Concept of Bank & Bank

Management…..
Bank
Bank is a business organization like any other business
organization and its main objective is to earn profit except
central bank & specialized bank.
One of the unique characteristics of Bank is it doesn’t sell
ready goods like other producers rather it is a service
selling institution. And its service is known as product.
A Bank usually have two kinds of clients base.. One kind
of client supply fund to bank as deposit and other kind of
client take money from that deposit as loan.
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Thus Bank is a financial institution that
collects society's surplus money & give loan
from that money as loan for earning profit.
We therefore say that Bank is intermediary
institution that makes relationship between
the owners of surplus savings and investor
of deficit capital. Aside from these two
major activities a Bank also does some
auxiliary and fee/commission based
activities in order to earn profit.
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 The main activities are summarized below:
 Receive current deposit and give withdrawal facilities
to clients through cheque
 Receive term deposit and pay interest for it .
approve and disburse loans and advance.
 Discounting notes, investing other credit
instrument
 Collect cheque, draft, note etc on behalf of clients.
 Act as a trustee in accordance with government
permission.
Banking is nothing but doing the Bank
Business.
Bank Management
Management is a process of achieving
organizational objectives by using the
available resources effectively & efficiently.
The only way to make handsome amount of
profit compared to similar level of
organization is to establish skilled &
efficient management. Bank being an
sensitive organization is no exception to this
rule.
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A bank is a profit-oriented financial organization;
therefore its management procedure is more
challenging as regulatory system always is there
to control the bank management.
Bank unlike other organization deals with variety
of elements such as money (loan, deposit,
liquidity), human resources, technology,
regulatory body (BB, SEC) etc. Thus Bank
Management is nothing but proper management
of all these items.
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We can say Reliability of the bank management is
determined by the following characteristics:
Management expertise in strategic analysis, planning,
policy development and management functions;
Risk management (credit, interest rate and exchange
risks);
Liquidity management;
Management of human resources;
Management of Information Technology
Management of control systems: audit and internal
audit , monitoring of profitability and risks of liquidity;
Importance of Bank Management

Following diagram shows how the bank

management becomes more challenging
over time:
Changing Regulation of Banks:
Day by day bank management becomes more challenging by
introducing rules and regulations by bank regulatory authorities.
Introduction of deposit insurance.
Direction for adequate liquidity.
Direction for capital adequacy.
Direction for approval and non-approval of bank loan operation.
Rescheduling & classification
Recruitment of directors and direction regarding recruitment
and directing their duties and responsibilities.
Loan supervision, review, and examination.
Direction for adequacy reserve etc.
IncreasingCompetition due to Changing
Technological Development
The bank, which can attract more clients,
can create client repeatedly. This
technological environment absorbed more
investment and new training.
Changing International Relationship
Changes in international trade and
commerce, laws of fund transfer, change
in social and cultural factors establish new
operational management system which
challenges the banking business.
Evolution of Banking Institution
The Banking system as it exist today is the
product of number of centuries.
According to expert the word Bank derived
from the “Banco” “Bancus” “Banque” or
“Banc” all of which means a bench upon
which the ancient European money
changers and lenders display their coins.
As early as 2000 B.C Babylonians had
developed a system of Banks.
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The Bank of Venice established in 1157 is
supposed to be the most ancient Bank.
Originally it was not bank in modern sense
rather it was a office for the transfer of public
debt.
As early as 1349, business banking was carried on
by the drapers of Barcelona. In 1401 formal
public business bank was established in there
who received deposit, exchanges money,
discount bills etc for both locals and foreigners.
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 In 1609 , The Bank of Amsterdam was established to meet
the need of its merchants which accepted all types of
deposits & allow the depositors to withdraw these deposit
on demand and transfer these from one to another.
 In the beginning of 17th century, the function of
Goldsmith also mark a turning point for the development of
modern banking system in England.
 The ruin of goldsmith resulted in the growth of private
banking and the establishment of Bank of England in 1694.
 But the development of modern commercial banking
institution was stated only when Banking Act of 1883 was
passed.
Brief History of Banking System of
Bangladesh and Indo-Pak Subcontinent
For the growth & development of modern
banking the role of Indo-Pak Subcontinent
have a positive role
The Ancient Era: There was a lot
archeological symbols of Harappa
(nortwestern asia present day afganistan,
pakistan northwest india in 2600 BC) and
Mahenjodaro (sind, pakistan 2500 BC) that
some form of banking was there .
In the Moghal Period (1500) goverment
tresury was there, the govt also introduces
gold and silver coins named Ashrafi.
Among the local bankers Marwori,
Multani, Kabuliwala, shet etc worth
mention.
In 1700 The Hindustan Bank was
established as a joint venture Bank.
British Period : In 1784 Bengal bank
first introduced paper currency notes.
Later in between 1780 s to 1840s General
bank of India, Bank of Bombay, Bank of
madras were establised.
Joint stock companies act in 1850
permits corporate sector to come in
Banking business as per provision of
the act.
 The first Bank established under this act was
OUDH Commercial Bank in 1881 followed by
Punjab National Bank in 1895 and Peoples Bank in
1901.
 Imperial bank of India was establised by merging
Bank of Bengal, Bank of Bombay, Bank of madras
in 1920.
 The Reserve Bank of India was established on
April 1, 1935 in accordance with the provisions
of the Reserve Bank of India Act, 1934 (Central
Bank)
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In Pakistan period – during the
separation in 1947 near aboot 700
branches of dirreferent bank were parts
of pakistan (includig east pakistan now
Bangladesh). The Head office of Habib
Bank & Muslim Commercial bank were
transfered to karachi.
In 1948 the state bank of pakistan was
establised as cental bank.
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In Bangladesh Era- After the liberation in
1971, in an attempt to rehablitate war
devastating banking sector goverment
promulgated a law called Bangladesh
Bank Order and Branch of State Bank of
Pakistan in Dhaka was declared as Central
Bank of bangladesh named as
“Bangladesh Bank”.
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 This reorganization was done pursuant to

