.31% 2.39%
15 SIBL 2011 17 0 5 30 7.10 62.71% 5.66% 11.51% 2.72%
15 SIBL 2012 10 1 5 14 9.19 52.15% 3.42% 14.15% 2.75%

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15 SIBL 2013 11 2 4 21 9.21 57.46% 2.89% 11.01% 1.67%
15 SIBL 2014 14 3 5 26 10.26 47.64% 3.02% 15.68% 2.36%
15 SIBL 2015 16 3 5 29 11.57 43.94% 2.65% 16.00% 2.08%
16 Standerd Bank 2006 26.48% 13.67% 22.16% 2.40%
16 Standerd Bank 2007 19 0 3 16 33.99% 14.36% 15.32% 1.74%
16 Standerd Bank 2008 21 0 3 19 34.45% 11.56% 21.22% 1.95%
16 Standerd Bank 2009 21 0 3 17 34.42% 13.68% 20.01% 1.84%
16 Standerd Bank 2010 21 0 5 16 36.83% 15.04% 27.83% 2.37%
16 Standerd Bank 2011 20 0 5 14 9.91 38.71% 11.29% 18.87% 1.83%
16 Standerd Bank 2012 18 1 6 18 10.52 44.22% 6.43% 16.22% 1.57%
16 Standerd Bank 2013 10.75 52.18% 5.22% 10.88% 0.99%
16 Standerd Bank 2014 15 2 5 14 11.13 45.54% 5.22% 12.27% 1.06%
16 Standerd Bank 2015 15 2 6 16 10.54 48.79% 2.63% 13.91% 1.27%
17 Pubali Bank 2006 15 0 3 11.89 18.66% 1.45%
17 Pubali Bank 2007 15 0 3 11.06 53.91% 10.44% 22.82% 1.89%
17 Pubali Bank 2008 15 0 3 10.91 36.42% 29.66% 20.08% 1.69%
17 Pubali Bank 2009 14 0 3 10.31 60.75% 9.11% 22.00% 1.94%
17 Pubali Bank 2010 14 0 3 7.93 39.00% 5.07% 22.48% 2.52%
17 Pubali Bank 2011 15 1 5 8.59 65.52% 6.27% 13.81% 1.44%
17 Pubali Bank 2012 16 2 5 9.85 57.32% 7.41% 9.05% 1.05%
17 Pubali Bank 2013 16 2 6 12.27 49.32% 3.08% 12.46% 1.06%
17 Pubali Bank 2014 18 2 6 9.87 46.26% 3.29% 13.43% 1.24%
17 Pubali Bank 2015 17 2 6 10.48 46.77% 3.64% 11.64% 1.01%
18 Ruplai Bank 2006 9 4 230.98 9.81% 0.00% 44.03% 0.19%
18 Ruplai Bank 2007 8 0 4 23 8.73 9.81% 0.00% - -
104.95% 13.58%
18 Ruplai Bank 2008 10 1 3 26 11.08 9.81% 0.00% 10.70% 1.06%
18 Ruplai Bank 2009 9 1 4 29 16.69 9.81% 0.00% 29.89% 1.91%
18 Ruplai Bank 2010 11 1 4 37 7.81 9.81% 0.00% 4.24% 0.48%
18 Ruplai Bank 2011 13 0 4 31 8.50 9.81% 0.00% 7.16% 0.75%
18 Ruplai Bank 2012 16 0 3 26 13.84 9.81% 0.00% 10.34% 0.70%
18 Ruplai Bank 2013 17 0 3 23 17.29 9.81% 0.00% 3.42% 0.19%
18 Ruplai Bank 2014 16 0 4 34 17.18 9.81% 0.00% 3.33% 0.18%
18 Ruplai Bank 2015 13 1 5 29 20.14 9.81% 0.00% 1.84% 0.08%
19 National Bank 2006 14 3 13.29 15.50% 2.40%
19 National Bank 2007 14 0 3 12 11.37 48.37% 4.95% 31.57% 2.36%
19 National Bank 2008 14 0 4 8 10.79 50.91% 6.29% 28.38% 2.52%
19 National Bank 2009 14 0 3 11 9.31 58.60% 10.01% 27.53% 22.85%
19 National Bank 2010 14 0 3 9 6.05 60.28% 10.38% 48.96% 6.05%
19 National Bank 2011 14 0 3 7 6.82 58.68% 10.09% 29.96% 4.01%
19 National Bank 2012 12 1 4 8 8.16 53.19% 11.99% 6.78% 0.80%
19 National Bank 2013 14 3 8.86 52.75% 13.97% 9.14% 0.96%

