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BANK PARIKRAMA

A Journal of Banking & Finance

Volume XXXIX Nos. 1 & 2 March & June 2014

BANGLADESH INSTITUTE OF BANK MANAGEMENT


ISSN 1019-7044

Editorial Advisory Board


Dr. Mohammed Farashuddin Dr. Qazi Kholiquzzaman Ahmad
Former Governor, Bangladesh Bank and Chairman
Founder Vice Chancellor & President Palli Karma-Sahayak Foundation
Board of Trustees, East West University

Khondkar Ibrahim Khaled Dr. Mustafa K. Mujeri


Dr. Muzaffer Ahmad Chair Professor Director General
Bangladesh Institute of Bank Management Bangladesh Institute of Development Studies

Motiur Rahman, Ph.D. Dr. Fahad Khalil


JP Morgan-Chase Endowed Professor of Finance and Professor, Department of Economics
MBA Director, McNeese State University University of Washington
United States of America United States of America

Professor Mustafizur Rahman


Executive Director, Centre for Policy Dialogue

Editorial Board
Chairman
Dr. Toufic Ahmad Choudhury
Director General, Bangladesh Institute of Bank Management (BIBM)

Members
Dr. Bandana Saha Abed Ali
Supernumerary Professor, BIBM Consulting Editor, BIBM

Dr. Shah Md. Ahsan Habib Dr. Prashanta Kumar Banerjee


Professor & Director (Training), BIBM Professor & Director (RD&C), BIBM

Md. Mohiuddin Siddique


Associate Professor and Director (DSBM), BIBM

Executive Editor
Dr. Prashanta Kumar Banerjee
Professor and Director (Research, Development & Consultancy), BIBM

Editorial Associates
Md. Nehal Ahmed Atul Chandra Pandit
Associate Professor, BIBM Assistant Professor, BIBM
Contents
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26 Prospects of Bancassurance in Bangladesh: Possible Synergy and
Potentials
- Muhammad Z Mamun
- Fahim Islam

56 Recruitment and Selection Strategy and Institutional Performance:


Evidence from Foreign Banks Operating in Bangladesh
- Md. Khasro Miah
- Khondker Galib B. Mohiuddin
78 Testing Weak-Form Efficiency of the Dhaka Stock Exchange
- Md. Dulal Miah
100 The Role of Deposit Insurance for Banking Sector Stability with
Special Reference to Bangladesh
- Mohammad Mohiuddin Siddque
- Md. Shahid Ullah
- Mohammad Shahriar Siddiqui
113 Green Recruitment and Selection Process Model: Evidence from
the Banking Sector of Bangladesh
- Mohammad Tazul Islam
136 Determinants of Profitability of Banks: Evidence from Islamic
Banks of Bangladesh
- Nusrat Jahan
150 Influencing Parameters of Banks in Agricultural Financing in
Bangladesh
- Tahmina Rahman
176 Motivation for Enhancing Employee Performance: A Study on
Banking Industry of Bangladesh
- Md. Jahir Uddin Palas
187 A Commentary on the Operations of Back to Back LCs in
Bangladesh
- Mahmood-ur-Rahman
220 Note for Contributors and General Readers
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Prospects of Bancassurance in Bangladesh: Possible
Synergy and Potentials

- Muhammad Z Mamun
- Fahim Islam*

Abstract
The paper provides an overview and actual potential of bancassurance in Bangladesh. Banking
institutions and insurers have found bancassurance to be an attractive and profitable hybrid that would be
a complement to their existing activities. The analysis indicates that the portfolio risk and returns for
these two sectors are quite similar and even they do not enjoy different security market line. Therefore,
the argument for synergy may stand valid at least with respect to their stock behavior. Currently, only a
few insurers and banks in Bangladesh are doing just an insignificant portion of bancassurance activities
which are actually add-ons to the existing products like outstanding credit loan securitization and
maturity guarantee. From the different bancassurance models, Distribution Agreement - where banks
act as an intermediary for an insurer in returns of fee by taking only sales regulatory risk - appears
appropriate for Bangladesh to start with as this is the simplest model where degree of integration,
investment requirement and management complexity is low. However, in this model the reward
opportunity and the ability to satisfy customer are also low here. To achieve success in bancassurance,
legal framework, distribution network, partner selection, offered products, consumer behavior, training,
management and remuneration scheme will be the key factors. Media will also play a key role here as it
has been observed that the media is unconcerned to send the right message regarding insurance to the
people. By conducting full service bancassurance activities with professionalism, the economy of
Bangladesh can move significantly one step further.
Keywords: Bancassurance, Full Integration, Portfolio Return, Portfolio Beta, Security Market Line
JEL Classification: G11, G12, G21, G22

The authors are Professor, Institute of Business Administration (IBA), University of Dhaka; and
Executive, Metlife Alico Bangladesh, respectively. Views expressed in this article are the authors own.
Accepted for Publication in July, 2014.
Recruitment and Selection Strategy and
Institutional Performance: Evidence from Foreign
Banks Operating in Bangladesh