Bangladesh Bank Order, 1972, and the
Bangladesh Bank came into existence
retroactively from 16 December 1971.
 Nationalized Commercial Banks (NCBs) were
established in Bangladesh in 1972 through
amalgamation of all twelve commercial banks
that were operating in pre-independent
Bangladesh by a special order named
“Bangladesh Bank (Nationalization) oreder 1972
on 26th march of 1972.
Types of Bank

Bank can be classified based on

ownership and operational activities.
Based on Operation or activities Bank can
be classified as
1. Central Bank
2. Commercial Bank
3. Specialized Bank-
 Central Bank: Central bank is apex regulatory body for the
country's monetary and financial system. Central Bank monitors
controls & supervises the banking system of a country,. The
major functional areas include :
Formulation and implementation of monetary and credit policies.
Regulation and supervision of banks and non-bank financial
institutions
Management of the country's international reserves.
Issuance of currency notes.
Acting as banker to the government .
Money Laundering Prevention.
Collection and furnishing of credit information.
Commercial Bank:
Receive deposit & lend money & other
commercial activities thus earning profit
is the main purpose.
Specialized Bank:
Established & operated for specific
purpose or to develop a specific sector.
On the basis of ownership Bank can be
classified as
Nationalized / State owned Banks
(SOBs):
Private Commercial Banks (PCBs)
Foreign Commercial Banks (FCBs)
State owned Banks (SOBs): The Banks which
are fully or majorly own by state or
government are known as State Owned Banks
(SOBs). They again can be
State Own Commercial Banks – Janata
Bank Limited, Sonali Bank Limited, Agrani
Bank Limited, etc.
State Own Specialized Banks – Bangladesh
Krishi Bank, Rajshahi Krishi Unnayon Bank,
BDBL, BASIC Bank Limited etc.
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Foreign Commercial Banks (FCBs):
These Banks are fully or majorly owned
by foreign nationals or entities. There are
9 FCBs  operating in Bangladesh as the
branches of the banks which are
incorporated in abroad.
Bank Al-Falah Standard Chartered B
Limited ank
Citibank N.A State Bank of India

