CONTENTS

1 Chapter 1: Introduction of the Study ................................................................................. 3

1.1 Origin of the Report .................................................................................................... 3
1.2 Historical Background................................................................................................. 3
1.3 Objectives of the Study ............................................................................................... 3
1.3.1 Primary Objectives............................................................................................... 3
1.3.2 Secondary Objectives........................................................................................... 3
1.4 Limitation of the study ................................................................................................ 4
2 Chapter 2: Methodology of the study ................................................................................ 4
2.1 Time Period of the Study ............................................................................................ 4
2.2 Sources of Data Collection .......................................................................................... 4
2.2.1 Primary Data ........................................................................................................ 4
2.2.2 Secondary Data .................................................................................................... 4
3 Chapter 3: Company Profile of Rajshahi Krishi Unnayan Bank (RAKUB) ..................... 5
3.1 Historical Background: ............................................................................................... 5
3.2 Objectives of RAKUB ................................................................................................ 5
3.3 Capital Investment....................................................................................................... 6
3.4 Organizational Structure ............................................................................................. 7
3.5 Employee Summary: ................................................................................................... 8
3.6 Regulatory Body: ........................................................................................................ 9
3.7 RAKUB at a Glance .................................................................................................. 10
4 Chapter 4: Theoretical Framework of Corporate Governance ........................................ 11
4.1 Corporate Governance............................................................................................... 11
4.2 Organization for Economic Cooperation and Development (OECD) ...................... 11
4.3 OECD Requirements for Corporate Governance ...................................................... 12
4.4 Theoretical Basis of Corporate Governance ............................................................. 14
5 Chapter 5: Corporate Governance of RAKUB ................................................................ 16
5.1 Stakeholders’ interest ................................................................................................ 16
5.2 Rights and Equity management of Shareholders ...................................................... 17
5.3 Duties & Responsibilities of Board of Directors ...................................................... 18
5.4 Role of Board of Directors ........................................................................................ 19
5.4.1 Establish vision, mission and values .................................................................. 19
5.4.2 Set strategy and structure ................................................................................... 19
5.4.3 Delegate to management .................................................................................... 19

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 5.4.4 Exercise accountability to shareholders and be responsible to relevant
stakeholders...................................................................................................................... 20
5.5 Disclosure and Transparency of Rajshahi Krishi Unnayan Bank: ............................ 20
5.6 Internal Corporate Governance Audit of Rajshahi Krishi Unnayan Bank: ............... 21
5.7 Risk Management System ......................................................................................... 22
5.7.1 Elements of a Sound Risk Management System: .............................................. 22
5.7.2 Essential criteria for ensuring sound risk management ..................................... 22
5.7.3 Optimal Risk Management Organogram ........................................................... 23
5.8 Risk Management Process ........................................................................................ 24
5.8.1 Steps of Risk Management Process: .................................................................. 24
5.8.2 Identifying Risks ................................................................................................ 24
6 Chapter 6: Findings and Analysis .................................................................................... 26
6.1 Corporate Governance Issues in Bangladesh ............................................................ 26
7 Chapter 7: Conclusion...................................................................................................... 27
8 Chapter 8: Recommendations .......................................................................................... 28
9 Bibliography .................................................................................................................... 29

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 1 Chapter 1: Introduction of the Study

1.1 Origin of the Report

We, the members of Business Rangers, were assigned to prepare a group report on “Corporate
Governance of Rajshahi Krishi Unnayan Bank (RAKUB)” by our respectable course teacher,
“Dr. Md. Serajul Islam”. We are curious to find out what really Corporate Governance means,
how corporate governance is practiced in Bangladesh, and how strong the corporate
governance of RAKUB is and how it can be improved more.

1.2 Historical Background

Corporate governance is the system of rules, practices and processes by which a firm is directed
and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, management, customers, suppliers,
financiers, government and the community. Since corporate governance also provides the
framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance measurement and
corporate disclosure.

1.3 Objectives of the Study

There are two types of objectives. These are-

1. General objective.
2. Specific objectives.

1.3.1 Primary Objectives

General purpose of this report is to analyze Corporate Governance of Rajshahi Krishi Unnayan
Bank (RAKUB).

1.3.2 Secondary Objectives

Other specific objectives are-

 To know about the history of RAKUB

 To analyze the corporate structure of RAKUB
 To find out how well the corporate governance is at RAKUB
 To know about the current situation of corporate governance in Bangladesh
 To find out the corporate governance issues in Bangladesh.