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19 National Bank 2014 14 3 8.58 51.20% 15.96% 10.45% 1.08%
19 National Bank 2015 14 3 3 17 7.45 44.58% 22.60% 12.74% 1.43%
20 Premier Bank 2006 14 3 15.71 22.67% 1.36%
20 Premier Bank 2007 14 3 12.21 50.00% 0.00% 3.19% 0.24%
20 Premier Bank 2008 14 1 3 8 11.43 49.75% 0.00% 20.88% 1.68%
20 Premier Bank 2009 15 1 3 12 9.21 27.96% 22.46% 23.47% 2.30%
20 Premier Bank 2010 15 1 3 5 9.87 34.58% 18.63% 28.23% 2.60%
20 Premier Bank 2011 16 1 3 9 10.23 32.16% 21.06% 7.66% 0.68%
20 Premier Bank 2012 14 1 3 9 10.43 31.86% 20.71% 8.44% 0.74%
20 Premier Bank 2013 13 2 4 12 10.26 41.06% 11.39% 9.84% 0.87%
20 Premier Bank 2014 13 2 3 20 11.48 36.44% 14.86% 9.75% 0.78%
20 Premier Bank 2015 13 2 4 21 11.83 9.39% 0.73%
21 Mercantile Bank 2006 14 0 3 19 15.50 32.73% 10.98% 21.94% 1.33%
21 Mercantile Bank 2007 13 0 3 20 14.34 32.92% 11.31% 18.45% 1.20%
21 Mercantile Bank 2008 14 0 3 17 15.12 17.41% 26.88% 17.78% 1.10%
21 Mercantile Bank 2009 22 0 3 20 14.40 38.40% 7.92% 18.80% 1.22%
21 Mercantile Bank 2010 22 0 5 20 11.13 9.79% 38.32% 19.84% 1.64%
21 Mercantile Bank 2011 22 0 5 20 10.99 41.17% 18.44% 18.04% 1.51%
21 Mercantile Bank 2012 13 0 5 17 12.91 49.47% 10.62% 12.47% 0.90%
21 Mercantile Bank 2013 14 2 5 25 10.49 52.69% 7.68% 15.66% 1.36%
21 Mercantile Bank 2014 14 2 5 17 11.51 53.89% 6.72% 8.67% 0.69%
21 Mercantile Bank 2015 14 2 5 22 10.84 56.02% 7.19% 9.04% 0.76%
22 Jamuna Bank 2006 15 3 11.90 16.22% 1.26%
22 Jamuna Bank 2007 14 3 14.94 23.78% 20.45% 5.38% 0.34%
22 Jamuna Bank 2008 14 1 3 20 13.65 27.15% 13.24% 22.19% 1.51%
22 Jamuna Bank 2009 20 1 3 21 11.24 27.11% 10.54% 23.19% 1.89%
22 Jamuna Bank 2010 18 5 9.93 33.48% 5.52% 16.75% 1.53%
22 Jamuna Bank 2011 19 0 5 31 10.94 36.31% 4.73% 18.59% 1.56%
22 Jamuna Bank 2012 16 1 4 26 12.12 36.83% 5.05% 12.49% 0.95%
22 Jamuna Bank 2013 15 3 5 21 12.00 31.23% 10.55% 12.87% 0.99%
22 Jamuna Bank 2014 15 4 5 22 11.92 26.72% 10.82% 14.34% 1.11%
22 Jamuna Bank 2015 18 3 5 24 8.12 26.70% 11.11% 10.44% 1.15%
23 Al Arafah Bank 2006 24 2 11.64 50.00% 0.00% 27.81% 2.20%
23 Al Arafah Bank 2007 14 3 17 13.81 50.89% 0.00% 17.05% 1.15%
23 Al Arafah Bank 2008 13 0 3 14 12.74 49.92% 0.00% 24.70% 1.71%
23 Al Arafah Bank 2009 12 0 3 1.00 0.00% 50.67% 1.91% 1.77%
23 Al Arafah Bank 2010 18 0 3 16 6.56 37.19% 15.33% 18.55% 2.45%
23 Al Arafah Bank 2011 19 0 5 14 7.91 46.35% 29.51% 14.78% 1.71%
23 Al Arafah Bank 2012 19 0 5 14 9.63 44.23% 12.65% 13.66% 1.31%
23 Al Arafah Bank 2013 20 2 4 18 9.76 46.88% 10.07% 14.15% 1.31%
23 Al Arafah Bank 2014 20 2 5 17 11.44 45.00% 12.23% 14.01% 1.10%