Commercial Bank of Punjab National Ban

Ceylon PLC k
Habib Bank Limited Woori Bank

National Bank of Pak

istan
HSBC
Private Commercial Banks (PCBs): The Banks which
are fully or majorly own by private entities are known
Private Commercial Banks. PCBs can be categorized
into two groups:
 Conventional PCBs:  They perform the banking
functions in conventional fashion i.e interest based
operations.
 Islami Shariah based PCBs: There are 8 Islami
Shariah based PCBs in Bangladesh and they execute
banking activities according to Islami Shariah based
principles i.e. Profit-Loss Sharing (PLS) mode.
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All these Bank again can be classified as
schedule Bank and Non-Schedule Bank
Scheduled Banks: The banks which get
license to operate under Bank Company
Act, 1991 (Amended upto 2013) are
termed as Scheduled Banks. There are 58
scheduled banks in Bangladesh who
operate under full control and supervision
of Bangladesh Bank
 Non-Scheduled Banks: 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 Banks. These banks cannot
perform all functions of scheduled banks. There are
now 5 non-scheduled banks in Bangladesh which are:
Ansar VDP Unnayan Bank,
Karmashangosthan Bank,
Grameen Bank,
Jubilee Bank,
Palli Sanchay Bank
Non Bank Financial Institutions (FIs) 
Non Bank Financial Institutions (FIs) are those types of
financial institutions which are regulated under Financial
Institution Act, 1993 and controlled by Bangladesh Bank.
The major difference between banks and FIs are as
follows:
FIs cannot issue cheques, pay-orders or demand drafts.
FIs cannot receive demand deposits,
FIs cannot be involved in foreign exchange financing,
FIs can conduct their business operations with diversified
financing modes like syndicated financing, bridge
financing, lease financing, securitization instruments,
private placement of equity etc.
 The Board of Directors of Bank
 Board of Directors are the agents of the
shareholders of a bank like any other public
limited company. They can be elected among
shareholders in Annual General Meeting or
selected by Govt, in case of SoBs.
 They are the supreme authority of the bank.
 BOD oversees the overall functions of a bank
whether it is performed efficiently or not and
solves all the problems.
 Successful Bank needs competent, suitable and
efficient BODs.
 Who can be Director of a Bank
Must have management/business/professional
experience not less than 10 years.
Not convicted in any criminal offense by
court of the country/law or involved in fraud,
forgery, financial crime or illegal activities
Not default borrower
Has not adjudicated a bankrupt by court
Has not violated any rules, regulations, or
discipline set by regulatory authority.
 Functions of Board of Directors
Selection of Chief Executive Officer (CEO):
To strengthen the strong financial base and to gain
the confidence of depositors BODs appoint
honest, efficient, & experience CEO with
approval of Bangladesh Bank (BB)
Set Goals- sound policies and objectives
BOD is the top most hierarchical body of bank.
The Board determine the goals and objectives
(vision and mission). They also make strategies
and work plan to achieving it.
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Supervision of Bank Affairs :
There are separate body of BODs- who
regularly supervise the day to day
operation of the Bank. They maintain
close contact with top management of the
bank. There are certain things that
management can’t perform, they need to
take permission and proper supervision
from the Board.
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Managing Risk:
The most important task and challenge of board is to
managing risk of Bank operation such as – Credit Risk,
IT Risk, Liquidity Risk, Internal Control Risk etc.
 Compliance :
Compliance is to comply with rules and regulation of
law and other directions of regulatory bodies such as
SEC, BB, NBR etc. This is the challenge of future. For
example the threat of money laundering can be avoid
by proper compliance. Other compliance activities are-
maintaining CRR, SLR, provisioning of loans and
advance, etc
Except these broad categories of function
BoDs also perform a number of activities
such as Allocate resources, Protecting
the interest of shareholders,
performance appraisal of executives,
dividend declaration, business
development etc.
 Formation of Board of Directors
There are different ways through which director of
Board can be appointed-
 Appointment from Promoter/ sponsor directors
Appointment from general shareholders
(at least 2% share must be hold by them for both cases)
Appointment from depositors/ Third party –
independent director (BB can intervene in this
appointment of such director.
Observer of BB – they are not director but present in
the board meeting on behalf of BB
 For government Bank and SoBs all director are appointed
by Government ( Ministry of Finance- Banking Division
– now financial institution division).
 Maximum number of member of board : 13
 Meeting of the board: once or more than once in a
month but must sit once in a three months. Excessive
meeting discourage
 Maximum number of family members 04, (previously 2)
 Tenure 03 term, 03 year each, previously 02 terms
 Tenure of chairmanship : 01 year, renewable
consecutively for three years.
 Formation of Committee from Board of
Directors
ExecutiveCommittee
Audit Committee
Risk management Committee
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Executive Committee
Within the members of the board
To continue daily or routine work between the
intervals of two board meeting
 Comprised of maximum seven (07) members, 03
years term
They can do only delegated power by board
assigned to them
All decision must be ratified in next board meeting
They can meet any time they deem fit
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Audit Committee
Audit committee assist the board in fulfilling their oversight

activities.
The committee will review financial reporting process, internal

control system and management of financial risk (fraud, forgery),
the audit process.- both internal and external with IT audit
They comprised of 05 members with min 02 independent director

