Premier University

INTERNSHIP REPORT

ON

Corporate governance practice in Commercial Banks of Bangladesh

A Study on Southeast Bank Ltd

PREPARED FOR

Mr.Rajib Datta Assistant Professor

Department Of Finance

Faculty of Business Administration Premier University

Chittagong

PREPARED BY

Md Shazzad Hossain ID. No: 150-22080-2147

Section: A

Major: Finance Batch: 22nd

MBA Program

Premier University

Date of Submission: 11/05/2017

Premier University

INTERNSHIP REPORT

ON

Corporate governance practices In Commercial Banks of Bangladesh

A Study on Southeast Bank Limited

Agrabad Branch, Chittagong.

3 | P a g e

11 May , 2017

Mr.Rajib Datta

Assistant Professor,

Department of Finance

Premier University, Chittagong, Bangladesh.

Sub: Submission of Internship Report.

Dear Sir,

It is my great pleasure to submit the report on ““Corporate Governance Practices in

Bangladesh , a study on Southeast Bank Limited” as a part of my Internship program.

I have closely observed different operations of Southeast Bank Ltd in my internship

period.

I enjoyed preparing this report, which enriched my practical knowledge of the

theoretical concept. I tried to reflect the practical operational aspects of the Bank,

which is complementary to the theoretical lessons. I am very much glad that you

have given me the opportunity to prepare this report for you & hope that this report

will meet the standards of your judgment.

Sincerely yours,

……………………………………..

Md Shazzad Hossain ID. No: 150-22080-2147 Section: A

Major: Finance Batch: 22nd

Premier University.Chittagong

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Declaration

I, Md. Shazzad Hossain , hereby declare that this report has been prepared by me

under the Supervision of Mr.Rajib Datta, Assistant Professor, Department of

Finance as a requirement for the accomplishment of MBA degree from the

Department of Finance, Faculty of Business Administration, Premier University,

Chittagong. It is also declared that, this report has been prepared for academic

purpose only and has not been submitted elsewhere for any other purposes.

Sincerely yours,

……………………………………..

Md Shazzad Hossain ID. No: 150-22080-2147 Section: A

Major: Finance Batch: 22nd

Premier University.Chittagong

LETTER OF ACCEPTANCE

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This is to certify that Md. Shazzad Hossain ID. No: 150-22-080-2147, Major in Finance is a

regular student of Masters of Business Administration under the department of Finance,

Premier University. He has successfully completed his internship at Southeast Bank Ltd,

Oxygen More Branch Chittagong and he has prepared his internship report under my

supervision. His assigned Internship topic is “Corporate Governance Practices in

Bangladesh , a study on Southeast Bank Limited”

He is permitted to submit the internship report for presentation.

I wish him every success in life and expect a great future.

………………………………………….

r.Rajib Datta

Assistant Professor Department Of Finance

Faculty of Business Administration Premier University

Chittagong

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Acknowledgement At first I would like to express my gratitude to almighty Allah who has

given me the opportunity to go through the total process of internship

and to write a report on this regard.

I would like to acknowledge my deepest gratitude to my honorable

Internship supervisor, Mr.Rajib Datta ,Assistant Professor, Department

of Finance Premier University, Chittagong, who has given me important

suggestion and excellent guidelines for preparing this internship report.

I would also like to thank Ms. Joynab and Mr Md.Nssiruddin

honourable coordinator of my internship program at Southeast Bank

who has provided training facilities which made me understand the basic

characteristics of banking.

I am very much grateful to the Head of Branch Mr. Mir Ahmed Bin

Islam of South East Bank Bangladesh Limited, Oxygen Branch for his

cooperation and valuable suggestion. I would also like to thank all the

personnel of South East Bank Bangladesh Limited, Oxygen Branch, who

has extended their whole-hearted co-operation for preparing the report,

especially Mr. Juwel.

Finally, I would like to convey my gratitude to all my teachers, friends

and my family members who extend their support to prepare this report.

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Executive Summary

As a part of Internship program for MBA, each of the students needs an

organizational attachment. Being attached with Southeast Bank Limited, this study

has been undertaken to fulfi l the internship purpose. During a specified period of

internship, the students are required to prepare a report on the organization from

where he has completed his internship.

Southeast Bank Limited is a private commercial bank, which is operating its business

last 21 years. The bank has achieved a tremendous success during this short span

of time and established itself as a progressive and dynamic financial institution in the

country. The bank is widely acclaimed by the business community, starting from

small businessmen/entrepreneurs to the big traders/industrial group, including the

top rated corporate clients who hold pragmatic outlook and financial solution. Mainly

secondary data have been used to gather information which is necessary to prepare

this study.

Corporate Governance is based on several critical principles. They include an

independent, active and engaged Board of Directors which has the skill to properly

evaluate and oversee the business process, business and financial performance,

internal control and compliance structure and direct management on strategic and

policy issues. On the other hand, the Board has to ensure that the management

headed by Chief Executive Officer (CEO) fully discharge their day to day

administrative responsibilities prescribed by BB and the Board itself and necessarily

refrain themselves from micro management of the management affairs.SEBL,

recognizes the importance of good corporate governance as a major factor in

enhancing the efficiency of the organization. The Bank therefore seeks to encourage

the conduct of its business to be in line with the principles of good corporate

governance, which form a basis for sustainable growth.

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Table of Content

Chapter Parts Tittles pages

1

INTRODUCTORY ASPECT

1.1 Introduction 1-2

1.2 Preface 3

1.3 Objectives of the Study: 3

1.4 Methodology 4

1.5 Scope 4

1.6 Limitations 4

1.7 Literature Review 5-6

2

ONE

Theoretical Aspect and Corporate

Governance Practice in Bangladesh

7

21.1 Define Corporate Governance 8

2.1.2 Principle of Corporate Governance 8-13

2.1.3 Asian Round Table on Corporate Governance (ARCG)

14

2.1.4 Benefit of Good Corporate Governance 15-16

TWO 2.2.1 Introduction 17

2.2.2.1 History of Corporate governance in Bangladesh 17-18

2.2.2.2 Current scenario of Corporate governance in Bangladesh

18

2.2.3 Guideline of Corporate Governance by Securities and Exchange Commission of Bangladesh

(SECB)

19-21

2.2.4 Guidelines for Corporate governance of

Bangladesh Bank 21-24

2.2.5 Challenges of corporate governance in Bangladesh 25-26

ORGANIZATIONAL PARSPECTIVE 27

3 0NE 3.1.1 COMPANY OVERVIEW 28

3.1.2 VISION 29

3.1.3 MISSION 29

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3.1.4 STRATEGIES 29-31

3.1.5 Major functions of the Bank 31-32

3.1.6 FUNCTIONAL DEPARTMENTS 32-35

TWO 3.2.1 Introduction 36

3.2.2 Conceptual Framework 36

3.2.3 Ownership Composition 36-38

3.2.4 Board of Directors 39

3.2.5 Different aspect of Board of directors 40-41

3.2.6 Role and Responsibilities of the Board of

Directors

41-44

3.2.7 Board’s Committees and their Responsibilities 44-52

3.2.8 Management Committees and their responsibilities 52-59

3.2.9 External Auditors 59

3.2.10 Reports On corporate governance of SBL

3.2.9.1 Report on Internal Control

3.2.9.2 Report on Risk Management

3.2.9.3 Report on Internal Audit

3.2.9.4 Report on Communication with

Shareholders

3.2.9.6 Report on compliance with the Security

and Exchange commission

3.2.9.5 Report on compliance with Bangladesh

Bank Guidelines

60

60

61

61-62

62-63

63-68

68-74

CONCLUTION ASPECT

4

4.1 SOWT 75

4.2 Findings 76

4.3 Recommendation 77-78

4.4 Conclusion 79

4.5 References 8O

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Practices of corporate governance In

Commercial Banks of Bangladesh

A study on South East Bank Limited

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Banking sector in Bangladesh has been featured by myriad decreasing profitability,

increasing non-performing loans, increased loan loss provisions, eroded credit

discipline, low recovery rate, inferior asset quality, poor governance, excessive

interference from the government of the day and the bank-owners, weak regulatory

and supervisory role etc. (Hassan, 1994; USAID, 1995; Haque et al., 2007). Internal

control system along with accounting and audit qualities are believed to have been

substandard (World Bank, 1998; CPD, 2001). The reports by the Banking Reform

Commission (BRC) (1999) and Bangladesh Enterprise Institution (BEI) (2003) raised

serious concerns on the banking sector and criticized the quality of governance.

Banking sector in Bangladesh is constituted by 57 banks and almost all of

them are commercial banks. The four largest banks are owned by the state and rest

are owned by the private investors. Of them, 27 banks are listed with the Dhaka

Stock Exchange (DSE) as of December 2009. In addition to directives of the

Bangladesh Bank, Bangladesh Enterprise Institute (BEI) has published “The Code of

Corporate Governance for Bangladesh” in 2004. Securities and Exchange

Commission (SEC) issued guidelines in the form notification in 2006 for the listed

firms in order to enhance corporate governance in the interest of investors and the

capital market. These guidelines prescribed dealt with the matters relating to (i)

board size, number of independent directors, appointment of Chairman and CEO

and Directors' Report to shareholders; (ii) Appointment of CEO, Head of Internal

Audit, and Company Secretary, attendance of Board Meeting by CEO and Company

Secretary; (iii) Audit Committee and its reporting to Board of Directors/ Commission

and to the shareholders; and (iv) engagement of external auditors etc. All listed

companies (including listed banking companies) in Bangladesh are required to follow

these prescribed guidelines. They have to provide reporting the status of compliance

on corporate governance in Director's Report.

Other regulatory measures include: proper test for appointment of directors,

disqualification of directors on the ground of conviction, appointment of qualified and

1.1 Introduction

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experience directors, capping of the number of directors to 13, non-eligibility of close

relatives of the directors for the position in bank board, limitation of the director’s

loans to 50% of paid up value of the shares held by the directors, criminalising

insider trading and constitution of audit committee of board of directors .These

regulatory response may lead, it is expected, to better disclosure of financial

information, uplifting standard of banking activities. Recently, the financial markets of

developing economies like Bangladesh have experienced rapid changes due to the

growth of wider range of financial products. As a result of this, banks have been

involved with high risk activities such as trading in financial markets and different off-

balance sheet activities more than ever before (Greuning and Bratanovic, 2003),

which necessitates an added emphasis on good governance of banks in Bangladesh

(Haque et al., 2007). Given that Bangladeshi banking sector is relatively less efficient

and less experienced for asset and liability management, good governance is even

more required to establish a sound banking system.

The Bangladeshi banking sector is dominated and controlled by founder

family members who are also dominant player in corporate sector, foreign owners

and the government. Farooque et al (2007) reports that five largest shareholders

hold more than 50% of ordinary shares, most of the CEOs and the directors are from

controlling families. Company board has less independence due to dominance of

family-appointed directors who set the addendum of the board meeting to implement

their own agenda. The management and the board are intertwined which reduces

the opportunity to prevent insider trading ; the independent or non-executive

directors who have social or family connection with controlling shareholder group

fails to provide independent judgment and minority shareholders’ rights are largely

ignored or supressed (Farooque et al 2007). The existence of conflict between family

member dominated board members and minority shareholders has been a regular

feature in Bangladesh like other developing countries (Oman et al , 2003).

Given the existence of family members dominated board and the dominance

of majority shareholders over minority shareholders, the implementation good

governance practices in Bangladeshi banking sector may experience serious

setbacks which may not yield expected results. My study would like to examine the

justification of such apprehension.

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This report has been prepared as a practical requirement of MBA Program after

completing the academic courses a student has to complete Specified duration of

organizational attachment. So, after completion of 3-month organizational

attachment at Southeast Bank Limited (Oxygen Moor Branch), this report has been

prepared.

This report on “Corporate Governance Practices in Bangladesh , a study on

Southeast Bank Limited” was initiated as a part of Internship Program, which is a

MBA degree requirement of the Business School of Premier University, Chittagong.

This report is being submitted To Mr.Rajib Datta Assistant Professor, Department of

Finance Premier University, Chittagong.

Since the MBA Program is an integrated, practical, theoretical method of learning,

the student of this program are required to have practical exposure in any kind of

business organization.

Main Objective: To Know the corporate Governance Practice of The

Southeast Bank Ltd.

Supporting Objective:

To know the guidelines of different organization about corporate

governance.