113
23 Al Arafah Bank 2015 20 2 5 16 11.82 44.16% 13.45% 12.68% 0.99%
24 First Security Islami 2006
Bank
24 First Security Islami 2007
Bank
24 First Security Islami 2008 16 3 17.77 4.11% 0.33%
Bank
24 First Security Islami 2009 15 0 3 10 15.74 32.33% 16.63% 11.41% 0.68%
Bank
24 First Security Islami 2010 14 0 3 10 15.23 37.31% 12.04% 13.99% 0.86%
Bank
24 First Security Islami 2011 13 0 3 10 19.21 38.50% 11.32% 12.89% 0.64%
Bank
24 First Security Islami 2012 13 2 3 11 21.74 34.88% 13.08% 13.35% 0.59%
Bank
24 First Security Islami 2013 14 3 3 10 23.50 34.49% 13.16% 11.74% 0.48%
Bank
24 First Security Islami 2014 13 3 3 12 23.43 35.11% 35.11% 8.29% 0.34%
Bank
24 First Security Islami 2015 14 3 3 18 25.44 29.35% 19.69% 8.80% 0.33%
Bank
25 Trust Bank 2006 17.23 0.00% 0.00% 24.51% 1.24%
25 Trust Bank 2007 8 0 3 13 13.10 24.69% 14.02% 14.45% 0.79%
25 Trust Bank 2008 10 0 3 15 11.33 27.41% 12.03% 17.56% 1.20%
25 Trust Bank 2009 8 0 3 21 13.44 20.44% 19.11% 17.59% 1.32%
25 Trust Bank 2010 9 0 3 14 10.60 20.08% 19.51% 29.04% 2.27%
25 Trust Bank 2011 9 1 3 16 12.79 18.31% 15.50% 11.68% 0.92%
25 Trust Bank 2012 9 2 4 15 13.63 18.90% 20.55% 3.02% 0.21%
25 Trust Bank 2013 10 3 4 15 16.00 18.95% 20.40% 4.85% 0.28%
25 Trust Bank 2014 10 3 4 17 16.88 17.98% 21.50% 17.33% 0.89%
25 Trust Bank 2015 11 3 4 15 17.95 18.11% 21.06% 17.45% 0.85%
26 Uttara Bank 2006 20.68 11.93% 0.55%
26 Uttara Bank 2007 20.54 93.66% 6.34% 16.69% 0.77%
26 Uttara Bank 2008 15 1 3 27 14.84 92.09% 7.90% 30.86% 1.95%
26 Uttara Bank 2009 15 1 3 26 10.59 95.77% 4.23% 17.80% 1.54%
26 Uttara Bank 2010 14 1 3 20 8.46 88.62% 3.19% 18.02% 1.91%
26 Uttara Bank 2011 15 1 3 21 9.11 81.12% 8.65% 17.13% 1.69%
26 Uttara Bank 2012 15 2 3 22 11.64 71.60% 14.44% 12.62% 1.00%
26 Uttara Bank 2013 15 3 3 15 11.40 76.16% 9.88% 12.27% 0.99%
26 Uttara Bank 2014 14 3 3 21 10.61 72.72% 14.72% 11.41% 0.99%
26 Uttara Bank 2015 14 3 4 21 10.51 69.24% 18.20% 11.42% 0.99%
27 IBBL 2006 14 1 4 20 7.00 42.40% 13.44% 31.55% 2.05%
27 IBBL 2007 14 1 4 27 7.00 34.62% 10.65% 30.68% 1.99%
27 IBBL 2008 14 1 4 23 6.45 30.87% 13.94% 20.58% 1.30%
27 IBBL 2009 16 1 3 26 10.39 35.25% 14.95% 30.19% 23.70%
27 IBBL 2010 20 1 3 19 12.33 35.10% 20.62% 21.06% 2.22%
27 IBBL 2011 21 1 3 17 10.56 35.70% 20.95% 20.85% 2.05%