Should not include executive committee members

03 years term

They must sit at least 04 times in a year

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Risk Management Committee
 To minimize the risk associate with banking operation
is the major responsibilities of Risk Management
committee. The risks are
Credit Risk
Foreign Exchange Risk
ICC Risk
Interest Risk
Money Laundering Risk
ICT Risk
Management Risk
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They are comprised of 05 members in a
three year term
At least 04 meeting in a year.
 Bank Management Guidelines in
Bangladesh
Guidelines to establish a banking company in
Bangladesh: According 
to Section 31 of the Banking 
Companies Act, 1991, no company shall  carry out 
banking  business  in  Bangladesh  without 
obtaining  a  license  from  Bangladesh  Bank. 
Must be a public limited company incorporated in B
angladesh. 
The paid up capital of new commercial bank shall 
not be less than Taka  400.00  Crore 
Guidelines on managing core risks in banking:
five core risks that have been advised to manage in these
guidelines are:
 a)Credit Risks, b) Asset and Liability/Balance Sheet
Risks, c) Foreign Exchange Risks, d) Internal Control
and Compliance Risks and e) Money Laundering Risks.
 Guidelines on Information & Communication
Technology for Scheduled Banks has been introduced
to manage another core risk for the banks to take
adequate measures to prevent the information from
unauthorized access, modification, disclosure and
destruction so that customers' interest is fully protected
Prudential regulations for consumer
financing:
With a view to achieving targeted economic
growth through increasing credit flow to
productive sector by reducing credit flow
from consumer credit, it has been decided
that growth of consumer credit must not
exceed the average growth of total credit
of the bank
Prohibition on bank loan for purchasing land:
It has now been decided that banks shall not provide
any loan/credit facility for purchasing land
Guidelines on Islamic banking
In view of some basic differences in Shariah based
Islamic Banking and interest based banking BB
has introduced guidelines on Islamic Banking to
bring greater transparency and accountability and
therefore governance to the Islamic Banking
Guidelines on Agent banking
Avoidance of high expense for
luxurious vehicles and decoration
The banks will be able to purchase motor
vehicles (sedan car) costing up to Tk 50
Lac, while Jeep (sports utility vehicle) up
to Tk 1 Crore.
Duration Of Maternity Leave For
Female Bank Employees:
 Banks are instructed to set the duration of
maternity leave for any female bank
employee to a period of six months from
the date of commencement of the leave or
her confinement for the purpose of
delivery, whichever is earlier.
Age limit for bank job applicants:
To keep the banks abreast of the
governmental practice of limiting the fresh
applicants’ age at 30, all the scheduled
banks are instructed to comply with this
nationwide accepted norm. The banks are
advised to keep the age limit for the fresh
candidates at 30(thirty) instead of
determining it from their own discretion.
Management of the proposed bank
 A Director or Advisor to any banking company other than t
he proposed 
bank shall not be a Director of the proposed bank.
 The Member of Board of Directors shall be 
restricted to 13 (Thirteen).  
 Maximum  number  of  directors  from a  family  shall 
be  restricted  to  four 
 The  Chief  Executive  Officer  (CEO)  of  the  proposed 
bank  shall  have  at 
least 15 (fifteen) years of experience in the banking profess
ion
Operation of the proposed bank. 
The  ratio  of  urban  and  rural  bank 
branch  has  to  be  1:1
New  Bank  has  to  ensure  finance  at 
least  5%  of  its  total  lending  into 
agricultural sector
The new bank should spent 10% or more 
of its previous year's 
net income to CSR.  
Corporate Governance
Board of Directors and management of the
Bank should comprise of competent and
professionally skilled person with a view
to ensuring good governance in the bank
management.
Restriction on lending to Directors of Private
Bank:
total amount of the loan facilities extendable to a
Director or to his relatives should not exceed
50% of the paid-up value of the shares of that
bank held in Director's own name. And it should
be mentioned in the Balance sheet of the bank
The quarterly statement of liabilities of the
Directors and Ex-Directors of the bank will have
to be submitted to Bangladesh Bank