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 1.4 Limitation of the study
Some problems were faced while preparing this report. Those are:

 Information regarding corporate governance is hard to find.

 Time limitations.
 The company website is not up to date.

2 Chapter 2: Methodology of the study

2.1 Time Period of the Study

The report was started on March 15, 2019. A survey through internet was done from March 16
to March 20, 2019. And finally, the report was finished on March 23, 2019.

2.2 Sources of Data Collection

These are given below:

2.2.1 Primary Data

No primary data was collected while preparing this report.

2.2.2 Secondary Data

Most of the data has been collected from internet survey and secondary publications like
journals and reports.

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 3 Chapter 3: Company Profile of Rajshahi Krishi Unnayan Bank
(RAKUB)

3.1 Historical Background:

Rajshahi Krishi Unnayan Bank (RAKUB) is a state-owned bank in Bangladesh with regional
approach. The bank emerged as the government's plan of intensive care to agriculture of
Rajshahi and Rangpur administrative divisions providing livelihood to 35 million people of the
area. The region is less developed compared to other parts, yet full of potentials in agriculture.
Rajshahi and Rangpur divisions characterized by its surplus food grain production are
popularly called the "granary of the country". Besides catering to agricultural credit, RAKUB,
as it is acronymed, renders deposit banking services through all the 377 branches. The
headquarters of the bank is stationed at Rajshahi city, some 270 kilometers to the north of
Dhaka. As the largest development partner in agriculture of the northwest region RAKUB aims
at overall development of farmers and all the sectors and sub-sectors of agriculture in this
region. The bank also performs functions like financing agri-business and agro-based industries
and poverty alleviation programs. Present authorized capital of the bank amounts to Tk 7500
million and paid-up capital Tk 5700 million. Reserves stand at Tk 208.50 million as on 30 June
2014.

3.2 Objectives of RAKUB

The main objectives of RAKUB is to be given loan to the basic sector or sub sector and
supplementary sector of the agriculture such as crops production, animal husbandry, poultry,
fishery, livestock diary, horticulture, forestry, purchasing machinery for irrigation and
agriculture goods and inputs trade, storage of agricultural goods. Some objectives are given
below:

 To provide credit facilities for agricultural development of poor farmers

 To develop the agro-based industries
 To alleviate poverty
 To modernize the agriculture
 To develop the social state of the villagers
 To inspire the farmers for taking loan as micro credit
 To increase self-dependence of land less marginal and small farmer.
 To develop socio-economic condition of the farmers of the North-West region of the
country

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 3.3 Capital Investment
RAKUB is a governmental banking institute, So the main sources of capital are government
fund, as on 31st December, 2012, the details about the capital are as follows-

 Authorized Capital: Tk. 7500 Million

 Paid up Capital: Tk. 5700 Million
 Reserve Capital: Tk. 208.50 Million

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 3.4 Organizational Structure
The Head Office of the bank is stationed at Rajshahi. The branch-network comprises 376
branches including one in Dhaka, Five zonal and thirteen offices. The bank has a training
institute located at Rajshahi. Total workforce of 4117 as on 30-04-2014 was composed of 2008
officers and 2109 other staffs. Regional offices stationed in district headquarters control
branches under them. There are independent regional audit offices for conducting regular audit
in branches as well as in regional and zonal.

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 3.5 Employee Summary:

Table: Employee Summary of RAKUB (Up to November, 2012)

Designation Authorized Existing Vacant

1.Managing Director (MD) 01 01 -
2.Deputy Managing Director (DMD) 01 01 -
3.General Manager (GM) 05 05 -
4. Deputy General Manager (DGM) 45 38 7
5.Assistant General Manager (AGM) 69 78 9
6.Senior Principal officer (SPO) 222 201 21
7.Principal officer (PO) 462 337 125
8.Senior officer (SO) 949 514 435
9.Officer 1600 987 613
Total Officer 3233 2039 1194
10.Other Employees 2618 1230 1388
Total 5851 3269 2582

Source: Personnel department of RAKUB

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 3.6 Regulatory Body:
The board is vested with the responsibility of formulation of policy in line with attainment of
growth in agriculture and economic development of the region through agricultural credit
support. The board of directors is constituted by seven members, all appointed by the
government. Besides, for emergency decisions there is an executive committee constituted of
the chairman of the board and two other members: the managing director and one of the
directors elected by the board. The managing director is the chief executive of the bank.