Briefly observe corporate governance practice of commercial

banks of Bangladesh and look at Southeast Bank Limited as an Organization at

some length.

To know about the management style and organizational structure

of Southeast Bank Limited.

To identify the problems and weakness of the banking systems of

Southeast Bank Limited.

To know the product and services of Southeast Bank Limited.

To Find Some suggestion.

1.2 Preface

1.3 Objectives of the Study:

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Different data and information are required to meet the goal of this report. Those

data and information were collected from various sources. Such as primary and

secondary which is showed bellow:

Primary sources:

Personal observation.

Face to face conversation of officers & clients.

In-depth study of selected cases.

Interviewing officers & clients.

Relevant file study provided by the officers concerned.

Working at different desks of the bank.

Daily note taken during the internship period.

Secondary sources:

File study.

Annual reports

SEBL website.

Bangladesh Bank website

The scope of the study includes corporate governance practice in Bangladesh and

also the study on Southeast Bank ltd’s functions and practice of corporate

governance. The study limited in my observation and knowledge.

I had no previous experience to direct a survey program that’s why this

report might not bring the same result what the authority expect.

There was a limited scope for me to deal with the banking activities

directly.

Within the short period of time, it is not possible for me to study ever

thing about the Southeast Bank Limited.

I face some difficulties to collect sufficient information as corporate

governance is a issue of whole corporation.

1.4 Methodology

1.5 Scope

1.6 Limitations

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OECD Principles describe corporate governance in terms of relationship between

management of company, its shareholders, its board and other stakeholders. It is a

system which is used for the purpose of controlling and directing the companies.

We can bring some other meanings of corporate governance . For example, one

school of thoughts describes corporate governance as a “system” by which

companies are directed and controlled (Cadbury and Greenbury Report, 1992). But it

must be kept in our mind that the fundamental concern of corporate governance is to

ensure the conditions whereby a firm’s directors and mangers are held accountable,

ensure better and effective protection to all stakeholders. The World Bank argues

that the framework of corporate governance should be based on four pillars such as

Responsibility, Accountability, Fairness and Transparency (RAFT). According to

Kocourek, P. F, (2003), to counter the accounting, leadership, and governance

scandals, organizations are rushing to institutionalize corporate governance, which

may be even be counterproductive. The drive to more tightly regulate the

membership and functions of corporate boards is already encouraging compa nies to

view governance as a legal challenge rather than a way to improve performance.

There is no universally accepted code that ensures good corporate governance. But

there are some variables on which the corporate governance framework established.

Those are Responsibility, Accountability, Fairness and Transparency.

In the area of corporate governance practices of banks, three strands of literature

are found.

First strand focuses on how the corporate governance practices in banks differ from

those in non-banking firms (for example, Prowse 1997; Furfine 2001; Morgan

2002;Macey and O’Hara 2003). Furfine (2001) suggested that banks have two

related characteristics that inspire a separate analysis of the corporate governance

of banks. First, banks are generally more opaque than nonfinancial firms. Although

information asymmetries plague all sectors, evidence suggests that these

informational asymmetries are larger with banks (Furfine, 2001). From the

perspective of banking, loan quality is not readily observab le and can be hidden for

long periods. In addition, banks can alter the risk composition of their assets more

quickly than most non-financial industries, and banks can readily hide problems by

1.7 Literature Review

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extending loans to clients that cannot service previous debt obligations. Therefore,

Morgan (2002) found that bond analysts disagree more over the bonds issued by

banks than by nonfinancial firms. The comparatively severe difficulties in acquiring

information about bank behavior and monitoring ongoing bank activities hinder

traditional corporate governance mechanisms (Levine 2004).

The second strand of literature looks at how better governance practices in banks

can help their financial development and growth (For example, Levine 1997;

Bushman and Smith 2003). Bushman and Smith discussed economics-based

research focused primarily on the governance role of financial accounting

information and propose future research ideas. As presented in their study, a

framework that isolates three channels through which financial accounting

information can affect the investments, productivity, and value-added of firms. The

first channel involves the use of financial accounting information by managers and

investors in identifying promising investment opportunities. The second channel is

the use of financial accounting information in corporate control mechanisms that

discipline managers to direct resources toward projects identified as good and away

from projects identified as bad. The third channel is the use of financial accounting

information to reduce information asymmetries among investors.

The third strand looks at corporate governance practices in banks from the

perspective of its impact on performance and efficiency of the banks themselves (For

example, Jensen and Meckling 1976; Williamson 1985; Hovey et al. 2003). This

strand has roots in the agency theory and underpins our study.

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Chapter 2

Theoretical Aspect and

Corporate Governance

Practice in Bangladesh

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Part-1

Corporate governance is the system of rules, practices and processes by which a

company 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.

The following is a series of corporate governance principles of companies, their

board of directors and their shareholders. These principles are intended to provide a

basic framework for sound, long-term-oriented governance. But given the differences

among many public companies – including their size, their products and services,

their history and their leadership – not every principle (or every part of every

principle) will work for every company, and not every principle will be applied in the

same fashion by all companies.

I. Board of Directors Composition

Directors’ loyalty should be to the shareholders and the company. A board

must not be beholden to the CEO or management. A significant majority of the board

should be independent.

All directors must have high integrity and the appropriate competence to

represent the interests of all shareholders in achieving the long-term success of their

company. Ideally, in order to facilitate engaged and informed oversight of the

2.1.1 Define Corporate Governance

2.1.2 Principle of Corporate Governance

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company and the performance of its management, a subset of directors will have

professional experiences directly related to the company’s business. At the same

time, however, it is important to recognize that some of the best ideas, insights and

contributions can come from directors whose professional experiences are not

directly related to the company’s business but also to the Stakeholders.

Election of directors

Directors should be elected by a majority of the votes cast “for” and

“against/withhold” (i.e., abstentions and non-votes should not be counted for this

purpose).

Nominating directors

Long-term shareholders should recommend potential directors if they know

the individuals well and believe they would be additive to the board. A company is

more likely to attract and retain strong directors if the board focuses on big-picture

issues and can delegate other matters to management (see below at II.b., “Board of

Directors’ Responsibilities/Critical activities of the board; setting the agenda”).

Director compensation and stock ownership

A company’s independent directors should be fairly and equally compensated

for board service, although (i) lead independent directors and committee chairs may

receive additional compensation and (ii) committee service fees may vary. If

directors receive any additional compensation from the company that is not re lated

to their service as a board member, such activity should be disclosed and explained.

Companies should consider paying a substantial portion (e.g., for some

companies, as much as 50% or more) of director compensation in stock,

performance stock units or similar equity-like instruments. Companies also should

consider requiring directors to retain a significant portion of their equity

compensation for the duration of their tenure to further directors’ economic alignment

with the long-term performance of the company.

Board committee structure and service

their new directors, including background on the industry and the competitive

landscape in which the company operates, the company’s business, its operations,

and important legal and regulatory issues, etc.

-developed committee structure with clearly

understood responsibilities. Disclosures to shareholders should describe the

structure and function of each board committee.

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committee chairs and the lead independent director), balancing the benefits of

rotation against the benefits of continuity, experience and expertise.

Director tenure and retirement age

knowledgeable board members.

retirement age for directors; others have such rules but permit exceptions; and still

others have no such rules at all. Whatever the case, companies should clearly

articulate their approach on term limits and retirement age. And insofar as a board

permits exceptions, the board should explain (ordinarily in the company’s proxy

statement) why a particular exception was warranted in the context of the board’s

assessment of its performance and composition.

board’s skill set and perspectives remain sufficiently current and broad in dealing

with fast-changing business dynamics. But the importance of fresh thinking and new

perspectives should be tempered with the understanding that age and experience

often bring wisdom, judgment and knowledge.

Director effectiveness

basis, led by the non-executive chair, lead independent director or appropriate

committee chair. The board should have the fortitude to replace ineffective directors.

II. Board of Directors’ Responsibilities

Director communication with third parties

strong communication of a board’s thinking to the company’s shareholders is

important. There are multiple ways of going about it. For example, companies may

wish to designate certain directors – as and when appropriate and in coordination

with management – to communicate directly with shareholders on governance and

key shareholder issues, such as CEO compensation. Directors who communicate

directly with shareholders ideally will be experienced in such matters.

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Critical activities of the board; setting the agenda

The full board (including, where appropriate, through the non-executive chair

or lead independent director) should have input into the setting of the board agenda.

Over the course of the year, the agenda should include and focus on the following

items, among others:

A strong, forward-looking discussion of the business.

The performance of the current CEO and other key members of management

and succession planning for each of them.

Creation of shareholder value, with a focus on the long term.

Major strategic issues (including material mergers and acquisitions and major

capital commitments) and long-term strategy.

The board should receive a balanced assessment on strategic fit, risks and

valuation in connection with material mergers and acquisitions.

Standards of performance, including the maintaining and strengthening of the

company’s culture and values.

Material corporate responsibility matters.

Shareholder proposals and key shareholder concerns.

As authorized and coordinated by the board, directors should have unfettered

access to management, including those below the CEO’s direct reports.

At each meeting, to ensure open and free discussion, the board should meet

in executive session without the CEO or other members of management. The

independent directors should ensure that they have enough time to do this

properly.

The board (or appropriate board committee) should discuss and approve the

CEO’s compensation.

In addition to its other responsibilities, the Audit Committee should focus on

whether the company’s financial statements would be prepared or disclosed

in a materially different manner if the external auditor itself were solely

responsible for their preparation.

III. Shareholder Rights

Many companies and asset managers have recently reviewed their

approach to proxy access. Others have not yet undertaken such a review or may

have one under way. Among the larger market capitalization companies that have

adopted proxy access provisions, generally a shareholder (or group of up to 20

shareholders) who has continuously held a minimum of 3% of the company’s

outstanding shares for three years is eligible to include on the company’s proxy

statement nominees for a minimum of 20% (and, in some cases, 25%) of the

company’s board seats. Generally, only shares in which the shareholder has full,

unhedged economic interest count toward satisfaction of the ownership/holding

period requirements. A higher threshold of ownership (e.g., 5%) often has been

adopted for smaller market capitalization companies (e.g., less than $2 billion).

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Dual class voting is not a best practice. If a company has dual class

voting, which sometimes is intended to protect the company from short-term

behavior, the company should consider having specific sunset provisions based

upon time or a triggering event, which eliminate dual class voting. In addition, all

shareholders should be treated equally in any corporate transaction.

Written consent and special meeting provisions can be important

mechanisms for shareholder action. Where they are adopted, there should be a

reasonable minimum amount of outstanding shares required in order to prevent a

small minority of shareholders from being able to abuse the rights or waste corporate

time and resources.

IV. Public Reporting Transparency around quarterly financial results is important.

Companies should frame their required quarterly reporting in the

broader context of their articulated strategy and provide an outlook, as appropriate,

for trends and metrics that reflect progress (or not) on long-term goals. A company

should not feel obligated to provide earnings guidance – and should determine

whether providing earnings guidance for the company’s shareholders does more

harm than good.

As appropriate, long-term goals should be disclosed and explained in a

specific and measurable way.

A company should take a long-term strategic view, as though the

company were private, and explain clearly to shareholders how material decisions

and actions are consistent with that view.

Companies should explain when and why they are undertaking

material mergers or acquisitions or major capital commitments.

V. Board Leadership (Including the Lead Independent Director’s

Role)

The board’s independent directors should decide, based upon the

circumstances at the time, whether it is appropriate for the company to have

separate or combined chair and CEO roles. The board should explain clearly

(ordinarily in the company’s proxy statement) to shareholders why it has separated

or combined the roles.

If a board decides to combine the chair and CEO roles, it is critical that the

board has in place a strong designated lead independent director and governance

structure.

Depending on the circumstances, a lead independent director’s

responsibilities may include

Serving as liaison between the chair and the independent directors

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Presiding over meetings of the board at which the chair is not present,

including executive sessions of the independent directors

Ensuring that the board has proper input into meeting agendas for, and

information sent to, the board

Having the authority to call meetings of the independent directors

Guiding the annual board self-assessment

Guiding the board’s consideration of CEO compensation

Guiding the CEO succession planning process

VI. Compensation of Management

To be successful, companies must attract and retain the best people – and

competitive compensation of management is critical in this regard. To this end,

compensation plans should be appropriately tailored to the nature of the company’s

business and the industry in which it competes. Varied forms of compensation may

be necessary for different types of businesses and different types of employees.

Compensation should have both a current component and a long-term

component.