- Md. Khasro Miah


- Khondker Galib B. Mohiuddin

Abstract
Foreign banks need to prepare for multiple HRM (Human Resource Management) strategies when
operating with Asian partners. In such cases, depending on bank recruitment and selection strategy,
emphasis on different HRM phases of the operating processes needs to be reevaluated. The purpose of
this paper is to measure recruitment and selection strategy, and impacts of such on bank performance, in
the context of two foreign banks operating in Bangladesh. Data collected using structured questionnaire
and in-depth interviews for this research were analyzed to conclude that the bank with better recruitment
and selection strategy had overall superior performance. The researchers opine that managements of
banks need to maintain effective recruitment and selection practices to enhance performance and to
sustain in the competitive markets. This exploratory study embraces abrupt lessons for recruitment and
selection strategy and also its impact on bank performance, and may pave ways for future studies on this
specialized area.
Keywords: Recruitment and Selection Strategy, Foreign Bank, Organizational Performance
JEL Classification: G21, M12, O15

The authors are Professor and Senior Lecturer, School of Business, North South University,
respectively. Views expressed in this article are the authors own.
Accepted for Publication in March, 2014.
Testing Weak-form of Efficiency of the Dhaka
Stock Exchange

- Md. Dulal Miah*

Abstract
Efficient market hypothesis is still a widely debated issue in the financial literature across the
globe and more so in developing economies. This paper examines weak-form efficiency of the Dhaka
Stock Exchange (DSE) for both observed and corrected (corrected for thin or infrequent trading) daily,
weekly and monthly returns of DSE General Index (DGEN). Both parametric and nonparametric tests
have been applied to detect any conformity to weak form of efficiency. Results of autocorrelation test
show that none of the daily, weekly, and monthly returns follows random walk. This conclusion is
supported by the runs test. Variance ratio test at both homoscedastic and heteroscedastic assumptions
also show that daily and weekly observed returns do not follow random walk. However, if returns are
corrected for infrequent trading, daily and weekly, returns follow random walk. Moreover, monthly
observed and corrected returns at both homoscedastic and heteroscedastic conditions confirm that DSE is
efficient in week form.
Keywords: Dhaka Stock Exchange, Weak form of Efficiency, Nonsynchronous Trading, Variance
Ratio, Autocorrelation
JEL Classification: F36, G14, G15

*
The author is Assistant Professor, College of Economics, Management, and IS, University of Nizwa,
Nizwa, Oman. Views in this article are the authors own.
Accepted for Publication in March, 2014.
The Role of Deposit Insurance for Banking
Sector Stability with Special Reference to
Bangladesh

- Mohammad Mohiuddin Siddque


- Md. Shahid Ullah
- Mohammad Shahriar Siddiqui

Abstract
Deposit Insurance System (DIS) plays an important role in maintaining the financial stability by
protecting at least the small depositors in line with the public policy goal of ensuring social justice. DIS
reduces the possibility of bank run, improves risk management capacity of banks, and provides
arrangement for winding up of failing banks and establishing an exit path. This study attempts to analyze
the features of DIS in the global as well Bangladesh context, the pros and cons of DIS, its implications in
Bangladesh, and to compare the status of DIS of Bangladesh with that of the neighboring countries. The
contribution of DIS to financial stability in Bangladesh is not tested because of governments
forbearance to weak banks, and lack of awareness on the part of the depositors. Therefore, the degree of
moral hazard arising from DIS is not acute in the banking sector of Bangladesh.
Keywords: Deposit Insurance, Banking Sector Stability, Moral Hazard, Bank Run
JEL Classification: G21, G22

The authors are Associate Professor, BIBM; Assistant Professor, BIBM; and Joint Director, Bangladesh
Bank, Dhaka, respectively. Views expressed in this article are the authors own.
Accepted for Publication in August, 2012.
Green Recruitment and Selection Process Model:
Evidence from the Banking Sector of Bangladesh

- Mohammad Tazul Islam*

Abstract
The prime objective of the paper is to develop a model for green recruitment and selection process
in place of currently followed traditional recruitment and selection process. The green recruitment and
selection process is consistent with environment aspect of Corporate Social Responsibility (CSR). Again,
the paper focuses on the status of green recruitment and selection practices in the banking sector of
Bangladesh. The study uses descriptive statistics to explain the status of recruitment and selection
practices. The study finds that 80% sample banks are practicing green recruitment and selection process
but 70% banks are doing duplication of jobs which is more time consuming, laborious and cumbersome
to the candidates, and opposite to the concept of green recruitment and selection. The study finds that the
use of green recruitment and selection process model is cost effective over traditional recruitment and
selection process model. Again, the study finds that banks neither follow the traditional recruitment and
selection process model nor green process model fully. Basically, the banking industry follows the mix
of traditional and green recruitment and selection process model.
Keywords: Recruitment and Selection, Corporate Social Responsibility, Banking Business
JEL Classification: G21, M12, M14

