“Ethics” is a code of behavior that is the distinction

between „good or bad‟; ‟correct or incorrect; „moral or

immoral‟; „fair and unfair‟ and so on.
Ethical and unethical issues
 In practical situations, it is not always easy to
determine whether a particular issue is ethical or
unethical.
 Value is the factor that distinguishes an action as
ethical or unethical.
Ethical and Unethical Practices
There are many reasons for unethical practices:
– Conflict of interest
– Incentives
– Unreasonable targets
– Decision making
– Weak control systems
– Unhealthy competition
– Discrimination etc.
While ethical practices would ensure better and conducive
climate in work place.
Ethical aspect in Banks
 A sound financial policy and effective management
control, is very important for good corporate governance.
Many unethical practices noticed in the area of financial
management of a Bank and are putting pressures on the
regulators and governments which affect both internal and
external stakeholders.
Unethical issues in banks
Money laundering, investment fraud, toxic loans, banking
laws violation are some of the broader corporate unethical
practices perpetrated by the commercial banks.
Concealment of facts:
Conceal the (real) financial position and replace it with
unrealistic one.
Money laundering activities:
This is not only unethical but also criminal and illegal.
These activities include conversion of illegal money into
legal money, using the banks as channels.
Banking law violations such as, not declaring deposits in
excess of stipulated amounts is guilty of banking law
violations.
Misappropriation and diversion of funds:
Many corporates get avail of loans and do not use the
funds for the purpose the loan was availed of, but divert
the funds for other activities.
Such as: A manufacturing company avails of working
capital finance for production purpose. However, the
funds are not used for production of the goods.
Those funds in many cases diverted to real estate sector
and/or capital markets to earn higher returns. Though the
repayment of the loan is on schedule, these activities of
the company are unethical on account of misappropriation
of funds.
Lack of internal control:
Due to weak internal controls at appropriate levels,
sometimes loans become nonperforming assets. Unethical
practices like corruption, diversion and misappropriation
of funds, loans granted against collateral which are of
inferior quality, lesser value, etc., not only affect the
performance of the banks but also increases the levels of
nonperforming assets.
Noncompliance of regulatory and legal frame work:
Banks face many compliance issues, by not following the
rules and regulations. Non-compliances have created
avenues for conversion of black money to legal money
through banking channels, and made banks not only to
face embarrassment but also reputational risks.
Unethical practices in HRM and marketing
management
Ethics are very important in HRM AND Marketing
management. If we talk about unethical practices in HRM
first one is;
Lack of Transparency: Transparency is one of the
important ethical aspects in HRM but lack of transparency
is the unethical aspects. Lack of openness in
interpretation, decision making and communication,
promotion process etc. would de-motivate the employees.
Internal Stakeholders – Employees are important
internal stakeholders who are dealt with highly ethical
practices for all-round progress of the institution. But ––
Discrimination – Empathy are the unethical practices of
internal stakeholders.
Unethical practices in marketing management; the
father of marketing Philip Kotler introduced
4ps/marketing mix; product, price, place, promotion,
unethical issues concerning these “4Ps.
Product: Product can be goods or services that one party
offer to another. In case of a bank, its product is services.
If a bank offers higher interest on a deposit and suddenly
stops offering on that deposit products without any prior
notice, then this could be unethical practice.
Similarly if a bank offers value additions for the new loan
customers but not for existing loan customers could be
unethical by the existing customers.
Price: is any charge of product or services. If A bank,
immediately increases the interest rates for loan accounts
of the existing borrowers, then it is considered as
unethical.
Place: “Place” is the link between the customer and
producer, through appropriate delivery channels.in cage
of a bank “place” represents their delivery channel. • If a
branch of a bank is relocated to another area without
sufficient notice and time then this would be Unethical
practices.
Promotion: is reaching out to the customers through
effective network channel that means Advertisements. •
Misleading advertisements to attract the client and
Unsolicited telephone calls, e mails, and thereby
inconveniencing the clients.
Corporate Governance In Banking
Banks play an important role in the economic
development of a nation. Banks also act as trustees of the
funds of the depositors.
Banks should have good Corporate Governance which
complying with legal and regulatory requirements.
Good governance facilitates effective management and
control of business, enables the Banks to maintain a high
level of business ethics and to provide value additions to
all their stakeholders.
Objectives of Corporate Governance In Banking
1. To protect and enhance shareholder value
2. To protect the interest of all other stakeholders such as
customers, employees and society at large.
3. To ensure transparency and integrity in communication
and to make available, accurate and clear information to
all concerned parties.
4. To ensure accountability for performance and customer
service and to achieve excellence at all levels.
Role of the Board of Directors
The Bank’s Board of Directors should provide effective
leadership and insights in business and functional areas.
They also should monitor Bank’s performance.
Setting up of a framework of strategic control and
continuously reviewing its efficacy.
Implementation, review and monitoring the integrity of its
business and control mechanisms.
(iv) Overseeing the risk profile.
(v) Ensuring expert management and decision-making,
internal control.
(vi) Maximizing the interests of its stakeholders.
Role of the CEO
CEO have the responsibility of executive management
and are accountable to the Board for the ultimate
performance of the Bank and implementation of the
policies laid down by the Board.
Board Committees
Board committees are formed, to assist the Board of
Directors to function effectively
Committees provide effective professional support like
Audit & Accounts, Risk Management, resolution of
shareholders‟/Investors‟ grievances, Fraud Review and
Control, Review of customer service and redressal of
customer grievances, Technology Management and
Payment of Incentives to Executive Directors.
The Remuneration Committee approves, once in a year,
payment of incentives to whole-time Directors, based on
Govt. of Bangladesh guidelines,
Audit Committee (AC)
Functions of Audit Committee: (a) Audit Committee
provides direction and also oversees the operation of the
total audit function in the Bank.
(b) Audit Committee also appoints Statutory Auditors of
the Bank and reviews their performance from time to
time.
(c) Ensures transparency by reviewing bank’s financials,
Risk Management, IS Audit Policies and Accounting
policies, systems and procedures.
(d) Audit Committee also reviews the internal
inspection/audit plan and functions in the Bank – the
system, its quality and effectiveness in terms of follow-
up.
This is one of the important committee in organization.
This committee is set up for evaluating the performance
of Whole Time Directors of the Bank in connection with
the payment of incentives, as per the scheme advised by
Government of Bangladesh. The remuneration of the
whole time Directors and the Sitting Fees paid to the Non-
Executive Directors for attending the meetings of the
Board/Committees of the Board are as prescribed by GOB
from time to time.
BASEL COMMITTEE RECOMENDATIONS
The Basel Committee guidance provides a foundation for
sound corporate governance practices for various banking
system across countries. The guidance is divided into four
major sections
(i) Overview of corporate governance in banks
(ii) Sound corporate governance principles
(iii) Role of supervisors and
(iv)Promotion of an environment to support sound
corporate governance.