Benchmarks and performance measurements ordinari ly should be disclosed

to enable shareholders to evaluate the rigor of the company’s goals and the goal-

setting process. That said, compensation should not be entirely formula based, and

companies should retain discretion (appropriately disclosed) to consider qualitative

factors, such as integrity, work ethic, effectiveness, openness, etc.

Companies should consider paying a substantial portion (e.g., for some

companies, as much as 50% or more) of compensation for senior management in

the form of stock, performance stock units or similar equity-like instruments. The

vesting or holding period for such equity compensation should be appropriate for the

business to further senior management’s economic alignment with the long-term

performance of the company.

If a company has well-designed compensation plans and clearly explains its

rationale for those plans, shareholders should consider giving the company latitude

in connection with individual annual compensation decisions.

If large special compensation awards (not normally recurring annual or

biannual awards but those considered special awards or special retention awards)

are given to management, they should be carefully evaluated and – in the case of

the CEO and other “Named Executive Officers” whose compensation is set forth in

the company’s proxy statement – clearly explained.

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This Task force developed the Policy Brief on Corporate Governance of Banks in

Asia (June 2006). The main issues and priorities for reforms in Corporate

Governance of banks in Asia that were identified are:

The responsibility of individual board members –fiduciary duties of bank,

board members need of skill, persona abilities. Training programs on integrity and

professionalism

The roles/functions of the board – guiding, approving and overseeing

strategies/policies rather than being immersed in day-to-day operations. Creating

clear accountability lines and internal control systems. Sufficient flows of information

and managerial support.

The composition of the board – banks are more encouraged to have

independent directors than other firms. Separation between Chairman and CEO.

The committees of the board – audit committee, the Risk Management

Committee, The Governance Committee with combined responsibilities of

Nomination, remuneration, succession planning, training, performance evaluation,

etc.

Preventing abusive related party transactions – inspection of the existing

firewall. Creation of specialized committee to monitor and approve related part

transaction. Publicly disclose such transaction.

Bank holding companies and groups of companies holding banks – a bank’s

parent company should not impede the full exercise of the Corporate Governance of

the bank within the banking group.

Disclosure – effort on meeting into international standards on accounting, etc.

should be encouraged.

Bank’s autonomy in relation to the state – state as owner should respect the

legal corporate structures of State Owned Commercial Banks (SOCB).

Bank’s monitoring of the Corporate Governance structure of its corporate

borrowers Extent to which banks should assess/monitor Corporate Governance of

their corporate borrowers or seek to improve it.

2.1.3 Asian Round Table on Corporate Governance (ARCG)

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Corporate governance is not a new concept but it has got popularity in the last few

decades due to various crises such as: East Asian crisis of the late 1990s and

various other fraudulent activities in the corporate world. Now every country

recognizes that the good corporate governance is essential for the efficiency and

growth of domestic economy. Some benefits of good corporate governance are

Good corporate governance is actually a balance of power among

managers, shareholders, and boards. It ensures that the transparency standards are

inline with international requirements, shareholders are treated equally, and that the

board and auditors are independent. It is empirically proved that good governance is

essential for good business which is the need of every organization.

Good corporate governance helps in achieving greater fairness and

transparency and also discourages fraud Lipman and Lipman (2006). It protects the

rights of shareholders along with protecting the long term strategic objectives of the

organization. The importance of good corporate governance in the modern state and

society could be elaborated in the discussion given below.

Corporate governance ensures the careful management of an

organization because there are various important decisions which could benefit any

actor such as: shareholder, directors, social welfare etc. Basically, there are two

views regarding the maximization of economic interests. One is the Anglo-American

view which is directed towards the improvement of owner’s economic interest. Other

is Non Anglo- American view which encourages the social welfare of society.

Corporate governance can be used to encourage, measure and project

the integrity. Stability of Stock Prices Stability of stock prices is one of the important

factors for the investors to predict the future performance of a company or

organization.

Corporate governance has great impact on the efficiency of stock

markets. Investors are always attracted towards well governed companies because

such companies adopt transparent governance policies and have better financial

accountability and higher profit margins. There is a worldwide effort to improve the

2.1.4 Benefit of Good Corporate Governance

26 | P a g e

corporate governance and insure greater shareholder accountability and corporate

transparency. Therefore, those organizations which are seeking new funds for

businesses must ensure good corporate governance in place. Stock prices stability

shows the level of risk for investment. Investors will only invest if they undertake

appropriate risk for their investment.

Training of Directors It is very difficult for the organizations to find the

right people for the jobs, and train them once they are selected. When the directors

are selected they come up with different experiences, expertise and qualifications. It

is therefore important to train the directors so that they adhere to the good corporate

governance practices. Directors are the major integral part of an organization. They

have major role in the decision making process and thus the success or failure of an

organization is largely dependent upon them. If the directors are incompetent,

careless or selfish then the chances of success are dark.

Corporate governance encourages the honest and transparent

monitoring of each and every activity. It also assists the training and development of

directors so that they can perform well in decision making process.

Improved Shareholder Communication Shareholders communication

refers to the investors’ ability to vote their shares. It is the process by which

individual investors could communicate with the companies in which they invest.

Corporate governance could be used as a tool for improving the shareholders

communication. Goodwill and Market Reputation Many organizations spend huge

sums of money to build their brand image because it is imperative for the long term

success of organization. Goodwill and the reputation can be improved through

various tactics such as: marketing, corporate social responsibility, strong relationship

with the stakeholders etc. Corporate Governance also develops the goodwill of

company over a period of.

With the help of good corporate governance, organizations build strong

customer relationship which leads to the development of brand loyalty. Those

organization which have good corporate governance, enjoys good market reputation.

In the absence of corporate governance, the goodwill of an organization is at stake

because any fraudulent activity will spoil the image of company.

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Part-2

Since the stock market debacle and aftermath of the 1997 financial crisis in Asia,

and in view of recent corporate scandals in the USA and other developed countries,

the concern about corporate governance has increased in Bangladesh and

elsewhere. The moral hazard problems created an atmosphere in which political

skills are more important to success than is the business skills. The majority of these

failures have been attributed to an absence or dereliction of efficient disclosure and

corporate governance (Okeahalam, 2004). It has been argued that in most

developing countries the reform process through corporate governance has been

difficult and slower than expected due to the complexity and path dependency of the

economic, social, legal structures and law enforcement in these countries is

compromised the fact that the courts are under-financed, under resourced and lack

the necessary expertise (Ararat and Ugar, 2003). Unfortunately, very little is known

about the Corporate Governance practices in Bangladesh. One of the most

important barriers for conducting a study is the difficulty of obtaining relevant

information. The easiest source of information is the corporate laws and very little

information is available with respect to the practice of corporate governance in

Bangladesh.

Since the early 1990s, CG has been receiving increasing attention from regulatory bodies and practitioners worldwide. Corporate sectors are still in its

initial stage; nevertheless awareness of the importance of CG is growing. Bangladesh's small size and lack of natural resources have necessitated an open trade policy. Bangladesh also has a liberal policy towards foreign direct

investment (FDI). However, when compared to those of the India, Sri Lanka, Pakistan, Thailand and Malaysia, CG in practice and philosophy have up till now

remained relatively under-developed in Bangladesh. Further, there appears to be a lack of either market or structural governance mechanisms to discipline errant managers. To govern the corporate environment in Bangladesh, following legal

measures are in practice: •Securities and Exchange Ordinance 1969

•Bangladesh Bank Order 1972 •Bank Companies Act 1991 •Financial Institutions Act 1993

2.2.1 Introduction

2.2.2.1 History of Corporate governance in Bangladesh

28 | P a g e

•Securities and Exchange Commission Act 1993 •Companies Act 1994

•Bankruptcy Act 1997 However, to institutionalize the practice of CG in Bangladesh, first initiative was

undertaken by the Securities and Exchange Commission (SEC). SEC issued a notification on Corporate Governance Guidelines (CG Guidelines) for the publicly listed companies of Bangladesh under the power vested on the Commission by

Section 2CC of the Securities and Exchange Ordinance, 1969. The CG Guidelines were issued on a ‘comply or explain’ basis, providing some ‘breathing

space’ for the companies to implement on the basis of their capabilities. Nevertheless, the overall framework for investor protection and CG has a number of important weaknesses that have hindered the capital market development.

Most of the companies depend on the banks as their major source of financing. Capital market in Bangladesh is still at an emerging stage with market

capitalization amounting to only 6.5% of GDP with low investor confidence on corporate governance and financial disclosure practices in many companies listed in the stock exchanges.1 The neighbouring countries are well ahead vis-à-

vis Bangladesh in terms of depth of capital market. For example, in India, Pakistan and Sri Lanka, the market capitalization is 56%, 30% and 18% of their

GDP respectively

Corporate governance practices in Bangladesh are quite absent in most

companies and organizations. In fact, Bangladesh has lagged behind its

neighbours and the global economy in corporate governance. One reason for

this absence of Corporate Governance is that most companies are family

oriented. Moreover, motivation to disclose information and improve governance

practices by companies is felt negatively. There is neither any value judgment

nor any consequences for corporate governance practices. The current system

in Bangladesh does not provide sufficient legal, institutional and economic

motivation for stakeholders to encourage and enforce corporate governance

practices; hence failure in most of the constituents of corporate governance is

witness in Bangladesh. Some of the individual constituents that have been

identified by

Poor bankruptcy laws

No push from the international investor community

Limited or no disclosure regarding related party transactions

Weak regulatory system

General meeting scenario

Lack of shareholder active participations

2.2.2.2 Current Scenario Of Corporate governance in Bangladesh

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Under the condition of SEC’s notification No. SEC/CMRRCD/2006-158/Admin/02-08

dated 20th February 2006 issued under section 2CC of the Securities and Exchange

Commission Ordinance 1969, Securities and Exchange Commission gives some

guidelines to the companies which are enlisted under SEC and all the company

under SEC need to follow those guidelines. If they did not follow, then they are

advised to mention the reasons. The guidelines contain four different part and these

are- Board of Directors; Chief Financial Officer(CFO), Head of Internal Audit and

Company Secretary; Audit Committee; Statutory/ External Auditors engaged or not.

Board of Directors

In case of board size, the number of board members of the company should be less

than 5 (five) and more than 20 (twenty). Besides every company should encourage

independent directors who are effective and the independent director should be

appointed by the elected directors. According to Fama and Jensen (1983, cited in

Hasan, Hossain, and Swieringa, 2013), he board, which comprises of a number of

independent directors, has a greater monitoring and controlling ability over

management’. In this case, the number of independent directors should be one out

of ten boards of directors. Moreover, the chairman of the board and Chief Executive

Officer (CEO) must be different person and what is their respective role and

responsibility would be clearly defined by the board of directors. In some Asian

Countries (e.g., Japan), the board of directors seems to serve mainly ceremonial

purposes since they do not represent the shareholders’ interest. However, it is not

possible to find out whether corporate boards are ceremonial in nature or effective

decision-making bodies. The directors of the companies should disclose some other

information to shareholder-

Fairness of state of affairs/ Financial Statements

Maintenance proper books of accounts

Consistent application of accounting policies in preparation of financial

Compliance with International Accounting Standard

Soundness and efficiency of internal control system

Ability of Company to continue as a going concern

Significant deviations from last year in operating results

Presentation of key operating and financial data for last three years

Declare dividend

Number of board meetings held during the year and attendance by each

director

2.2.3 Guideline of Corporate Governance by Securities and Exchange

Commission of Bangladesh (SECB)

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Sharing Pattern

Chief Financial Officer (CFO), Head of Internal Audit and Company Secretary

In this part, the company should appoint a CFO, a Head of Internal Audit and

Company Secretary. Moreover, the Board of Directors should clearly define the

respective role and responsibility of those particular appointed person. The Cadbury

Committee on Corporate Govrnence (Cadbury, 1995 cited in Kha et al, 2009)

reconized the company secretary’s unique position as a key role in ensuring that

board procedures are followed and regularly reviewed. Besides, the attendance in

board meeting of those particular appointed person is also essential which a

company should disclose in the annual report.

Audit Committee

Audit committee of a company should act as a subcommittee of the Board of

Directors. This committee will responsible to the Board of Directors and ensure that

the financial statements reflect true and fair view of the state of affairs of the

company and in ensuring a good monitoring system within the business. Moreover,

the argument to reduce agency conflicts, audit committee act as a monitoring

mechanism and their act has been emphasized by many researchers(e.g., Abbot

and Parker, 2000; Chen et al. 2005, Kha et al, 2009). The duties of the audit

committee are-

Audit committee should be composed of at least 3 members and out of them

1 should be independent directors.