114
27 IBBL 2012 20 3 5 19 9.62 34.97% 20.12% 19.25% 1.24%
27 IBBL 2013 20 3 5 17 10.43 35.89% 18.32% 12.88% 0.76%
27 IBBL 2014 20 3 5 17 10.61 35.79% 21.92% 8.73% 0.96%
27 IBBL 2015 19 3 5 15 11.70 34.68% 25.29% 9.14% 0.84%
28 IFIC 2006 26.67 10.00% 0.00% 24.07% 0.93%
28 IFIC 2007 6 3 7 40.08 10.00% 0.00% 24.00% 1.01%
28 IFIC 2008 10 1 5 9 44.98 10.00% 0.00% 29.90% 1.49%
28 IFIC 2009 9 1 4 11 34.81 11.65% 1.36% 30.30% 1.60%
28 IFIC 2010 9 2 4 8 20.23 10.00% 3.00% 35.30% 2.20%
28 IFIC 2011 8 1 3 9 15.10 8.70% 4.30% 27.00% 1.90%
28 IFIC 2012 9 2 4 8 11.00 7.90% 5.10% 23.40% 1.70%
28 IFIC 2013 9 2 3 14 23.60 8.90% 4.10% 17.00% 1.20%
28 IFIC 2014 7 2 3 13 32.10 10.20% 2.80% 16.20% 1.10%
28 IFIC 2015 7 2 3 14 26.30 6.60% 6.40% 19.30% 1.30%
29 ICB Islami Bank 2006 15 3 11.90 16.22% 1.26%
29 ICB Islami Bank 2007 14 3 14.94 23.78% 20.45% 5.38% 0.34%
29 ICB Islami Bank 2008 14 1 3 20 13.65 27.15% 13.24% 22.19% 1.51%
29 ICB Islami Bank 2009 20 1 3 21 11.24 27.11% 10.54% 23.19% 1.89%
29 ICB Islami Bank 2010 18 5 9.93 33.48% 5.52% 16.75% 1.53%
29 ICB Islami Bank 2011 19 0 5 31 10.94 36.31% 4.73% 18.59% 1.56%
29 ICB Islami Bank 2012 16 1 4 26 12.12 36.83% 5.05% 12.49% 0.95%
29 ICB Islami Bank 2013 15 3 5 21 12.00 31.23% 10.55% 12.87% 0.99%
29 ICB Islami Bank 2014 15 4 5 22 11.92 26.72% 10.82% 14.34% 1.11%
29 ICB Islami Bank 2015 18 3 5 24 8.12 26.70% 11.11% 10.44% 1.15%
30 UCBL 2006 26.67 10.00% 0.00% 24.07% 0.93%
30 UCBL 2007 6 3 7 40.08 10.00% 0.00% 24.00% 1.01%
30 UCBL 2008 10 1 5 9 44.98 10.00% 0.00% 29.90% 1.49%
30 UCBL 2009 9 1 4 11 34.81 11.65% 1.36% 30.30% 1.60%
30 UCBL 2010 9 2 4 8 20.23 10.00% 3.00% 35.30% 2.20%
30 UCBL 2011 8 1 3 9 15.10 8.70% 4.30% 27.00% 1.90%
30 UCBL 2012 9 2 4 8 11.00 7.90% 5.10% 23.40% 1.70%
30 UCBL 2013 9 2 3 14 23.60 8.90% 4.10% 17.00% 1.20%
30 UCBL 2014 7 2 3 13 32.10 10.20% 2.80% 16.20% 1.10%
30 UCBL 2015 7 2 3 14 26.30 6.60% 6.40% 19.30% 1.30%

Appendix 4: Tobins Q Calculation

SL No Name Years Equity Mkt. Value Net worth or Equity Book Tobin's Q ratio
Value
1 Prime Bank 2006 5,664,750,000 3,859,888,724 1.47
2007 9,344,700,000 5,273,277,362 1.77