Chairman Prof. Dr. M. Shah Nowaz Ali

Managing Director Mr. Md. Mofazzal Husain

Director Mr. Saifuddin Ahmed

Director Mr. Md. Ekram Hossain

Director Prof. Dr. Madan Mohan Dey

Director Mr. Helaluddin Ahmed

Director Md. Abaydur Rahman Pramanik

Secretary Jamil Ahmed

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 3.7 RAKUB at a Glance
01) Establishment : 15th March, 1987.
02) Authorized Capital : Tk. 750.00 (in crore).
03) Paid up Capital : Tk. 570.00 (in crore).
04) Reserve : Tk. 20.85 (in crore)
05) Area of RAKUB:
a. Area : Rajshahi & Rangpur Division
b. Spread : 34,513 Square.K.M.
c. District : 16
d. Upazilla : 123
e. Union : 1092
i) SACP : 452
ii) Non- SACP : 640
f. Total Populations : About 4.00 crore
g. Total No. of Family : 51 lakhs.
h. Agricultural Family : 32 lakhs.
06) Total Branch : 367
i) Municipal : 66
ii) Union : 301
07) Total manpower : 3269
i) Officers : 2039
ii) Workforce : 1230
08) Zonal /Regional office : 18
09) Regional Audit office : 18
10) Regional officer : 13
11) Zonal officer : 5
12) Loan disbursement:
Target : Tk. 52.50 (in crore)
Achievement : Tk. 57.44 (in crore)
Performance : 109%
13) Loan Recovery:
Target : Tk. 50.00 (in crore)
Achievement : Tk. 24.29 (in crore)
Performance : 48.58%
14) Website : www.rakub.org.bd.

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 4 Chapter 4: Theoretical Framework of Corporate Governance

4.1 Corporate Governance

Corporate Governance deals with problems that result from the separation of ownership and
control. It focuses on some structures and mechanisms that would ensure the following things:

 The proper internal structure and rules of the board of director

 Creation of independent committees
 Rules for disclosure of information to shareholders and creditors
 Transparency of operations and an impeccable process of decision- making
 Control of management

Corporate governance is concerned with holding the balance between economic and social
goals and between individual and communal goals. The corporate governance framework is
there to encourage the efficient use of resources and equally to require accountability for the
stewardship of those resources. The aim is to align as nearly as possible the interests of
individuals, corporations and society” (Sir Adrian Cadbury, 2000).

Asian Development Bank (ADB) describes corporate governance as, “(i) a set of rules, that
define the relationship between shareholders, managers, creditors, the government and
stakeholders, (ii) a set of mechanism that help directly or indirectly to enforce these rules”
(Asian Development Bank 2000, p.5).

4.2 Organization for Economic Cooperation and Development

(OECD)
OECD started operation in 1961 to convene governments of countries focused on democracy
and the market economy to support sustainable economic growth, boost employment, raise
living standards, maintain financial stability, assist in enhancing economic development, boost
growth in world trade, share expertise and exchange views. Its principles of corporate
governance serve as framework for Country Corporate Governance Assessment which is part
of Reports on the Observation of Standards and Codes (ROSC) coordinated by World Bank
and International Monetary Fund. ROSC summarize the extent to which countries observe
certain internationally recognized standards and codes.

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The IMF has recognized 12 areas and associated standards as useful for the operational work
of the Fund of the World Bank. These comprise:

 Accounting
 Auditing
 Anti-money laundering and countering the financing of terrorism
 Banking supervision
 Corporate Governance
 Data dissemination
 Fiscal transparency
 Insolvency and creditor rights
 Insurance supervision
 Monetary and financial policy transparency
 Payments systems
 Securities regulation

4.3 OECD Requirements for Corporate Governance

OECD has emphasized the following requirements of corporate governance:

The six OECD Principles are:

 The rights of shareholders and key ownership functions

 The equitable treatment of shareholders
 The role of stakeholders in corporate governance
 Disclosure and transparency
 The responsibilities of the board

The rights of shareholders and key ownership functions

The corporate governance framework should protect and facilitate the exercise of shareholders’
rights. Basic shareholder rights should include the right to:

1. Secure methods of ownership registration;

2. Convey or transfer shares;
3. Obtain relevant and material information on the corporation on a timely and regular
basis;

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 4. Participate and vote in general shareholder meetings;
5. Elect and remove members of the board; and
6. Share in the profits of the corporation.