If the member number becomes less than 3, then the Board of Director should

appoint new member immediately or not later than 1 month from the vacancy.

The Board of Directors should select a chairman of the Audit Committee who

should a professional qualification or knowledge, understanding and experiencing in

accounting or finance There are some other factor that the Audit Committee should

report to the Board of Directors, Authorities and the Shareholders and General

Investors. This are-

All the activities should be reported to the Board of Directors but there are

some factors that should report immediately to the Board of Directors.

(a) Report on conflict interests;

(b) Suspected or presumed fraud or irregularity or material defect in the

internal control system;

(c) Suspected infringement of laws, including securities related laws,

rules and regulations; and

(d) Any other matter which should be disclosed to the Board of

Directors immediately.

If Audit Committee monitors any material impact on the financial condition,

then they will discuss with the Board of Director. If any rectification is necessary

about this matter but neither Board of Director nor management takes care regarding

31 | P a g e

this matter, then Audit Committee should report to the Commission. In this case,

Audit Committee should consider two thing which occur earlier-

(a) They will inform Board of Director for three times, or

(b) They have to wait a period of nine months from the date of first

reporting to the Board of Directors.

Those four factors should report immediately to the Board of Directors, should

be signed by the Chairman of the Audit Committee and disclosed in the annual

report of the issuer company

External/ Statutory Auditors

The company should not engage its external auditors to perform the following

services of the company; namelyo

Appraisal or valuation services or fairness opinions;

Financial information systems design and implementation;

Book-keeping or other services related to the accounting records or financial

statements;

Broker-dealer services;

Actuarial Services;

Internal audit services; and

Any other services that the Audit Committee determines.

Reporting the Compliance in the Director’s Report

The directors of the company shall state, in accordance with the annexure attached,

in the directors’ report whether the company has complied with these conditions. A

compliance report of Southeast bank is given in this report

Board of directors and management of a bank should comprise of the competent and

professionally skilled persons with a view to ensuring good and corporate

governance in the bank management. It is also inevitable to have specific

demarcation of responsibilities and authorities between these controlling bodies over

bank's affairs. In absence of specific division of

responsibilities and authorities, even in spite of these bodies' being formed with

skilled and efficient persons, the desired goals of an institution cannot be achieved

2.2.4 Guidelines for Corporate governance of Bangladesh Bank

32 | P a g e

due to lack of transparency and accountability of all concerned. Such kind of

situation is more undesirable in an institution like bank-company as it deals with

huge public money and interests of the depositors.

In view of the above, rescinding the previous instructions8 the specific demarcation of

responsibilities and authorities among the board of directors, its chairman, Chief

Executive Officer (CEO) of and adviser to the private bank in respect of its overall

financial, operational and administrative policymaking and executive affairs including

overall business activities, internal control, human resources management and

development thereof, income and expenditure etc. along with lending and risk

management issues, is outlined as follows:-

Responsibilities and authorities of the board of directors:

(a) Work-planning and strategic management:

(i) The board shall determine the objectives and goals and to this end

shall chalk out strategies and work-plans on annual basis. It shall specially engage

itself in the affairs of making strategies consistent with the determined objectives and

goals and in the issues relating to structural change and reorganization for

enhancement of institutional efficiency and other relevant policy matters. It shall

analyze/monitor at quarterly rests the development of implementation of the work-

plans.

(ii) The board shall have its analytical review incorporated in the Annual

Report as regard the success/failure in achieving the business and other targets as

set out in its annual work-plan and shall apprise the shareholders of its

opinions/recommendations on future plans and strategies. It shall set the Key

Performance Indicators (KPIs) for the CEO and other senior executives and have it

evaluated at times.

(b) Lending and risk management:

(i) The policies, strategies, procedures etc. in respect of appraisal of

loan/investment proposal, sanction, disbursement, recovery, reschedulement and

write-off thereof shall be made with the board's approval under the purview of the

existing laws, rules and regulations. The board shall specifically distribute the power

of sanction of loan/investment and such distribution should desirably be made

among the CEO and his subordinate executives as much as possible. No director,

however, shall interfere, directly or indirectly, into the process of loan approval.

(ii) The board shall frame policies for risk management and get them

complied with and shall monitor at quarterly rests the compliance thereof.

(c) Internal control management:

The board shall be vigilant on the internal control system of the bank in order to

attain and maintain satisfactory qualitative standard of its loan/investment portfolio. It

shall review at quarterly rests the reports submitted by its audit committee regarding

compliance of recommendations made in internal and external audit reports and the

Bangladesh Bank inspection reports.

33 | P a g e

(d) Human resources management and development:

i. Policies relating to recruitment, promotion, transfer, disciplinary and

punitive measures, human resources development etc. and service rules shall be

framed and approved by the board. The chairman or the directors shall in no way

involve themselves or interfere into or influence over any administrative affairs

including recruitment, promotion, transfer and disciplinary measures as executed

under the set service rules. No member of the board of directors shall be included in

the selection committees for recruitment and promotion to different levels.

Recruitment and promotion to the immediate two tiers below the CEO shall,

however, rest upon the board. Such recruitment and promotion shall have to be

carried out complying with the service rules i.e., policies for recruitment and

promotion.

ii. The board shall focus its special attention to the development of skills

of bank's staff in different fields of its business activities including prudent appraisal

of loan/investment proposals, and to the adoption of modern electronic and

information technologies and the introduction of effective Management Information

System (MIS). The board shall get these programs incorporated in its annual work

plan.

(e) Financial management:

(i) The annual budget and the statutory financial statements shall finally

be prepared with the approval of the board. It shall at quarterly rests review/monitor

the positions in

respect of bank's income, expenditure, liquidity, non-performing asset, capital base

and adequacy, maintenance of loan loss provision and steps taken for recovery of

defaulted loans including legal measures.

(ii) The board shall frame the policies and procedures for bank's

purchase and procurement activities and shall accordingly approve the distribution of

power for making such expenditures. The maximum possible delegation of such

power shall rest on the CEO and his subordinates. The decision on matters relating

to infrastructure development and purchase of land, building, vehicles etc. for the

purpose of bank's business shall, however, be adopted with the approval of the

board.

(f) Formation of supporting committees:

For decision on urgent matters an executive committee, whatever name called, may

be formed with the directors. There shall be no committee or sub-committee of the

board other than the executive committee and the audit committee. No alternate

director shall be included in these committees.

(g) Appointment of CEO:

The board shall appoint a competent CEO for the bank with the approval of the

Bangladesh Bank.

34 | P a g e

Responsibilities of the chairman of the board of directors:

(a) As the chairman of the board of directors (or chairman of any committee

formed by the board or any director) does not personally possess the jurisdiction to

apply policymaking or executive authority, he shall not participate in or interfere into

the administrative or operational and routine affairs of the bank.

(b) The chairman may conduct on-site inspection of any bank-branch or

financing activities under the purview of the oversight responsibilities of the board.

He may call for any information relating to bank's operation or ask for investigation

into any such affairs; he may submit such information or investigation report to the

meeting of the board or the executive committee and if deemed necessary, with the

approval of the board, he shall effect necessary action thereon in accordance with

the set rules through the CEO.

(c) The chairman may be offered an office-room, a personal

secretary/assistant, a telephone at the office and a vehicle in the business-interest of

the bank subject to the approval of the board.

Responsibilities of the adviser:

The adviser, whatever name called, shall advise the board of directors or the CEO

on such issues only for which he is engaged in terms of the conditions of his

appointment. He shall neither have access to the process of decision-making nor

shall have the scope of effecting executive authority in any matters of the bank

including financial, administrative or operational affairs.

Responsibilities and authorities of the CEO:

The CEO of the bank, whatever name called, shall discharge the responsibilities and

effect the authorities as follows:

(a) In terms of the financial, business and administrative authorities vested

upon him by the board, the CEO shall discharge his own responsibilities. He shall

remain accountable for achievement of financial and other business targets by

means of business plan, efficient implementation thereof and prudent administrative

and financial management.

(b) The CEO shall ensure compliance of the Bank Companies Act, 1991

and/or other relevant laws and regulations in discharge of routine functions of the

bank.

(c) The CEO shall report to Bangladesh Bank of issues violative of the Bank

Companies Act, 1991 or of other laws/regulations and, if required, may apprise the

board post facto.

(d) The recruitment and promotion of all staff of the bank except those in the

two tiers below him shall rest on the CEO. He shall act in such cases in accordance

with the approved service rules on the basis of the human resources policy and

sanctioned strength of employees as approved by the board. The board or the

chairman of any committee of the board or any director shall not get involved or

interfere into such affairs.

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In the context of Bangladesh, the "ill- equipped" structure has been unable to

address the corporate governance challenges to make it effective and efficient. We

should first identify the challenges before pointing out the ill- equipped structure.

Adoption of a standard framework: The first challenge is to adopt corporate

governance in line with standard framework making the management accountable

and responsible to the Board and the Board to the shareholders/stakeholders. The

Board's general approach is to act as a self-declared leader-with the 'my company'

or 'my governance' attitude. As such the Board likes to stay beyond accountability

and perform its duty in whatever way it likes.

Function of independent wings: In corporate governance framework, there are

some independent internal and external wings for ensuring accountability in

managing resources and reporting thereof. How far the independent director(s)

works independently in the Board? The selection and appointment of independent

directors stems from the requirement of Securities and Exchange Corporate

Governance Guidelines, where the Board appoints such director(s), subject to

approval at the Annual General Meeting (AGM).

Transparent disclosures: The top-most challenge in Bangladesh to implement

corporate governance is to disclose the adequate and appropriate information in the

financials. Very few companies as listed with Stock Exchanges excepting some large

reputable companies disclose information correctly. If we consider the similar pattern

of reporting on the same information as required by law, Bangladesh Financial

Reporting Standards (BFRS), and regulations of regulators most of the companies

are found to be varied in presentation with adequate and appropriate information

from each other excepting banks and financial institutions. In case of banks or

financial institutions, the similarity in presentation is found as per regulations of the

Bangladesh Bank. The adequacy and appropriateness of this information are, of

course, challenging to all companies even to the banks and financial institutions.

Protecting shareholders' interest: In protecting the interest, challenges arise in

order to ensure compliance of laws and policies. The nomination committee may be

biased to nominate any directors instead of someone who may act for the interest of

shareholders. The company meets for exercising their right on time, protection of

related party transactions and disclosures. Extraordinary transactions, either income

or expenses, may not be provided properly or may not be brought to the notice of the

shareholders. It is really very challenging to work for a company sustaining interest

of all shareholders, where the Board or members of the Board do not care about

shareholders' interest and act for their own benefit using the platform of the

company.

2.2.5 Challenges of corporate governance in Bangladesh

36 | P a g e

Focus on short-term profit: The Board has a tendency to gain profit. Therefore, it

moves with a strategy to capture and sustain market position in any situation with

diversified products and service qualities and other strategies attaining competitive

advantage. In response to fight against the challenges Sir Adrian Cadbury said, "

These challenges are all the more daunting because of the complexity of the

ownership structure of the corporate sector, interlocking relationships with

government and the financial sector, weak legal and judicial systems, absent or

underdeveloped institutions, and scarce human resource capabilities."

A developing country like Bangladesh, fighting against challenges is really difficult

due to

(i) Proprietorship or partnership or limited-liability company having capital

market participation but wanting to hold family business control;

(ii) Government's political participation in the Board of state -owned banks and

financial institutions or any other state-owned organizations;

(iii) Outdated laws to govern and cater to corporate governance framework

and the failure to face the challenges on many grounds and to establish

the rule of law, and

(iv) Substandard human resources or badly cultured workforce who fail to

adopt the changes or accept challenges with professional integrity and

ethical value.

37 | P a g e

Chapter 3

Organizational Perspective

38 | P a g e

Part 1

The emergence of Southeast Bank Limited (SBL) was at the juncture of liberalization

of global economic activities. The experience of the prosperous economies of the

Asian countries and in particular of South Asia has been the driving force and the

strategic operational policy option of the Bank. The company philosophy – “A Bank

with Vision” has been precisely an essence of the legend of success in the Asian

countries.

Southeast Bank Limited, “A Bank with a Vision” , emerged as a 2nd Generation

Commercial Banking Industry of Bangladesh in the year 1995. It was incorporated on

March 12, 1995 as a public limited company according to the Companies Act 1994.