115
 2008 13,082,580,000 7,909,916,043 1.65
2009 30,089,934,000 11,864,874,065 2.54
2010 54,557,787,260 16,908,137,011 3.23
2011 34,701,525,331 19,138,724,931 1.81
2012 34,623,544,353 20,787,038,905 1.67
2013 26,660,129,154 23,029,617,108 1.16
2014 20,175,232,874 24,460,711,980 0.82
2015 22,192,756,161 26,415,031,465 0.84
2 Dhaka Bank 2006 1,412,374,092 1,015,194,343 1.39
2007 2,353,956,821 1,586,241,161 1.48
2008 2,942,446,026 1,934,440,440 1.52
2009 11,769,784,104 4,605,810,572 2.56
2010 20,292,731,214 6,579,729,388 3.08
2011 15,977,533,784 9,216,754,808 1.73
2012 11,575,633,442 9,786,311,177 1.18
2013 10,179,089,277 11,886,908,896 0.86
2014 10,403,787,241 12,745,513,625 0.82
2015 13,524,923,413 15,294,616,350 0.88
3 DBBL 2006 5,164,409,250 2,162,674,782 2.39
2007 6,885,879,000 2,703,343,478 2.55
2008 8,828,050,000 3,379,179,347 2.61
2009 25,223,000,000 5,631,965,579 4.48
2010 45,860,000,000 8,939,627,903 5.13
2011 32,260,000,000 8,941,335,594 3.61
2012 22,860,000,000 12,641,720,584 1.81
2013 20,940,000,000 12,627,820,323 1.66
2014 21,160,000,000 14,485,732,069 1.46
2015 23,276,000,000 17,382,878,483 1.34
4 AB Bank 2006 7,130,905,295 3,605,770,248 1.98
2007 8,389,300,347 3,835,925,795 2.19
2008 10,486,625,434 4,512,853,877 2.32
2009 34,955,418,114 7,780,782,546 4.49
2010 58,259,030,190 14,146,877,357 4.12
2011 25,176,157,937 15,015,433,185 1.68
2012 14,906,644,612 16,202,271,149 0.92
2013 13,037,784,851 16,940,049,066 0.77
2014 15,920,528,645 18,157,113,574 0.88
2015 18,308,607,942 25,419,959,004 0.72
5 Al-Arafah Islami Bank 2006 3,350,264,111 1,907,487,012 1.76
2007 3,941,487,189 2,167,598,878 1.82
2008 6,569,145,316 2,211,835,590 2.97

116
 2009 18,768,986,616 2,988,967,013 6.28
2010 31,281,644,360 4,039,144,612 7.74
2011 22,276,946,122 9,593,269,559 2.32
2012 17,321,150,663 12,425,743,720 1.39
2013 15,935,601,216 14,478,059,464 1.10
2014 14,109,681,695 16,598,122,795 0.85
2015 18,342,586,204 23,237,371,913 0.79
6 Eastern Bank 2006 5,587,657,080 4,885,013,245 1.14
2007 6,984,571,351 5,551,151,415 1.26
2008 8,730,714,188 6,530,766,370 1.34
2009 20,787,414,734 8,825,359,960 2.36
2010 37,795,299,516 12,257,444,389 3.08
2011 29,789,355,469 14,593,202,592 2.04
2012 19,374,399,185 17,249,546,196 1.12
2013 17,785,331,744 18,450,498,175 0.96
2014 16,624,090,152 20,086,851,404 0.83
2015 19,948,908,182 25,108,564,255 0.79
7 Mercantile Bank 2006 3,585,279,293 2,551,056,377 1.41
2007 4,481,599,116 3,073,561,900 1.46
2008 5,465,364,775 3,453,440,337 1.58
2009 16,074,602,280 6,395,259,884 2.51
2010 23,639,121,000 7,185,685,263 3.29
2011 17,288,988,000 9,730,888,264 1.78
2012 11,671,628,000 10,984,003,773 1.06
2013 11,021,332,000 12,632,436,709 0.87
2014 10,126,492,000 13,562,078,066 0.75
2015 12,151,790,400 16,952,597,583 0.72
8 Bank Asia 2006 4,144,294,324 3,263,223,877 1.27
2007 6,240,915,666 4,079,029,847 1.53
2008 9,381,768,648 5,098,787,308 1.84
2009 51,157,832,661 16,995,957,695 3.01
2010 108,774,129,247 28,326,596,158 3.84
2011 27,382,376,286 15,736,997,866 1.74
2012 17,572,980,950 13,114,164,888 1.34
2013 16,595,457,724 14,557,419,056 1.14
2014 15,273,931,176 16,602,099,104 0.92
2015 16,452,695,542 18,696,244,934 0.88
9 Sounth Esat Bank 2006 5,121,847,728 4,924,853,585 1.04
2007 7,264,159,038 6,156,066,981 1.18
2008 9,541,903,821 7,695,083,726 1.24
2009 76,437,831,681 25,650,279,088 2.98