The equitable treatment of shareholders

The corporate governance framework should ensure the equitable treatment of all shareholders,
including minority and foreign shareholders. All shareholders should have the opportunity to
obtain effective redress for violation of their rights. The principles also state that:

 All shareholders of the same series of a class should be treated equally

 Insider trading and abusive self-dealing should be prohibited
 Members of the board and key executives should be required to disclose to the board
whether they, directly, indirectly or on behalf of third parties, have a material interest
in any transaction or matter directly affecting the corporation.

The role of stakeholders in corporate governance

The corporate governance framework should recognize the rights of stakeholders established
by law or through mutual agreements and encourage active co-operation between corporations
and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

Disclosure and transparency

The corporate governance framework should ensure that timely and accurate disclosure is made
on all material matters regarding the corporation, including the financial situation,
performance, ownership, and governance of the company.Disclosure and transparency should
be the cornerstone of corporate governance laws and codes. Business organizations should
disclose their financial and operating results, ensuring that their shareholders and other
stakeholders understand the nature of the organization’s operations, current state of affairs and
future direction in terms of developments.

The board of directors should also disclose the inherent risks and estimates used in preparing
the financial and operating results in order to give investors a clear understanding of the board
and management’s business judgment.

The responsibilities of the board

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The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board’s accountability to the
company and the shareholders.

4.4 Theoretical Basis of Corporate Governance

There are four broad theories to explain and elucidate corporate governance. These are:

 Agency Theory
 Stewardship Theory
 Stakeholder Theory
 Sociological Theory

Agency Theory
Agency theories arise from the distinction between the owners (shareholders) of a company or
an organization designated as "the principals" and the executives hired to manage the
organization called "the agent." Agency theory argues that the goal of the agent is different
from that of the principals, and they are conflicting. The assumption is that the principals suffer
an agency loss, which is a lesser return on investment because they do not directly manage the
company. Part of the return that they could have had if they were managing the company
directly goes to the agent. Consequently, agency theories suggest financial rewards that can
help incentivize executives to maximize the profit of owners.

Stewardship Theory
Stewardship theories argue that the managers or executives of a company are stewards of the
owners, and both groups share common goals. Therefore, the board should not be too
controlling, as agency theories would suggest. The board should play a supportive role by
empowering executives and, in turn, increase the potential for higher performance. Stewardship
theories argue for relationships between board and executives that involve training, mentoring,
and shared decision making

Stakeholder Theory
Stakeholder theories are based on the assumption that shareholders are not the only group with
a stake in a company or a corporation. Stakeholder theories argue that clients or customers,
suppliers, and the surrounding communities also have a stake in a corporation. They can be

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affected by the success or failure of a company. Therefore, managers have special obligations
to ensure that all stakeholders (not just the shareholders) receive a fair return from their stake
in the company. Stakeholder theories advocate for some form of corporate social responsibility,
which is a duty to operate in ethical ways, even if that means a reduction of long-term profit
for a company. In that context, the board has a responsibility to be the guardian of the interests
of all stakeholders by ensuring that corporate or organizational practices take into account the
principles of sustainability for surrounding communities.

Sociological Theory
The sociological theory has focused mostly on-board composition and wealth distribution.
Under this theory, board composition, financial reporting and disclosure and auditing are of
utmost importance to realize the socio-economic objectives of corporations that is to promote
equity and fairness in society.

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 5 Chapter 5: Corporate Governance of RAKUB

5.1 Stakeholders’ interest

Stakeholders are any group or individual that can affect or is affected by the achievement of
the corporation’s achievement. There are three types of stakeholder. Primary stakeholders are
the people or groups that stand to be directly affected, either positively or negatively, by an
effort or the actions of an agency, institution, or organization. Secondary stakeholders are
people or groups that are indirectly affected, either positively or negatively, by an effort or the
actions of an agency, institution, or organization. Key stakeholders, who might belong to either
or neither of the first two groups, are those who can have a positive or negative effect on an
effort, or who are important within or to an organization, agency, or institution engaged in an
effort.