The commencement of its banking business occurred on May 25, 1995 by the

Principal Branch located at the Annex Building, 1 Dilkusha Commercial Area,

Motijheel, Dhaka. The Head Office of the Bank is also located at the same address

on the 3rd floor of Annex Building. The Bank started with an authorized capital of Tk.

500 million and paid up capital of Tk. 100 million. Southeast Bank Limited started its

business with the inaugural Chairman Mr. Mohammad Abul Kashem, Vice Chairman

Mr. Ragib Ali and the first and former President and Managing Director of the Bank

Mr.Sayed Anisul Huq Southeast Bank Limited is a scheduled commercial bank in the

private sector, which is focused on the established and emerging markets of

Bangladesh. Southeast Bank Limited has 21 branches throughout Bangladesh and

its aim is to be the leading bank in the country’s principal markets. The branches are

situated in the prime business locations of Bangladesh. Among the 21 branches, 10

branches are in the capital city Dhaka, 4 in the port city Chittagong, 3 in Sylhet, 1 in

Khulna, 1 in Moulvibazar. The other 2 branches are opened in 2003 and with Islami

banking concept which are operating in Feni and Cox’s Bazaar. The bank by

concentrating on the activities in its area of specialization has achieved good market

reputation with efficient customer service. The Bank is committed to providing

continuous training to its staff to keep them up to date with modern practices in their

respective fields of work. The Bank also tries to fulfill its share in community

responsibilities. By such measures, the Bank intends to grow and increase

shareholders’ earning per share. Southeast Bank Limited pledges to maximize

customer satisfaction through services and build a trusting relationship with

customers, which has stood the test of time for the last eight years.

SLOGAN: “A BANK WITH VISION”

3.1.1 COMPANY OVERVIEW

39 | P a g e

To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy.

The missions of Southeast Bank Limited are as follows:

High quality financial services with the help of latest technology

Fast and accurate customer service

Balanced growth strategy

High standard business ethics

Steady return on shareholder’s equity

Innovative banking at a competitive price

Deep commitment to the society and the growth of national economy

Attract and retain quality human resources

Management Strategies:

The deposit schemes of SBL include current, savings and fixed deposits. In line with

other banks in the peer group, this Bank has also introduced several attractive

savings packages like pension savings scheme, education scheme and savers

benefit deposit scheme. SBL has a wide cluster of lending packages, which include

commercial lending, working capital, house building loan, small medium and large

scale industry loan, loan against export and other consumer loans. SBL has always

been one of the major players in the country in promoting diversified banking

services. Over the years it has provided sincere and timely services through the

innovation of multifarious modern banking products. The major areas where SBL

provides financing facilities are corporate banking, micro credit financing, investment

in house building financing companies and various loan syndication. SBL has

3.1.4 STRATEGIES

3.1.3 MISSION

3.1.2 VISION

40 | P a g e

introduced SWIFT to facilitate quick fund transfer and Reuter to facilitate foreign

exchange trading. With eight other banks this bank gives its customers the facilities

of shared ATM services throughout day and night i.e. 24 hours banking.

The business strategy:

The business strategy of SBL is to strengthen its traditional lending in small retail

business, following a conservative lending approach in the areas of large and

medium industrial ventures. The management approach of maintaining loan quality

is also appreciable. Although Bangladesh economy is led by garments sector, it is

worth nothing that he exposure of the Bank in this sector is negligible. Therefore, the

existing depressed scenario of garments will have little impact on the Bank. The

Bank is constrained by limited branch network. Realizing the importance of this

network for its entity to low cost saving deposits, the Bank has taken a dynamic step

for opening additional branches. Till such time having adequate branch network, the

Bank needs effective communication system including advance online banking with

the existing branch network for information flow as a part of its management

strategy.

Marketing Strategies:

As the bank has expertise in loan and club financing, SBL management wants to

attract more corporate clients to avail their financing facilities of this nature in the

years to come and thereby system the growth of the loans of this type. SBL also

targeted small and medium scale entrepreneur (SMEs) in the coming years is in the

process of signing with SEDF (South Asian Entrepreneur Development Fund) in

collaboration with the World Bank and few other donor agencies for technical and

training assistance. The Bank has a plan to explore the market in future through

exposing several loan schemes in IT sectors and various SMEs. SBL’s export,

import and guarantee businesses have been growing at a good pace since its

inception. Although the figures shows that SBL has been doing pretty well compared

to the peers, but it have to go a long way in the future to keep pace with the like

banks.

Southeast Bank Limited offers full-fledged banking service including general banking

service, foreign exchange business, investment service etc.

The general banking

Deposits.:

Fixed Deposit Account

Savings Deposit account

Special Savings Deposit account

Term Deposit Account

41 | P a g e

Current account: These account are mainly opened by middle and lower

income groups, sole-proprietorships, partnerships, limited companies, clubs,

societies and associates. There are other deposits that are offered by Southeast

Bank Limited in order to expand its product range so that it can compete with the

other banks. These deposits are as follows:

Pension savings scheme

Education savings scheme

Marriage savings scheme

Savers beneficial deposit scheme

General loan scheme

Consumer credit scheme

House building loan/Apartment loan scheme

The foreign exchange business includes

issuance of Letter of Credit (L/C),

Foreign Demand Draft (DD),

Foreign Telegraphic Transfer (TT),

Inward Remittance,

Import and Export Financing etc.

Investment services of the Bank includes

Small Business Investment Scheme,

Housing Investment Scheme,

Small Transport Scheme,

Transport Investment Scheme,

Car Loan Scheme,

Rural development Scheme and etc.

I. Deposit: The prime function of the Bank is to collect money from the clients in

the form of deposits. Different types of deposits accounts are open by clients to get

different types of benefits from the account. In the deposit mix, the Bank earns most

from fixed deposit. The other deposits that are performing well are savings deposit

and current deposit.

II. Loans and Advances: The other major function of the Bank is to give loans

and advances to the clients from the money that they collect as deposits. The main

income of the Bank comes from the interest income that they earn from these loans

and advances. The Bank offers different types of loans and advances to the clients

from different purpose. Detail function of loan and advances are described in the

project part of this report.

3.1.5 Major functions of the Bank are as follows

42 | P a g e

III. Investments: Investment is one of the other functions of the Bank that is

common to all the Banking institutions. The investment portfolio of the Bank includes

Government Treasury Bills, Prize Bonds and shares in Public Limited companies etc.

The bank has always given emphasis on investment of Funds in highly yield areas

simultaneously maintaining Statutory Liquidity Requirement (SLR) as fixed by

Bangladesh Bank.

IV. Treasury Operations: The treasury operations had long been considered as

an important avenue of income generation for the Bank. The foreign banks operating

in Bangladesh earn a considerable amount of their profit through treasury

operations. With automated Reuters Terminal, the Bank has been able to develop its

infrastructure capabilities for treasury dealings. The Bank has taken necessary steps

for treasury dealings more adequately for meeting the demands of the customers.

Southeast bank currently have 12 divisions that are functioning in full-fledged

manner. Among these 12 divisions, recently the Bank has opened its new Islamic

Wing that is working on the Islamic Banking of the Bank. The Bank has already

started two Islamic Banking branches in July 2003 that are already doing business.

The Bank also plans to introduce one new divisions namely Legal Affairs division.

This new division will handle all the legal issues regarding the bank. Each of the

division of the bank and their functions are discussed below:

1. Financial Control and Accounts Division (FCADs): One of the most

important department of Bank or any institution is the Finance and Accounts

Department. The main functions of this department are discussed below in a very

brief manner.

Budgeting

Payment of salary

Financial Analysis

Disbursement of Bills

Reconciliation: Provident Fund (PF), Gratuity, Superannuation Fund (SF):

2. Credit Division: The Credit Division of Southeast Bank limited is divided in

two parts. (i) General Credit (ii) Corporate Finance.

i) General Credit: The functions of this division are given below:

Analysis and appraisal/ evaluation of credit proposals for approval

of Credit Committee

Preparation of Board Memo

Communication of Sanction Advice

Preparation & Submission of periodical returns to Bangladesh

Bank.

3.1.6 FUNCTIONAL DEPARTMENTS

43 | P a g e

ii) Corporate Finance: Under this division all the corporate credit like

industrial credit, long-term project credits etc. are taken into account. SBL recently is

trying to increase the amount of corporate loan portfolio although it has been seen

that most of the other banks are concentrating mainly on consumer loans. The main

functions of corporate credit division are

Analysis, appraisal / evaluation of credit proposals

Processing Credit proposals for approval of Credit Committee

Preparation of Credit Information Memo (CIM) for Board

Communication of Sanction Advice

3. Loan Administration Division (LAD): The major function of this department

is to monitor the activities of the credit that are already disbursed. The

functions of this department are

Post Sanction documentation

Monthly review and Follow up of Loan and Advances (LDO’s)

Development of Early Warning System (EWS)

Follow up for recovery of over dues.

Classification of Loans

Legal affairs/ Litigation

4. International Division (ID): One of the most important divisions of a bank is

the International division. This is the department where the foreign exchange of the

bank is maintained. Important works like L/C advising, collection of remittances are

also done in this division. The functions of this department are

To set up Agency Arrangement with correspondent Bank and to

facilitate mutual exchange of business, document and information

Remittance, for payment to beneficiaries.

Letters of Credit, Advising, Confirmation, Negotiation, Acceptance,

Payment, Bill, Cheque Collection.

Guarantees, issuance of, including performance bonds, etc.

Reconciliation of Nostro Accounts (Accounts with other foreign banks)

Test keys / Specimen Signature Books for authentication of messages.

Credit Lines.

Extending and granting credit lines to correspondent banks for

confirmation of their L/Cs, issuance of Guarantees, Money Market, FX

Dealings etc.

Obtaining credit lines from Correspondent Banks as above.

Maintaining / monitoring record of credit lines obtained / utilized.

Compile and circulate the foreign exchange circulars to the branches.

44 | P a g e

5. Human Resources Division (HRD): One of the most important departments

of any organization is the Human Resources division because it has to deal

with the whole manpower planning of an organization. The need of

manpower, excess manpower, training to the staff and other works are all

organized by this division. The functions carried out by the HRD of SBL are

Recruitment, Selection of Manpower and Manpower Planning.

Arranging and imparting training for Human Resources Development.

Placement, Performance Evaluation, Increment, Promotion, Incentive

Schemes etc.

Processing of Leave.

Disciplinary Action

Formulation / Implementation of Administrative Rules / Policies

Preparation of Board Memo and Implementation of Board Decisions.

Employees Service Benefits.

6. Information Technology Division (IT): Information Technology

nowadays is a very critical part of any organization. To have upgrade knowledge

about the world, advanced computer system in order to make the job more efficient

and effective it is very important to have a good IT division. The functions of the IT

division of SBL are

Monitoring / Supervision of overall computerized banking operations.

System Administration Data processing and Data Entry.

Software Development and Maintenance

Maintenance of Hardware.

7. Logistic and General Services Division: The functions of the

logistics division of SBL are very basic jobs. They are

To arrange Printing

Purchase of Security / General stationery.

To arrange efficient Utility Serv5ices.

Maintenance of Premises

Transport pool, Protocol etc.

8. Marketing and Outreach Division: One of the basic divisions of any

organization is the marketing department. The world today is totally dominated by

marketing. The stronger marketing strategy of an organization, the more successful

is the organization. The functions of this division of SBL are

Cost Benefit Analysis of existing banking products and development of

new products.

Liability Marketing.

Branch Expansion.

Mass Media and Event Management.

To compile analyze and interpret key Management Information (MIS)

45 | P a g e

9. Branches Control Division (BCD): The functions of this division are

as follows

Internal Audit and Inspection.

Compliance / follow up and monitoring of internal inspection.

Monitoring of General Bank’s Inspection / External Audit Report.

10. Card Division: The card division of SBL is pretty new and small in the

sense that not too many services by this division is offered to the customers. So the

work of the card division is very much limited. The functions of the card division are:

Managing debit card account and also credit card which is going to be

introduced soon

All the works that are related to the ATM card like managing the credit

and debit balance of a client.

Maintaining correspondence with the branches regarding different

clients of ATM card.

Works related to customer and vendor management.

11. Board and Share Division: The functions of this division are

Arranging / conducting of Board, EC meeting.

Preparations of minutes and implementation of Board decisions.

Company affairs.

Issuance of Bank’s share etc.