*
The author is Assistant Professor, Bangladesh Institute of Bank Management (BIBM), Dhaka.
Views expressed in this article are the authors own.
Accepted for Publication in March, 2014.
Determinants of Profitability of Banks: Evidence
from Islamic Banks of Bangladesh

- Nusrat Jahan*

Abstract
This empirical study is conducted on randomly selected six Islamic banks of Bangladesh. This
study utilizes widely used Measures of banks profitability which are Return on Asset (ROA), Return on
Equity (ROE) and Return on Deposit (ROD) and these are also commonly suggested tools by
Bangladesh Bank to evaluate banks performance. In addition, this study examined the relationship of
ROA with Asset Utilization (AU), Operational Efficiency (OE) and ROD. The result reveals that EXIM
Bank Limited is performing very good in terms of all profitability measures ROA, ROE and ROD even
though average asset size of Islami Bank Bangladesh Limited is found to be the largest among all six
Islamic Banks. The result of regression found the explanatory variable ROD is significantly associated
with ROA but failed to establish any significant association with operational efficiency and asset
utilization.
Keywords: Profitability, Determinants, Bank, DuPont Analysis
JEL Classification: G21, G30

*
The author is Assistant Professor, School of Business, Chittagong Independent University, Chittagong,
Bangladesh. Views expressed in this article are the authors own.
Accepted for Publication in October, 2013.
Influencing Parameters of Banks in Agricultural
Financing in Bangladesh

- Tahmina Rahman*

Abstract
In spite of mentionable achievements in agriculture, this thrust sector is still facing different
financing constraints in availing of bank financing. This paper aims to identify a range of influencing
parameters for agricultural financing by Bangladeshi banks. The study was mainly based on primary
data. In this study, integration of Bangladesh Banks agro policies with the banks internal policy was
found to be the highest prioritized ranked parameter. On the other hand, Bank-MFIs arrangement for
selecting and/or financing agro entrepreneurs has been ranked as the least prioritized one from bankers
view point. The study comes up with some suggestions like interactions with customers focusing on the
strategic capabilities required to meet customers needs through offering different agro-schemes, offering
different season specific credit facilities to ensure food security in the country, regular counseling, etc.
for minimizing constraints in financing agriculture sector. Regardless of some limitations, the results of
the study may be helpful for ensuring sustainable agricultural financing by banking sector in Bangladesh.
Keywords: Food Security, Agricultural Finance, Value Chain, Micro Finance Institution
JEL Classification: G21, Q14, Q18

*
The author is Lecturer, Bangladesh Institute of Bank Management (BIBM), Dhaka. Views expressed in
this article are the authors own.
Accepted for Publication in March, 2014.
Motivation for Enhancing Employee
Performance: A Study on Banking Industry of
Bangladesh

- Md. Jahir Uddin Palas*

Abstract
Motivation is the force that drives employees to accomplish jobs assigned. Often, employees
specific needs are factors that motivate them. Compensation package resides inside every core
motivational steps. Motivation can be direct or indirect and financial or non-financial. Employees of a
company get motivated if they receive certain incentives against regular activity. In any organization,
good work environment, proper compensation (financial), and training are the significant issues for a
particular employees performance. Good work environment acts is the key inspiration for employees to
sense the workplace resembling own home. It makes themselves capable of making the job assignments
lighter through a welcoming atmosphere than that of in the rough office surroundings. Pertinent
compensation (financial) is indispensable for justified workload as it flags the way of employee
satisfaction in most of the cases. Training, as a slice of learning and development, is the solitary way
about how employees concentrate on well-organized services to the customers and adorn the
organisation with superior service outcome. In this study, a sample of 50 bank officers of different state-
owned, private, and foreign commercial banks were taken by adopting simple random sampling to
explore the association between work environment, compensation, and training with employee
performance. Bank personnel are found not highly enthusiastic in case of training and compensation.
However, about work environment, their response is worth citing.
Keywords: Compensation Package, Financial Incentive, Work Environment, Training, Employee
Performance
JEL Classification:G21, M50

*
The author is Lecturer, Department of Banking and Insurance, University of Dhaka. Views expressed in
this article are the authors own.
Accepted for Publication in July, 2013.
A Commentary on the Operations of Back to Back
LCs in Bangladesh

- Mahmood-ur-Rahman

Abstract
This study has been conducted with a view to identifying the operational procedure of back to back
LCs (Letter of Credits) in Bangladesh, which is very frequently used by the local bankers. Relying on a
survey, the study has discovered and entailed some potent practical issues regarding back to back
operations along with capturing the evolution and operations in detail. Surprisingly, in Bangladesh, back
to back LCs have been found to be very predominant in use as a means of import financing in spite of
global reluctance due to high risk perception. The paper has also covered the global scenario as well as
the regulatory framework for the back to back operations. Moreover, this paper has tried to draw the
distinction between transferable and back to back LCs.
Keywords: Trade Finance, Trade Payment, Back to Back LC, Transferable LC

The author is Assistant Professor, Bangladesh Institute of Bank Management (BIBM), Dhaka.
Views expressed in this article are the authors own.
Accepted for Publication in May, 2012.