As a public organization corporate governance becomes a very vital element because the
company depends on the public investment. For that, they need to keep focus on stakeholder.
Rajshahi Krishi Unnoyan Bank is public company but the corporate governance is very
important for the company, because there is a huge amount of money of normal people is
managed by them. The stakeholders are mainly the officers, customers, media person, staffs of
the organization, policy makers and government. Rajshahi Krishi Unnoyan Bank is a
government bank, so the government has taken the responsibility of corporate governance. The
officers are one of the most important stakeholders in the corporate governance. They are the
part of the corporate governance. They run the whole system of the corporate governance. They
have to put maximum effort in this area. All the officers are very careful about the corporate
governance. They all maintain the chain of command and maintain the line. The decision-
making system is also relying on this corporate governance. The model of corporate
governance is very common in this bank. There are many departments. They all have same
kind of organogram. The principle also recognized the rights of the stakeholders as established
by law which encourage active Cooperation between the corporation and the stakeholders in
creating wealth and sustainability of such enterprise. There rights include: opportunity to
amends any violation of their right; provide stakeholders with relevant information to enable
them participate actively and permit performance enhancing mechanism for stakeholder
participation; include disclosure and transparency of information. It stipulated that all the
material matter regarding the governance and performance of the corporation should be
disclosed. It also underscore the importance of applying high quality standards of accounting
disclosure and auditing: disclosure should include the financial and operating results; company

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objectives; major share ownership and voting rights; members of the board and key executives
and their remuneration; governance structure and policies information should be prepared,
audited and disclosed in accordance with quality standards, while the channels for
disseminating information should be fair timely and cost-effective. The people who are
involved in the bank activities are all the part of corporate governance. The people have to put
interest about the corporate governance because they have invested huge amount of money and
the money is depending on their decision. Everybody is look forward to them and their
decisions.

5.2 Rights and Equity management of Shareholders

Corporate governance is the system of rules and responsibilities delegated to several groups
within a corporation as well as procedures on handling corporate matters. One of the groups,
shareholders, is given certain rights as owners of corporations. These rights are protected by
law, and honoring them is one of the objectives in corporate governance.

Corporate governance will be very successful if the management of rights and equity of
shareholders are properly maintained.

The rights are-

 Shareholders have rights to vote on company decisions

 Shareholders also have rights to inspect their corporation’s financial information.
 If corporations are distributing profits in the form of dividends, each shareholder has
the right to receive them.
 Shareholders who have been wronged by their corporations also have the right to sue.

These are the rights of any shareholders of the company. The board member and the executive
committee should have proper look on these matters. The RAKUB try to fulfill this
shareholders rights. They take all the steps and decisions to satisfy their shareholders. They are
maintaining a very good equity among the shareholders. So, there is no problem in the
management system about the shareholders. The board members are also care about the risk
issues of all the shareholders. The corporate governance of RAKUB practice this kind of
governance which is control the risk of shareholders and take minimal decisions which will
averse all the risks. They cannot averse the systematic risks, but the decisions and good practice
of corporate governance help them a lot. It is very helpful to maintain the equity of balance and
the rights of them. The board members have practiced very good corporate governance which

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is prioritizing the shareholders position. They know about the game of market and they are
helping the main player. They are confirming the voting powers the dividend factors and they
also keeping the transparency in their all activities. These are the main factors to keep the peace
and maintain all the things. Corporate governance is based on these structures.

5.3 Duties & Responsibilities of Board of Directors

The duties and responsibilities of the board of directors are as follows:

 Trusteeship: The board of directors’ act as trustees to the property and welfare of the
company. Hence, the board must use the company’s property for the long-run gain of the
company, but not for their personal use.

 Formulation of Mission, Objectives and Policies: Board of directors

must see the long run view and have long run perspective of the company. The board
formulates, reviews and reformulates the company’s mission, objectives and policies which
forms the basis for strategy formulation and implementation.

 Designing Organizational Structure: The board designs the structure of the

organization based on the objectives, policies, environmental factors, degree of
competition, role of quality, expectations of employees etc.

 Selection of Top Executives: The board should assume the responsibility of

screening and selecting the top executives who can formulate and implement the strategies.
Chief executives are key personnel in the process of strategy implementation.

 Financial Sanctions: The important financial decisions like sanctioning of

finances to various projects, reserves, distribution of profit to shareholders and repayment
of loans and advances etc., are taken by the board. Further, the board reviews the financial
performance of the company from time to time and reformulates the financial policies.

 Feed forward and Feedback: The board has to obtain information from the
external environmental factors and feed that information forward to various key points in
the company in order to prevent possible hurdles and mistakes in the process of achieving
organizational goals. Further, the board also obtains the information from internal sources
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 of the organization, and feeds it forward to prevent possible failures in decision-making by
the top-level executives.