46 | P a g e

Part 2

Corporate Governance is based on several critical principles. They include an

independent, active and engaged Board of Directors which has the skill to properly

evaluate and oversee the business process, business and financial performance,

internal control and compliance structure and direct management on strategic and

policy issues. On the other hand, the Board has to ensure that the management

headed by Chief Executive Officer (CEO) fully discharge their day to day

administrative responsibilities prescribed by BB and the Board itself and necessarily

refrain themselves from micro management of the management affairs. Southeast

Bank Ltd. recognizes the importance of good corporate governance as a major factor

in enhancing the efficiency of the organization. The Bank therefore seeks to

enctheirage the conduct of its business to be in line with the principles of good

corporate governance, which form a basis for sustainable growth.

Southeast Bank operates within the legal framework of the Companies Act-1994 and

as a banking company, complies with the provisions of the Bank Company

(Amendment) Act-2013. It also complies with the directives and guidelines issued

from time to time by Bangladesh Bank and Bangladesh Securities and Exchange

Commission. The Bank has responsibly managed and supervised in fulfilment of the

objectives of adding value to the shareholder wealth and contributing to the national

economy. Their Corporate Governance principles serve the goal of strengthening

and consolidating company position with sustained growth objectives in materializing

the trust placed in the company by the shareholders, clients, employees and the

general public. Fair practice, accountability, transparency, compliance, value

creation and corporate social responsibility are the pillars of their corporate

governance. The Bank’s corporate governance structure comprises the

Shareholders, the Board, Bank Management, Regulatory A uthorities, Independent

External Auditors and Employees.

3.2.1Introduction

3.2.2 Conceptual Framework

47 | P a g e

As on 31 December 2015, the Directors of Southeast Bank Limited held 18.32% of

total shares whereas Financial Institutions and General Public are holding 30.67%

and 51.01% shares respectively.

Sl

No.

Composition 31-12-15 31-12-14

No. of

shares held

% of total

share

No. of shares

held

% of total

share

1 Directors 168,011,868 18.2 166,186,868 18.12

2 General Public 467,707,676 51.01 538,628,627 58.74

3 Financial

Institution

281,230,632 30.67 2125,134,681 23.13

Total 916,950,176 100% 916,950,176 100%

Pattern of Shareholding

i) Shares held by Parent/Subsidiary/Associated Companies and other related Parties

NIL

ii) Ownership of Company’s Securities by the Members of Board of Directors.

Name Of the Directors No. of Shares Value In Tk. Percent

age

Alamgir Kabir, FCA 19,694,672 19,694,6720.00 2.15

Ragib Ali 28, 28,026,291 28,026,2910.00 3.06

M. A. Kashem 20,307,060 20,307,0600.00 2.21

Azim Uddin Ahmed 25,490,735 25,490,7350.00 2.78

Duluma Ahmed 19,082,742 19,082,7420.00 2.08

Jusna Ara Kashem 18,339,525 18,339,5250.00 2.00

Md. Akikur Rahman 18,443,731 18,443,7310.00 2.01

Rehana Rahman 18,344,145 18,344,1450.00 2.00

Sirat Monira, representing

public shareholders

120,547 120,5470.00 .01

3.2.3 Ownership Composition

48 | P a g e

Abdul Hye of Karnafuli Tea

Co. Limited representing

public shareholders

162,420 162,4200.00 .02

Dr. Zaidi Sattar, Independent

Director - - -

- -

A.H.M. Moazzem Hossain,

Independent Director - - -

- -

Shahid Hossain, Managing

Director

- -

Total 168,011,868 168,011,8680.00 100

iii) Shares held by Chief Executive Officer, Company Secretary, Chief Financial

Officer, Head of Internal Audit and their spouses and minor children.

Nil

iv) Shares held by top five salaried Executives in the regular services of the Bank.

Nil

v) List of Shareholders holdings 10% and above shares in the Paid-Up-Capital of the

Bank.

NIL

49 | P a g e

Name Position

Alamgir Kabir, FCA

Chairman

Ragib Ali Vice Chairman

M. A. Kashem Directors

Azim Uddin Ahmed Directors

Duluma Ahmed Directors

Jusna Ara Kashem Directors

Md. Akikur Rahman Directors

Rehana Rahman Directors

Sirat Monira Directors

Karnafuli Tea Co. Limited represented

by

Directors

Abdul Hye Directors

Dr. Zaidi Sattar Directors

A.H.M. Moazzem Hossain Directors

M. A. Kashem Directors

Shahid Hossain

Zakir Ahmed Khan

Managing

Director

Advisor

Muhammad Shahjahan Company

Secretary

3.2.4 Board of Directors

50 | P a g e

Rotation and Retirement of Directors

In terms of Article 105 (i) of the Articles of Association of the Bank, one-third of the

Directors for the time being or if their number is not three or multiples of three (3)

then the number nearest to one third (1/3rd) shall retire in rotation from office.

The following four (4) Directors will retire in the 21st Annual General Meeting. All

except Dr. Zaidi Sattar are eligible for the re-election in the 21st Annual General

Meeting.

i) Mrs. Duluma Ahmed

ii) Mr. Md. Akikur Rahman

iii) Karnafuli Tea Co. Limited represented by Mr. Abdul Hye

iv) Dr. Zaidi Sattar

Some Important information about them is given below.

Name Expertise Membership Directors in

i) Mrs. Duluma Ahmed Banking

Activities

Audit

committee

(i) Mutual Food Products Ld.

(ii) Mutual Milk Products Ld.

(iii) Mutual Trading Co. Ltd.

ii) Mr. Md. Akikur

Rahman

Banking

Activities

- -

iii) Karnafuli Tea Co.

Limited represented by

Mr. Abdul Hye

Banking

Activities

- -

iv) Dr. Zaidi Sattar Economist Audit

committee

-

Non-Executive Directors

The Managing Director is the only Executive Director on the Board of Directors of the

Bank. All other Directors including the Chairman and the Vice Chairman are the Non-

Executive Directors.

3.2.5 Different aspect of Board of directors

51 | P a g e

Independent Directors

In compliance with the Corporate Governance Guidelines of Bangladesh Securities

and Exchange Commission (BSEC) and the provisions contained in Bank Company

(Amendment) Act-2013 and the guidelines given by Bangladesh Bank in BRPD

Circular No.11 dated 27 October, 2013, the Bank appointed 2 (two) Independent

Directors observing all required formalities.

Role of the Chairman and that of the Managing Director (CEO)

The Chairman of the Bank is elected from amongst the Directors after every Annual

General Meeting in obedience to the Articles of Association of the Bank. The

Managing Director (CEO) of the Bank is appointed by the Board. Bangladesh Bank’s

approval is obtained for the appointment. The functional areas of the Chairman and

that of the Managing Director are sharply bifurcated within the rules of Bangladesh

Bank. But they work in cohesion for the disciplined operation and growth of the Bank.

Structure of the Board

The Board of Directors consists of 13 (thirteen) Directors including the Managing

Director. The Managing Director is an Executive Director (Ex-Officio). All other 12

(twelve) Directors are non-executive directors. Of the 12 nonexecutive directors, 8

(eight) are sponsor directors, 2 directors are from the public shareholders and 2 are

independent directors.

Role and Responsibilities of the Board

The main role and responsibilities of the Board of Directors as envisaged in the

BRPD Circular No.11 dated 27 October, 2013 are the following:

1) Approving suitable business strategy

2) Fixation of operational budgets

3) Approval of financial statements

4) Review of Bank’s operational performance towards achievement of objectives

5) Approval of policies and operational manuals to establish effective risk

management in core banking areas.

3.2.6 Role and Responsibilities of the Board of Directors

52 | P a g e

6) Reviewing company’s corporate governance standard for further improvement

7) Determining Bank’s corporate social responsibility status and taking steps for its

improvement

8) Developing compliance culture in the Bank

9) Approving proposals which are beyond the delegated business / financial /

administrative powers of the Management

10) Appointment of the Chief Executive Officer and fixation of his benefits

11) Purchase or acquire property for the Bank

12) Providing welfare to the employees

13) Making donation for any charitable ventures

14) Devising annual work plan for goals and monitoring its pace of achievement.

15) Analyzing reasons for success or failure of Bank’s annual budget achievement

16) Periodical review of Bank’s operational budget achievement

17) Taking risk management initiatives

18) Review of sufficiency and requirement for internal control efforts of the Bank

19) Reviewing Bank’s human resource policy

20) Bank’s financial management and its periodical review

21) Approving policies or taking Policy decisions for improvement of operation and

compliance culture in the Bank.

Responsibilities of the Chairman of the Board

The chairman discharges his responsibilities within the purview of the provisions

contained in BRPD Circular No.11 dated 27 October, 2013. His main responsibilities

are to :

- Give leadership for Bank’s disciplined growth and operation.

- Ensure non-intervention of any Director in the routine affairs of the Bank.

- Ensure compliance with corporate governance requirements of regulatory

bodies.

-Bring policies for Board’s deliberations and consideration for Bank’s reforms

and development.

- Determine sense of direction for the Bank, etc.

Independence of the Non-Executive Directors

The Non-Executive Directors enjoy full freedom in discharging their responsibility.

They sincerely try to attend all meetings of the Board and its any Committee of which

53 | P a g e

they are members. They actively participate in discussion on any agenda for a well

thought-out decision.

Annual Appraisal of Board’s Performance

The shareholders elect the Directors in the Annual General Meeting. The directors

are accountable to the shareholders. In the Annual General Meeting (AGM), the

shareholders freely speak about the performance of the Bank and make a critical

analysis of the performance of the Board of Directors. The Chairman replies to their

queries made in the meeting. Their constructive suggestions are noted down and

implemented for qualitative improvement of the Bank.

Annual Evaluation of Performance of the Managing Director (CEO) of the Bank

The Board of Directors prescribes the roles and responsibilities of the Chief

Executive Officer (CEO) of the Bank. His performance is assessed on certain Key

Performance Indicators (KPIs). The Board evaluates the performance of the

Managing Director in each month when the month-end financial performance of the

Bank is placed before the Board for review. Apart from that, the Board seeks MD’s

reports on various operational aspects periodically to assess the trend of movement

of the Bank in various indicators. MD’s quality leadership to post better performance

is always expected. The performance of the Managing Director is evaluated again

annually by the Board based on Bank’s operational results mainly in the

achievement of operational budgets.

Policy on Training of Directors

Most of the Directors of the Bank are on the Board for many years. They have

acquired enough knowledge and acumen to lead the Bank well to the path of

progress. The latest legislations on the financial sector and directives of the

regulatory bodies are made available to them for their instant information in order

that they can discharge their responsibility effectively. They also attend various

seminars and symposiums mainly on corporate governance organized by different

professional bodies.

Directors’ Knowledge and Expertise in Finance and Accounting

Mr. Alamgir Kabir, FCA, Chairman of the Bank, is a Post- Graduate in commerce. He

is also a qualified Chartered Accountant. One Independent Director is a Ph.D in

Economics and another Independent Director is a B.A (Hons) and M.A in

Economics. He is also a renowned expert in financial journalism. They have enough

54 | P a g e

knowledge and expertise in the field of Accounting and Finance. Most of the other

Directors are successful entrepreneurs and professionals. They are well conversant

in business, economics and administration.

Remuneration and Benefits to Board Members

The Bank cannot have more than three Committees of the Board of Directors as per

law and rules of Bangladesh. For obvious reasons, activities relating to remuneration

are done by the Board itself.

Benefits provided to the Directors and the Managing Director

In accordance with the guidelines of Bangladesh Bank, the following facilities can

only be given to the Directors.

Chairman

An office chamber, one Private Secretary / Office Assistant, a

telephone in office, one mobile phone for use within the

country and a full time car.

Directors Fees and other facilities for attending each meeting of the Board or

its any Committee.

Managing

Director

Only those benefits as are agreed upon in his contractual

appointment and as are approved by Bangladesh Bank

Directors’ Report in Compliance with Best Practices on Corporate Governance

The status of compliance with corporate governance guidelines of Bangladesh Bank

and Bangladesh Securities and Exchange Commission has been given in latter part

of the chapter. Rahman Rahman Huq, Chartered Accountants, duly certified the

Bank’s Compliance Status.

i. Executive Committee

Composition: In compliance with the provisions contained in BRPD Circular No.11

dated 27 October, 2013, the Board of Directors re -constituted the Executive

Committee comprising 5(five) members. To comply with regulatory requirement, no

member of the Audit Committee is included as a member of the Executive

Committee. Responsibilities: The Executive Committee is a body to deliberate on

3.2.7 Board’s Committees and their Responsibilities

55 | P a g e

generally important issues and matters in the execution of operations of the Bank.