117
 2010 150,481,637,314 42,750,465,146 3.52
2011 50,825,553,007 23,750,258,414 2.14
2012 38,990,007,564 19,791,882,012 1.97
2013 26,546,948,078 21,939,626,511 1.21
2014 20,624,851,576 24,553,394,733 0.84
2015 21,228,546,816 27,216,085,662 0.78
10 EXIM Bank 2006 4,983,046,041 4,118,219,868 1.21
2007 7,361,318,015 5,147,774,835 1.43
2008 11,325,104,638 6,434,718,544 1.76
2009 82,578,887,984 21,449,061,814 3.85
2010 154,433,245,061 35,748,436,357 4.32
2011 43,891,135,749 19,860,242,420 2.21
2012 30,617,873,731 16,550,202,017 1.85
2013 29,313,774,850 20,499,143,252 1.43
2014 20,332,656,649 23,105,291,647 0.88
2015 20,600,386,800 25,122,422,927 0.82
11 City Bank 2006 5,929,333,150 4,491,919,053 1.32
2007 9,882,221,917 5,614,898,816 1.76
2008 16,283,206,567 7,018,623,520 2.32
2009 85,393,252,830 23,395,411,734 3.65
2010 169,226,811,544 38,992,352,890 4.34
2011 40,508,722,169 21,662,418,272 1.87
2012 24,911,781,013 18,052,015,227 1.38
2013 19,285,650,979 18,194,010,358 1.06
2014 20,971,441,672 22,310,044,332 0.94
2015 21,141,928,192 24,583,637,433 0.86
12 Brac Bank 2006 2,524,935,017 2,855,314,682 0.88
2007 4,461,429,191 3,569,143,353 1.25
2008 8,789,015,506 4,461,429,191 1.97
2009 38,851,365,889 14,871,430,636 2.61
2010 111,003,902,540 24,785,717,727 4.48
2011 36,490,084,431 13,769,843,182 2.65
2012 22,720,241,250 11,474,869,318 1.98
2013 19,844,161,570 13,877,036,063 1.43
2014 21,435,578,300 20,611,132,981 1.04
2015 18,911,841,392 21,490,728,854 0.88
13 Shahjalal Islami Bank 2006 2,558,928,306 2,460,507,986 1.04
2007 3,844,543,728 3,075,634,983 1.25
2008 7,573,751,145 3,844,543,728 1.97
2009 49,594,614,096 12,815,145,761 3.87
2010 107,006,467,106 21,358,576,269 5.01

118
 2011 24,206,386,438 11,865,875,705 2.04
2012 19,578,694,913 9,888,229,754 1.98
2013 15,000,160,409 11,194,149,559 1.34
2014 10,509,373,663 11,942,470,072 0.88
2015 9,773,104,316 12,529,620,918 0.78
14 Mutul Trust Bank 2006 12,280,716,340 9,984,322,227 1.23
2007 15,600,503,480 12,480,402,784 1.25
2008 30,732,991,856 15,600,503,480 1.97
2009 212,166,847,333 52,001,678,268 4.08
2010 480,148,829,341 86,669,463,780 5.54
2011 9,533,641,016 4,814,970,210 1.98
2012 5,945,384,009 4,833,645,536 1.23
2013 5,667,123,294 5,449,157,013 1.04
2014 5,958,063,901 6,770,527,160 0.88
2015 6,786,280,293 8,929,316,175 0.76
15 NCC Bank 2006 4,109,783,302 4,029,199,316 1.02
2007 6,194,893,948 5,036,499,145 1.23
2008 11,080,298,119 6,295,623,931 1.76
2009 62,641,458,115 15,739,059,828 3.98
2010 145,323,985,745 26,231,766,380 5.54
2011 27,251,890,628 14,573,203,544 1.87
2012 14,937,533,633 12,144,336,287 1.23
2013 14,069,848,169 13,273,441,669 1.06
2014 14,069,745,165 14,356,882,821 0.98
2015 13,331,078,755 15,683,622,065 0.85
16 One Bank 2006 3,099,107,474 3,038,340,661 1.02
2007 4,671,448,766 3,797,925,826 1.23
2008 8,355,436,817 4,747,407,282 1.76
2009 37,789,361,967 9,494,814,565 3.98
2010 87,668,787,813 15,824,690,941 5.54
2011 16,440,095,589 8,791,494,967 1.87
2012 9,011,282,341 7,326,245,806 1.23
2013 8,911,267,268 8,406,855,913 1.06
2014 9,399,690,527 9,591,520,946 0.98
2015 9,263,446,901 10,898,172,825 0.85
17 SIBL 2006 5,768,556,069 4,210,624,868 1.37
2007 8,052,820,060 5,263,281,085 1.53
2008 11,579,218,387 6,579,101,356 1.76
2009 53,159,138,960 13,158,202,713 4.04
2010 121,494,071,715 21,930,337,855 5.54
2011 24,732,547,692 12,183,521,030 2.03