 Link between the Company and External Environment: The board acts
a vital and continuous link between the company and external environment like
government, other companies, social and economic institutions etc.

5.4 Role of Board of Directors

The roles of the board of directors include:

5.4.1 Establish vision, mission and values

 Determine the company's vision and mission to guide and set the pace for its current
operations and future development.
 Determine the values to be promoted throughout the company.
 Determine and review company goals.
 Determine company policies

5.4.2 Set strategy and structure

 Review and evaluate present and future opportunities, threats and risks in the external
environment and current and future strengths, weaknesses and risks relating to the
company.
 Determine strategic options, select those to be pursued, and decide the means to
implement and support them.
 Determine the business strategies and plans that underpin the corporate strategy.
 Ensure that the company's organizational structure and capability are appropriate for
implementing the chosen strategies.

5.4.3 Delegate to management

 Delegate authority to management, and monitor and evaluate the implementation of

policies, strategies and business plans.
 Determine monitoring criteria to be used by the board.
 Ensure that internal controls are effective.

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  Communicate with senior management.

5.4.4 Exercise accountability to shareholders and be

responsible to relevant stakeholders

 Ensure that communications both to and from shareholders and relevant stakeholders
are effective.
 Understand and take into account the interests of shareholders and relevant
stakeholders.
 Monitor relations with shareholders and relevant stakeholders by gathering and
evaluation of appropriate information.
 Promote the goodwill and support of shareholders and relevant stakeholders.

5.5 Disclosure and Transparency of Rajshahi Krishi Unnayan

Bank:
Transparency is consistent with sound and effective corporate governance. As emphasized in
existing board of director’s guidance on bank transparency, it is difficult for investors,
depositors, other relevant stakeholders and market participants to effectively monitor and
properly hold the board and senior management accountable when there is insufficient
transparency.

The objective of transparency in the area of corporate governance is therefore to provide these
parties with the proportionate size, complexity, structure, economic significance and risk
profile of the bank. At a minimum, banks should disclose annually the following information:

 The recruitment approach for the selection of members of the board and for ensuring
an appropriate diversity of skills, backgrounds and viewpoints; and
 Whether the bank has set up board committees and the number of times key standing
committees have met.

In general, the Rajshahi Krishi Unnayan Bank applies the disclosure and transparency section
of the OECD principles. Accordingly, disclosure includes, but not be limited to, material
information on the bank’s objectives, organizational and governance structures and policies
major share ownership and voting rights, and related party transactions.

Moreover, an annual report on compensation is disclosed to the public by Rajshahi Krishi

Unnayan Bank (RAKUB).

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 5.6 Internal Corporate Governance Audit of Rajshahi Krishi
Unnayan Bank:
The Basel Committee on Banking Supervision is issuing this revised supervisory guidance for
assessing the effectiveness of the internal audit function in banks, which forms part of the
Committee's ongoing efforts to address bank supervisory issues and enhance supervision
through guidance that encourages sound practices within banks.

Banking supervisors must be satisfied as to the effectiveness of a bank's internal audit function
that effective policies and practices are followed and that management takes appropriate
corrective action in response to internal control weaknesses identified by internal auditors.

There is independent assurance to the board of directors and senior management on the quality
and effectiveness of Rajshahi Krishi Unnayan Bank’s internal control, risk management and
governance systems and processes, thereby helping the board and senior management protect
their organization and its reputation.

Rajshahi Krishi Unnayan Bank always try to ensure sufficient standing, skills, assets and
authority within the bank to enable the auditors to carry out their tasks effectively and
objectively.

In this respect-

 RAKUB tries to run the function with full and unconditional access to any records, file
data and physical properties of the bank, including access to management information
systems and records and the minutes of all consultative and decision-making bodies;
 Rajshahi Krishi Unnayan Bank calls for the function to independently assess the
effectiveness and efficiency of the internal control, risk management and governance
systems and processes;
 Rajshahi Krishi Unnayan Bank always involves internal auditors to adhere to national
and international professional standards, such as those established by the Institute of
Internal Auditors;
 Rajshahi Krishi Unnayan Bank (RAKUB) necessitates that audit staff collectively have
or can access knowledge, skills and resources commensurate with the business
activities and risks of the bank;
 This bank calls for timely and effective correction of audit issues by senior
management; and

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  Rajshahi Krishi Unnayan Bank (RAKUB) always requires the function to perform a
periodic assessment of the bank’s overall risk, governance framework including but not
limited to an assessment of:
 The effectiveness of the risk management & compliance functions;
 The quality of risk reporting to the board & senior management;
 The effectiveness of the bank’s system of internal controls.