The committee performs within the power delegated to it by the Board of Directors.

The resolutions of the Executive Committee are ratified by the Board of Directors.

The minutes of the Executive Committee are sent to Bangladesh Bank for their

review.

Attendance of members of the Executive Committee in meetings

Name of the

member of

the Executive

Committee

otal no. of

meetings

from

01.01.2015 to

31.12.2015

Total

attenda

nce

Remarks

Alamgir Kabir, FCA

6 6 The members

who could

not attend

any meeting

were granted

leave of

Absence.

Ragib Ali

6 3

M. A. Kashem

6 2

Azim Uddin Ahmed

6 6

Shahid Hossain Managing Director

6 6

ii. Audit Committee

The Audit Committee is an important functional Committee of the Board of Directors

of the Bank. It is assigned with oversight of financial reporting, disclosure, regulatory

compliance and disciplined banking operation complying with the rules and norms of

banking.

Feature and Composition As per rules, any member of the Executive Committee cannot be the member of the

Audit Committee. The Audit Committee was lastly re-constituted by the Board of

Directors in its 461st meeting held on March 29, 2015. Composition: A 6-member

Audit Committee was reconstituted by the Board in compliance with the relevant

provisions contained in BRPD Circular No.11 dated 27 October, 2013 of Bangladesh

Bank The membership and attendance of the members of the Audit Committee are

given below:

56 | P a g e

Sl. No.

Members Position Meeting held

Attendance Remarks

1 Mr. A.H.M. Moazzem Hossain (Independent Director)

Chairman 5 5 a) The member who could not attend any meeting of the Audit committee was granted leave of absence. b) Mrs. Rehana Rahman was made a member of the Audit Committee by the Board of Directors in its 461st meeting held on March 29, 2015.

2 Mrs. Duluma Ahmed

Member 5 3

3 Mrs. Jusna Ara Kashem

Member 5 -

4 Mrs. Rehana Rahman

Member 5 2

5 Mrs. Sirat Monira

Member 5 4

6 Dr. Zaidi Sattar (Independent Director)

Member 5 2

On invitation, Senior Executives of the Bank including the Managing Director, Chief

Financial Officer (CFO), Head of Internal Control and Compliance and Head of

Bank’s Risk Management Division attended the meetings to meet instant queries of

the Audit Committee to make its decisions fact-based.7

Terms of Reference of the Audit Committee

i. Mr. A.H.M. Moazzem Hossain, in his capacity as the Independent Director,

shall be the Chairman of the Audit Committee.

ii. Presence of 03 (three) members shall form quorum.

iii. The tenure of office of the Audit Committee shall be for 3 years.

iv. The Company Secretary shall act as Secretary to the Audit Committee.

v. The terms of reference of the Audit Committee shall also be as specified in

the BRPD Circular No.11 dated October 27, 2013 of Bangladesh Bank and

provisions contained in Notification No.SEC/CMRRCD/2006-158/134/Admin 144

dated 07 August, 2012 of Bangladesh Securities and Exchange Commission

(BSEC).

vi. Mr. Zakir Ahmed Khan, Advisor of the Bank, shall remain present in every

meeting of the Audit Committee as far as possible and shall give his advice and

suggestions for improvement of Bank’s operations and strict compliance of rules of

both the Bank and its regulators.

57 | P a g e

Charter of the Audit Committee

The Audit Committee is constituted by the Board of Directors for the primary purpose

of assisting the Board in :

Overseeing the integrity of the company’s financial statement.

Overseeing the improvement of corporate governance standard of the

company.

Overseeing the Company’s system of disclosure, internal controls and

procedure.

Overseeing Bank’s internal control over financial reporting.

Overseeing Bank’s compliance with ethical standards adopted by the

company.

Making reports and recommendations to the Board.

Roles and Responsibilities

The role of Audit Committee is to assist the Board in discharging its duties and

responsibilities for financial reporting, corporate governance, internal control, green

banking and environmental and climate change risks. The added roles of the Audit

Committee include, but not limited to, the following:

i) Overseeing the financial reporting process.

ii) Monitoring choice of accounting policies and principles.

iii) Monitoring Internal Control Risk management process.

iv) Overseeing hiring and performance of external auditors.

v) Reviewing the annual financial statements before submission to the Board

for approval.

vi) Reviewing the quarterly and half yearly financial statements before

submission to the Board for approval.

vii) Reviewing the adequacy of internal audit functions.

viii) Reviewing statement of significant party transactions submitted by the

management.

ix) Reviewing Management Letters/ Letter of Internal Control Weakness

issued by Statutory Auditors.

x) Reviewing the raising of fund through Repeat Public Offering/ Rights Issue

and its use and application.

xi) Monitoring internal control process.

58 | P a g e

xii) Maintaining oversight regulatory compliance, ethics and whistleblower

hotlines

`xiii) Reviewing Audit Committee’s own terms of reference.

Reporting of the Audit Committee

The Audit Committee reported its findings and observations to the Board of

Directors. It is also required to report to the Bangladesh Securities and Exchange

Commission about anything which has material impact on the financial condition and

result of operation of the Bank. But such reporting was not necessitated in 2015 as

nothing which has/had material impact on the financial condition and results of

operation had occurred in the Bank during the year 2015.

Deliberations of the Audit Committee in 2015

During the year 2015, the Audit Committee carried out its regular functions on areas

pertaining to its responsibilities. The issues it discussed and the decisions it took for

improvement of operational performance of the Bank are

listed below:

i) Self-Assessment of Anti-Fraud Internal Controls of the Bank were reviewed

by the Audit Committee and suitable decisions were given.

ii) The Inspection plan of the Bank for the year 2015 was approved.

iii) Position of classified, re-scheduled and written-off loans of the Bank was

discussed. The Audit Committee advised to bring down classified loans by recovery

and regularization. It also advised for recovery of written-off loans and regularization

of re-scheduled loans.

iv) The Committee studied the status of collaterals held against classified

loans and gave its decisions for improving and strengthening the same, as and when

necessary.

SOUTHEAST BANK LIMITED ANNUAL REPORT | 2015 88

v) The Audit Committee minutely examined the Risk Based Inspection

Reports on Bank’s Branches and gave decisions that it considered appropriate under

the given circumstances.

vi) The Audit Committee thoroughly reviewed the findings of the Inspection

Team of the Bangladesh Bank and the audit reports of ICCD and instructed

management to take appropriate actions to prevent repetition of lapses identified in

the audit / inspection reports.

59 | P a g e

vii) The Committee studied and examined the total position of the Bank as per

requirement of Bangladesh Bank and gave appropriate decisions.

viii) The Audit Committee examined the certificate of the Management

Committee regarding the effectiveness of Internal Control, Policy, Practice and

Procedures.

ix) The Audit Committee reviewed periodic recovery positions of the Bank

against classified, re-scheduled and written-off loans and gave suitable decisions.

x) The Audit Committee periodically examined position of classified loans and

provision requirement there against. Accordingly, it gave suitable decisions.

xi) The Audit Committee reviewed the status of the Bank in Green Banking

Initiatives.

xii) The Committee made the observation that because of reduction of value

of real estate, the value of the collateral being retained by the bank against a

particular classified / stuck up loan has gone down. As such, the committee advised

the Management to re-value, where appropriate, the mortgaged properties being

retained by the Bank as collateral to quantify Bank’s real risk exposure.

xiii) The Audit Committee advised the Management to correctly assess fund

requirement of a borrower and to refrain from allowing high exposure

disproportionate to business needs in an account.

xiv) The Committee was of the opinion that Special Mention Accounts (SMAs)

need to be effectively monitored for their timely regularization. Appraisals of such

loans are done by the concerned credit officers. Hence, they are responsible for

monitoring of the respective SMA accounts. The system of monitoring of SMAs be

effectively put in place and supervised. For any laxity in this respect, the concerned

credit officer shall be held liable and accountable.

xv) The Committee advised that in case of classified and

rescheduled/restructured loans, the recovery process should be geared up by

strengthening and, where necessary by further streamlining the system of recovery.

The technology already developed for this purpose should be effectively utilized.

xvi) The Committee advised that there should be specific report about

completion of documentation formalities in an account.

xvii) The Committee expressed the apprehension that Bank’s risk exposure

will go up if SMA loans are not controlled through effective drive and monitoring and

kept within

60 | P a g e

tolerable limit.

xviii) The Committee expressed the view that Management Level reviews for

compliance on audit objections as are in Internal Inspection Report are not being

done properly. The Committee advised that henceforth while bringing such report on

a branch before the Audit Committee, it has to be specifically reviewed by the

Management objectively.

xix) The Audit Committee advised that office orders of dismissal/termination of

officials for gross misconduct should be copied to appropriate authorities and

circulated through the internal web-portal of the Bank for information of all after

observing due procedures

iii. Risk Management Committee

The Bank Company (Amendment) Act-2013, inter alia, provided for constitution of a

Risk Management Committee of the Board of Directors of every Bank. Bangladesh

Bank issued BRPD Circular No.11 dated October 27, 2013 delineating, among other

things, the composition and functions of the Risk Management Committee especially

in the areas of Bank’s core risk-related issues.

Feature and Composition

The Board of Directors of the Bank in its 430th meeting held on December 24, 2013

constituted the Risk Management Committee comprising the following Directors of

the Bank. One Independent Director was included in the Committee. The

membership of the Risk Management Committee of the Board of Directors of the

Bank and members’ attendance in its meetings in 2015 are given below: .

Sl Members Position Meetings held

Attendance Remarks

1 1Mr. Alamgir Kabir, FCA Chairman

Chairman 4 4 Members who could not attend In the meeting were in leave

2 Mr. Ragib Ali Member 4 2 3 3 Mr. M. A. Kashem Member 4 3 4 Mr. Azim Uddin Ahmed

Member Member 4 4

5 Mr. A.H.M. Moazzem Hossain (Independent Director)

Member 4 4

61 | P a g e

Structure of the Risk Management Committee

i. The Chairman of the Board of Directors of the Bank shall be the chairman of

the Risk Management Committee.

ii. Presence of 3 (three) members in a meeting of the Committee shall form

quorum.

iii. The Company Secretary of the Bank shall act as the Secretary to the Risk

Management Committee.

Functions of the Risk Management Committee

The broad functional areas of the Risk Management Committee are the following:

i. Risk assessment and risk control strategy.

ii. Review of Risk Policy and its approval.

iii. Review of the information kept by the Management of the Bank and

approval of reporting system.

iv. Overseeing the overall implementation of Risk Management Policy of the

Bank.

v. Reporting its decisions and recommendations to the Board.

vi. Overseeing the implementation of related guidelines issued by the

regulatory bodies from time to time.

Reporting of the Risk Management Committee

As required, the Risk Management Committee reported its decisions and recommendations to the Board of Directors for review.

Deliberation of the Risk Management Committee in 2015

During the year 2015, the Risk Management Committee carried out its functions in

areas relating to its responsibilities. The issues it discussed and the decisions it took

for improvement of risk management scenario in the Bank are enumerated below:

Reviewed the Capital to Risk-weighted Assets Ratio (CRAR) of the Bank from

time to time against minimum requirement.

Advised the management to improve asset quality by taking pragmatic steps.

A balance between the growth of asset and capital be maintained to improve

the CRAR.

Early Warning System be strengthened and post-loan monitoring process be

intensified for effective credit risk management.

Periodically reviewed the duration gaps of Bank’s assets and liabilities and

advised the management for their prudent management.

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Advised the management to obtain additional securities from the large

borrowers on best effort basis to reduce charge on Bank’s capital.

Advised for diversification of Bank’s loan portfolio as far as possible and

practicable.

Advised the management to persuade the existing good corporate and SME

borrowers for their credit rating to reduce charge on Bank’s capital.

Loan rescheduling be very cautious and selective based on merits of each

case.

Advised the management to take all-out effort to recover classified and written

off loans. Performing loans be closely monitored so that those loans do not

turn into NPL categories.

Effective measures be geared up for recovery of Bank’s dues from the top-20

defaulters.

Loans to RMG and Textile sectors be regularly monitored to keep them within

the sectoral allocation.

The large loans of the Bank be closely and regularly monitored to ensure that

they continue to be performing.