119
 2012 16,752,341,417 10,152,934,192 1.65
2013 13,754,387,112 11,092,247,671 1.24
2014 10,686,177,387 12,143,383,394 0.88
2015 11,141,400,213 12,955,116,527 0.86
18 Standard Bank 2006 4,499,078,737 3,408,392,982 1.32
2007 7,029,810,526 4,260,491,228 1.65
2008 9,958,898,245 5,325,614,035 1.87
2009 42,285,375,435 10,651,228,069 3.97
2010 82,369,497,070 17,752,046,782 4.64
2011 18,442,404,157 9,862,248,212 1.87
2012 11,999,068,658 8,218,540,177 1.46
2013 9,660,820,537 9,289,250,516 1.04
2014 9,533,166,717 9,727,721,140 0.98
2015 10,096,806,283 11,473,643,503 0.88
19 Pubali Bank 2006 9,078,793,012 7,381,132,530 1.23
2007 14,208,680,120 9,226,415,662 1.54
2008 20,298,114,457 11,533,019,578 1.76
2009 100,106,609,936 23,066,039,156 4.34
2010 191,063,691,007 38,443,398,593 4.97
2011 32,890,463,241 21,357,443,663 1.54
2012 23,849,145,423 17,797,869,719 1.34
2013 25,751,677,161 19,508,846,334 1.32
2014 21,466,774,808 22,130,695,678 0.97
2015 18,867,162,510 24,188,669,884 0.78
20 Rupali Bank 2006 6,482,426,606 4,837,631,796 1.34
2007 9,493,852,399 6,047,039,745 1.57
2008 14,966,423,368 7,558,799,681 1.98
2009 60,016,869,464 15,117,599,361 3.97
2010 119,932,954,933 25,195,998,936 4.76
2011 26,175,843,339 13,997,777,186 1.87
2012 19,246,943,631 11,664,814,322 1.65
2013 14,727,527,723 11,877,038,486 1.24
2014 13,114,049,736 14,902,329,246 0.88
2015 10,011,865,470 12,835,724,962 0.78
21 National Bank 2006 17,325,997,351 9,265,239,225 1.87
2007 23,510,544,534 11,581,549,032 2.03
2008 38,363,881,167 14,476,936,289 2.65
2009 137,820,433,476 28,953,872,579 4.76
2010 267,340,756,812 48,256,454,298 5.54
2011 47,720,271,473 26,809,141,277 1.78
2012 36,862,569,256 22,340,951,064 1.65

120
 2013 32,867,271,307 23,816,863,266 1.38
2014 26,322,045,564 26,859,230,167 0.98
2015 28,759,873,415 33,441,713,273 0.86
22 Premier Bank 2006 5,217,633,172 2,964,564,302 1.76
2007 7,337,296,648 3,705,705,378 1.98
2008 10,746,545,595 4,632,131,722 2.32
2009 43,264,110,284 9,264,263,444 4.67
2010 84,150,392,952 15,440,439,074 5.45
2011 16,212,461,027 8,578,021,708 1.89
2012 11,794,779,848 7,148,351,423 1.65
2013 10,941,823,454 7,986,732,448 1.37
2014 8,675,069,197 8,943,370,306 0.97
2015 9,117,832,132 10,244,755,204 0.89
23 Jamuna Bank 2006 5,009,269,138 3,454,668,371 1.45
2007 8,550,304,218 4,318,335,464 1.98
2008 14,304,486,223 5,397,919,329 2.65
2009 43,939,063,342 10,795,838,659 4.07
2010 105,619,288,213 17,993,064,432 5.87
2011 20,292,178,220 9,996,146,906 2.03
2012 16,493,642,396 8,330,122,422 1.98
2013 14,855,511,561 8,895,515,905 1.67
2014 11,155,800,462 10,830,874,235 1.03
2015 15,414,689,107 15,729,274,599 0.98
24 FSIBL 2006 3,128,073,464 2,369,752,624 1.32
2007 5,213,455,774 2,962,190,781 1.76
2008 7,442,504,336 3,702,738,476 2.01
2009 29,473,798,267 7,405,476,951 3.98
2010 58,996,966,380 12,342,461,586 4.78
2011 12,068,184,662 6,856,923,103 1.76
2012 8,285,448,750 5,714,102,586 1.45
2013 6,877,601,980 6,613,078,827 1.04
2014 8,214,407,172 8,646,744,392 0.95
2015 8,793,413,541 9,992,515,388 0.88
25 Trust Bank 2006 5,517,903,771 3,385,217,037 1.63
2007 8,336,096,955 4,231,521,297 1.97
2008 12,588,775,858 5,289,401,621 2.38
2009 38,372,204,487 9,617,093,856 3.99
2010 73,681,734,469 14,795,529,010 4.98
2011 13,726,963,026 8,219,738,339 1.67
2012 9,932,183,826 6,849,781,949 1.45
2013 7,488,210,858 7,200,202,748 1.04