Rajshahi Krishi Unnayan Bank (RAKUB) is very much efficient to maintain this sequence and
they are always cooperative about the corporate governance. The management tries to provide
all the efforts to make the decisions very quick and maintain a perfect balance in corporate
governance.

5.7 Risk Management System

The success of risk management in banks will depend on the effectiveness of the risk
management system providing the foundation and arrangements that are put in place
throughout the organization at all levels. A bank’s risk management system shall include
policies, procedures, limits, and controls in its foundation. This foundation provides adequate,
timely, and continuous identification, assessment, measurement, monitoring, mitigation, and
reporting of risks posed by its activities at the business line and institution-wide levels.
Bangladesh Bank has Set some rules for the banks for better management of the risk.

5.7.1 Elements of a Sound Risk Management System:

 Active involvement of board and senior management;
 Adequate organization, policies and procedures;
 Appropriate management information systems; and
 Comprehensive internal controls and limits.
5.7.2 Essential criteria for ensuring sound risk management
For ensuring successful risk management across the organization, the following features
should, at least, be present in the bank:

 Submission of consolidated report to the Board and senior management team

incorporating different types of risks, risk mitigation measures, comparison of risk
levels with limits, the level of capital required for absorbing large losses, and
suggestions for restoring capital;
 Consistency between the risks taken by the management and the risks perceived by
the Board;
 Active, firm-wide risk management approach that includes all business lines; d)
Developing in-house expertise relying on various sources/factors including market
data, credit ratings, published analyses, etc.;
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  Alignment of treasury functions with risk management;
 Active management of contingent liabilities;
 Using both firm-specific and market-wide stress scenarios for liquidity management;
 Efficient and effective management of asset and liability;
 Taking the stress testing result into consideration to understand the impact of adverse
scenario on the bank’s profitability or capital;
 Independent risk management function with sufficient authority, logistic support and
continuous communication with business lines;
 Experienced and expert personnel for performing risk management activities;
 Giving importance to the risk management officials’ opinion.

5.7.3 Optimal Risk Management Organogram

Below is the organogram that should be followed by all scheduled banks operating in the
country. Each bank is given the flexibility to enhance the organogram according to their size
and complexity. When the banks will formulate their own risk management policy guidelines,
they should name the various desks specifically in the organogram. If the bank wants, they can
give functional designation to the officials according to the risk areas they are assigned to:

Parties Involved in Management of Risk:

 Board of Directors

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  Board Risk Management Committee (BRMC)
 Executive Risk Management Committee (ERMC)
 Chief Risk Officer (CRO)
 Risk management Division/Department

5.8 Risk Management Process

RAKUB has developed and implement their own guidelines and various types of risk
management tools in consistent with the complexity, size and nature of business, risk strategy
and BB guidelines.

Risk Management is an iterative process that, with each cycle, can contribute progressively to
organizational improvement by providing management with a greater insight into risks and
their impact. It is a series of multi-steps that, when undertaken in sequence, enable continual
improvement in decision-making.

5.8.1 Steps of Risk Management Process:

Step 1 – Communicate and Consult
Step 2 – Establish the context
Step 3 – Identify the risks
Step 4 – Analyze the risks
Step 5 – Evaluate the risks
Step 6 – Treat the risks
Step 7 – Monitor the risks

5.8.2 Identifying Risks

There are two main ways to identify banking risks:

1. Identifying retrospective risks

Retrospective risks are those that have previously occurred, such as incidents or accidents.
Methods of identifying retrospective risks include:
 Audit reports
 Various risk reports
 Regular reports
 Hazard or incident logs or registers
 Customer complaints
 Changes in regulations
 Past employee survey/exit interview
 Media reports (Print or electronic)
 Bangladesh Bank inspection report

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 2. Identifying prospective risks:
Prospective risks are those that have not yet happened, but might happen sometime in the
future.
Methods for identifying prospective risks include:
 Brainstorming with staff or external stakeholders
 Researching the economic scenario (macro or micro both local and global)
 Conducting interviews with the relevant people and/or organizations
 Undertaking surveys of staff or clients to identify anticipated issues or problems or
risks
 Reviewing policy, process, systems

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 6 Chapter 6: Findings and Analysis

In the developed countries, stock market plays the key role in resource mobilization through
financial intermediation, but in the developing countries where efficient form of stock market
is yet to flourish, banking sector has been playing a substantial role in that regard through
transferring fund from surplus unit to deficit unit. Since independence the banking sector in
Bangladesh has never been in good shape. Although operations of state-owned commercial
banks flourished across the country, mismanagement coupled with excessive political
influence restricted their due role in the economy.

Good corporate governance is said to be the most valuable practice for the success of any
business. Many view it as the cornerstone of any business. Ensuring good corporate governance
can help companies avail all the opportunities that come their way, and to properly utilize the
resources. Corporate governance failures have always resulted in massive problems. For
example, in Bangladesh, there are scores of financial scandals where poor corporate
governance was the main issue.

6.1 Corporate Governance Issues in Bangladesh

Searching through the Internet for Corporate Governance Issues was overwhelming. So many
news was found. Some are mentioned below:

 Bangladesh Bank data show that six state-owned banks have the highest amount of
default loans.
 23.79 per cent of loans disbursed by specialized Bangladesh Krishi Bank and Rajshahi
Krishi Unnayan Bank have also turned into default loans.
 The amount of default loans at two specialized banks—Bangladesh Krishi Bank and
Rajshahi Krishi Unnayan Bank—slightly decreased to Tk 5,241 crore, up from Tk
5,426 crore six months ago.
 Analysts and economists say that bad debts in the banking sector has continued to rise
due to two critical factors associated with misgoverned. Most of these default loans are
approved through misuse of socio-metric overlay (in public administration terms),
political considerations, family connections, and director of one bank taking loan from
another bank with the help of a director of another bank and vice versa.
 Dr Sadiq has drawn attention to a significant point related to the 'prudential instruments
for portfolio management'. In this context, attention has been drawn to the need for

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 selecting Bank Board members based on the "fit and proper test" and the growing
weakness of this in the private banking sector. Consequently, on different occasions
decisions are taken not on "solid business evidence but on connections'. That adds to
the risk and probability of NPLs.
 Julfikar Ali, deputy director of Anti-Corruption Commission (ACC), filed the case with
Banani Police Station on August 18 last year, accusing the six ex-bank officials and one
Wahidur Rahman, proprietor of Firoz Group, for misappropriating Tk 152 crore from
the bank between 2009 and 2013.
 A Dhaka court today sent Md Jubayer Manjur, a former deputy general manager of
Bangladesh Krishi Bank (BKB), to jail in four corruption cases filed over
misappropriating Tk 430 crore from the state-owned bank

7 Chapter 7: Conclusion

RAKUB is one of the public banks which has sole responsibility for providing services to a
certain geographic area. The corporate governance of a bank has a positive impact on its
performance. Because how well the bank is managed, the better its performance will be.
Recently the bank has been alleged with several money scams which clearly indicate there is a
possibility of poor management of the bank. But this also shed lights on the board of directors
that if they are performing their responsibilities accordingly. RKUB needs to address these
issues and make sure that further these issues do not occur. Management of the bank should be
careful about giving loans without maintaining the proper policies. The number of issues
regarding default loans is rising and RKUB is also involved in several scams. This creates a
blurry image of government's supervision of public banks. These issues should be taken care
of as soon as possible. The proper punishment should be implemented so that in future these
kinds of actions could be discouraged. The reputation of a bank will be highlighted only when
the corporate governance is better managed to uphold the interest of all involved parties.

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 8 Chapter 8: Recommendations
Corporate governance is becoming a critical issue. Questions are gradually arising whether
corporate governance practices are being followed in the instructed manner. This situation has
been created due to several issues that recently emerged such as money scams in different
banks including public and private banks as well.

So, there are some recommendations that can be given a thought to improve the corporate
government practices of RKUB on a higher scale.

 Board of directors should be consciously free from any kind of political influence.
 Regular monitoring practices should be conducted carefully.
 Strict actions should be taken instantly after learning about any sorts of financial
misconduct.
 Board of members should be selected based on proper criteria not on connections.
 Loan giving policies should be carefully constituted so that no person from highest
authority cannot be able to misuse of funds by using the loophole of policies.
 Business decisions should be taken on solid business evidence, not on connections to
avoid the increasing number of default loans.

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 9 Bibliography

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