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 2014 7,361,925,001 8,461,982,760 0.87
2015 7,680,297,938 9,846,535,818 0.78
26 Uttara Bank 2006 5,003,905,975 4,068,216,240 1.23
2007 8,950,075,727 5,085,270,300 1.76
2008 12,776,741,628 6,356,587,874 2.01
2009 50,471,307,723 12,713,175,749 3.97
2010 100,857,860,942 21,188,626,248 4.76
2011 20,953,197,068 11,771,459,027 1.78
2012 15,302,896,735 9,809,549,189 1.56
2013 11,129,189,118 10,701,143,383 1.04
2014 11,972,249,475 12,216,581,097 0.98
2015 11,617,750,575 13,201,989,290 0.88
27 IBBL 2006 26,547,746,348 18,059,691,393 1.47
2007 31,194,012,406 20,522,376,583 1.52
2008 57,206,124,725 25,652,970,729 2.23
2009 180,037,212,751 46,641,764,961 3.86
2010 317,164,001,737 66,631,092,802 4.76
2011 141,829,040,392 47,593,637,716 2.98
2012 80,909,184,117 39,661,364,763 2.04
2013 86,263,687,522 43,788,673,869 1.97
2014 54,503,932,102 46,584,557,352 1.17
2015 48,238,499,078 47,292,646,155 1.02
28 IFIC Bank 2006 4,067,051,867 3,081,099,899 1.32
2007 6,354,768,542 3,851,374,874 1.65
2008 9,676,579,371 4,814,218,592 2.01
2009 38,995,170,598 9,628,437,185 4.05
2010 76,385,601,666 16,047,395,308 4.76
2011 21,899,974,773 9,439,644,299 2.32
2012 12,271,537,588 7,866,370,249 1.56
2013 11,372,262,568 9,245,741,925 1.23
2014 12,134,949,088 11,897,008,910 1.02
2015 12,122,973,560 12,370,381,184 0.98
29 ICB Islami Bank 2006 (3,247,063,810) (2,270,673,993) 1.43
2007 (4,683,265,111) (2,838,342,492) 1.65
2008 (7,024,897,666) (3,547,928,114) 1.98
2009 (15,788,280,109) (4,434,910,143) 3.56
2010 (26,554,024,481) (5,543,637,679) 4.79
2011 (16,076,549,268) (6,929,547,098) 2.32
2012 (15,071,764,939) (8,661,933,873) 1.74
2013 (11,491,502,736) (9,342,685,151) 1.23
2014 (9,436,630,764) (9,629,215,065) 0.98

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 2015 (8,599,792,425) (9,772,491,392) 0.88
30 UCBL 2006 8,237,358,935 6,697,039,785 1.23
2007 12,891,801,585 8,371,299,731 1.54
2008 24,486,051,712 10,464,124,663 2.34
2009 90,410,037,091 20,928,249,327 4.32
2010 178,587,727,587 34,880,415,544 5.12
2011 48,614,579,165 21,800,259,715 2.23
2012 32,337,051,911 18,166,883,096 1.78
2013 30,142,029,822 20,504,782,192 1.47
2014 22,076,151,267 22,526,684,966 0.98
2015 22,583,140,305 25,662,659,438 0.88

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