The credit rating of already rated borrower companies be renewed after

discussing with the concerned borrowers.

The Heads of Branches be asked to diversify their loans and manage related

risks efficiently.

Advised the management to monitor the Non- Performing Loans of the bank

constantly to bring those back to performing status.

Loan/exposure to large borrowers shall be reduced.It shall not be increased

unless sufficiently covered by additional collaterals.

The Heads of Branches be asked to exercise added due diligence in

assessing credit proposals.

The internal control of the Bank be strengthened further to thwart fraud and

forgery attempts by unscrupulous persons.

Capital market exposure of the Bank should be kept complying with the

guidelines of Bangladesh Bank.

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Reviewed the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio

(NSFR) of the Bank from time to time against minimum requirement set by the

regulator.

The advice and guidelines of Bangladesh Bank be complied with for

qualitative improvement of the Bank.

Ensuring effective corporate governance is one of the top priorities of the Bank

management for realizing the objectives advocated in our management philosophy.

A clearly defined organizational structure with definite lines of responsibility and

delegation of powers to different echelon of the management are in place in the

Bank. To streamline functions, the following Committees are actively working in the

Bank:

Management Committee (MANCOM)

A Management Committee (MANCOM) is working in the Bank. It is composed of

senior members of the Management Team. Its main functions are to address general

issues of importance, introduce new products, frame strategies for improvement of

operations, evaluate different types of risks, monitor internal control structure and to

review effectiveness of the internal control system. To streamline the management

functions further and to quicken decision making process based on best analysis and

appraisal, committees of the Management Committee for the following issues were

constituted:

(a) Product Development and Marketing

(b) Strategic Planning Issues and

(c) Corporate Governance and Administrative Issues.

The following Sub-Committees of MANCOM are also functioning in the Bank:

i) Head Office Credit Review Committee (HOCRC)

A Credit Review Committee headed by the Additional Managing Director (Corporate

Banking) of the Bank has been constituted for appraisal and quick disposal of credit

proposals. Credit proposals that do not merit considerations are declined. Credit

proposals that merit considerations in the opinion of the Credit Review Committee

3.2.8 Management Committees and their responsibilities

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are presented before the competent authority as per the delegation of business

power for approval/decision. There are two HOCRC

I.

II.

ii) Asset Liability Management Committee (ALCO)

Asset Liability Management Committee consists of Managing Director, Additional

Managing Director, Deputy Managing Directors and strategically important Divisional

Heads of Head Office. Members are

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iii) Central Compliance Unit

Anti-Money Laundering (AML) and Combating of Financing of Terrorism (CFT) are

getting added importance day by day. All issues relating to AML and CFT are

managed and monitored by the Bank with the structure in place.

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iv) Integrity Committee

As instructed by Bangladesh Bank, a 6-Member Integrity Committee of the Bank

headed by a Deputy Managing Director was constituted on November 18, 2013. One

Senior Executive Vice President of the Bank is the Focal Point of the Committee.

The Committee sits in meeting to discharge its responsibilities effectively.

v) Committee for Evaluation of Management Reporting System

As advised by Bangladesh Bank, a 9- Member Committee for Evaluation of

Management Reporting System (MRS) has been constituted in the Bank with a

Deputy Managing Director as its head.

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vi) Procurement Committee

The procurement policy of Southeast Bank Limited is designed to ensure that the

purchase of all goods, services and works required for the satisfactory operation of

the Bank is done in a transparent, timely and efficient manner.

vii) Ttaskforce for recovery of classified and written-off loans

The increase of non-performing loans (NPLs) and written of loans has a negative

impact on profitability, capital adequacy, asset liability management and over all

reputation of the Bank. Therefore, it is essential to strengthen recovery drive to

downsize the non-performing / classified loans and written-off loans through cash

recovery. From this point of view two taskforces with high level executives / officers

were formed / reformed at Head Office in the year 2012 – one is headed by an

Additional Managing Director and the other is headed by a Deputy Managing

Director. The taskforces review the recovery progress of classified and written-off

loans on monthly basis and provide necessary guidelines to the branches

accordingly. The taskforces identify the reasons for becoming the loans non-

performing in each and every individual case and chalk out strategy of recovery upon

discussion meeting / dialogue with the concerned borrowers at Head Office / Branch.

The taskforces also review the court cases / suits against the defaulted borrowers

and continue follow up with the panel lawyers of the Bank for early disposal of the

suits. The members of the taskforces visit client’s factory, office, security / mortgaged

properties as and when needed. They also place their observations and

recommendations before the competent authority for their guidance and next

courses of action. With the combined efforts of the above two taskforces along with

recovery officers of branches and Head Office Legal Affairs and Recovery Division,

the Bank was able to minimize the NPLs at 4.25 percent as on December 31, 2015

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and recovered BDT 581.35 million from classified loans and BDT 174.60 million from

written-off loans in the year 2015.

viii) IT Steering Committee

An IT Steering Committee has been formed in 2012 comprising 06 (six) senior

officials of the Bank for overall supervision of ICT Operations and ICT Projects

Management.

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ix) Committee for Evaluation of Effectiveness of AML/ CFT Procedure

A 7- Member Committee for Evaluation of Effectiveness of AML/CFT Procedure has

been functioning in the Bank since 2014.

In the 20th Annual General Meeting of the Shareholders of the Bank, Syful Shamsul

Alam & Co. and Howladar Yunus & Co., were appointed External Auditors of the

Bank for the 3rd term till conclusion of the next Annual General Meeting. They are

not eligible for re-appointment as per rules. The shareholders will appoint new

External Auditors and fix their remuneration in the 21st Annual General Meeting.

M/S Howladar Yunus & Co. and M/S Syful Shamsul Alam & Co. are the external

auditors of the Bank. The services as are specified in the Securities and Exchange

Commission Notification No.SEC/CMRRCD/2006-158/134/Admin/44 dated 07

August, 2012 are not obtained from the external auditors.

3.2.9 External Auditors

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3.2.9.1 Report on Internal Control

The objective of internal control is to ensure that management has reasonable

assurance that

(i) operations are effective, efficient and aligned with strategy,

(ii) financial reporting and management information is reliable, complete and timely

accessible,

(iii) the entity is in compliance with applicable laws and regulations as well as its

internal policies and ethical values including sustainability, and

(iv) assets of the company are safeguarded and frauds & errors are prevented or

detected.

Southeast Bank has established an effective internal control system whose primary

aim is to ensure the overall control of risks and provide reasonable assurance that

the objectives set by the Bank will be met. It has designed to develop a high level

risk culture among the personnel of the Bank, establish efficient and qualified

operating model of the Bank, ensure reliability of internal and external information

including accounting and financial information, secure the Bank’s operations and

assets, and comply with laws, regulatory requirements and internal policies.

The Board of Directors of Southeast Bank, through its Audit Committee, periodically

reviews the effectiveness of Bank’s internal control system covering all the material

controls, including financial, operational and compliance controls, risk management

systems, the adequacy of resources, qualifications and experience of staff of the

accounting and financial reporting functions. Board Audit Committee reviews the

actions taken on internal control issues identified by the Internal & External Auditors

and Regulatory Authorities. It has active oversight on the internal audit’s

independence, scope of work and resources and it also reviews the functions of

Internal Control & Compliance Division of Head Office, particularly the scope of the

annual audit plan and frequency of the internal audit activities.

3.2.10 Reports On corporate governance of SBL

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SOUTHEAST BANK LIMIT

ED ANNUAL

3.2.9.2 Report on Risk Management

The risky nature of Banking business has caused the Central Bank to be much

concerned about the risk factors affecting the financial position of the banks. In this

connection, every Bank has come forwarded to establish a general framework to

defeat risk factors considering the laws of the land. Bangladesh Bank has also

undertaken an overall core-risk management project under which every bank is

bound on the authoritative covenants to install risk management system.

Southeast Bank Limited has established approved policies in compliance with

Central bank’s guidelines covering major areas such as

(a) Credit risk management

(b) Foreign exchange risk management

(c) Asset liability management

(d) Money laundering prevention

(e) Internal control & compliance

(f ) information and communication technology security risk.

Southeast bank limited has developed a core risks assessment manual. The

purpose of this assessment manual is to inform management about the loopholes of

full fledged implementation of Core risks management, improve risk management

culture, restructure minimum standards and assist in the ongoing improvement.

In compliance with the requirements of Bangladesh Bank guidelines, risk

management unit monthly prepares risk management paper (RMP) and the paper is

reviewed in the meeting of Risk Management Division to have their opinion on the

issues identified in RMP.

3.2.9.3 Report on Internal Audit

Internal Audit is the continuous and systematic process of examining and reporting

on the activities of an organization undertaken by the specially assigned staff(s).

Internal Auditor works as the Eyes & Ears of the management. It may therefore be

used to bridge the gap between management & shop floor. It can assure the

management that the Internal Controls are adequate and in operations, the policies

and systems laid down are being adhered to and accounting records provided by the

all levels are correct.

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Internal Audit Mechanism is used as an important element to ensure good

governance of SEBL. Internal Audit Activity of SEBL is effective and it provides

senior management with a number of important services. These include detecting

and preventing errors and fraud, testing internal control, and monitoring compliance

with own policies & procedures, applicable rules & regulations, instructions/

guidelines of regulatory authority etc. During the year 2015, ICCD conducted

inspection on most of the Branches and some of the important Divisions of Head

Office of the Bank as per plan and submitted reports presenting the findings of the

audits/ inspections to the appropriate authorities. The bank conducted the risk

grading of branches as per Bangladesh Bank guideline. Necessary control measures

and corrective actions have been taken on the suggestions or observations made in

these reports. The key points of the. Reports have also been discussed in the

meetings of the Audit Committee of the Board and necessary steps have been taken

according to the decision of the said Committee for correct functioning of Internal

Controls & Compliance

3.2.9.4 Report on Communication with Shareholders

Southeast Bank is strongly committed to be equitable of every shareholder, whether

they are major or minority shareholders, institutional investors, or foreign

shareholders. To ensure equal treatment of all shareholders, the Bank created

various mechanisms, such as:

Shareholders who are unable to attend the shareholders’ meeting, the Bank provides

proxy forms which allow shareholders to specify their vote on each agenda. The

proxy forms, which are in accordance with the standard format, are sent along with

the annual report.

The shareholders’ meetings proceed according to the order of all agenda, without

adding new and uninformed agenda, in order to give the opportunity to shareholders

to study the information on the given agenda before making a decision. Moreover,

there are no changes to the important information in the shareholders’ meeting.

The Bank sees the importance of the consideration of transactions which may have

conflict of interest or may be connected or related transactions, and abides by good

corporate governance principles, including the rules and regulations of the

Bangladesh Securities and Exchange Commission and the Dhaka Stock Exchange

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and Chittagong Stock Exchange. Directors, management and those who are related

persons do not participate in the consideration to approve such transactions.

The Bank continues to have regular communication with the shareholders through

periodic updates of performance and at any other time when it believes it to be in the

best interest of shareholders.

3.2.9.5 Report on compliance with Bangladesh Bank Guidelines

Bangladesh Bank Guidelines for Corporate Governance: Status of Compliance with

BRPD Circular No.11 of 27th

October 2013.

SL. No.

Title Compliance Status

Remarks

1

Constitution of Board of Directors for appointment of new Directors and removal of Directors Bangladesh Bank’s approval to be obtained. Eligibility and Qualification of Directors, maximum number of Directors on the Board of Directors. Appointment of Independent Director. Maximum 2 Directors from one family.

1.1

Appointment of New Directors Section 15.4 of Bank Company (Amendment) Act-2013 requires that application for obtaining approval of Bangladesh Bank to appoint new Directors should be sent along with some specified declarations and approval of Bangladesh Securities and Exchange Commission.

1.2 Vacancy of Office of a Director

A Vacancy as per Section 108 (i) of Companies Act 1994 and Vacancy as per Section 17 of Bank Company Act 1991.

No such event

B I. Bar to become a Director who was removed by operation of Section 17 of Bank Company Act 1991.

No such event

II. Bar to transfer share by a Director who was removed by operation of Section 17 of Bank Company Act 1991.

No such event

C Removal of Director and dissolution of the Board by Bangladesh Bank.

No such event

1.3

Removal of Directors and Dissolution of the Board For removal of a Director, Bangladesh Bank’s approval to be obtained.

No such event

1.4 Appointment of Alternate Directors

A To appoint alternate director in place of original Director, documentary evidence of foreign visit and return of original Director shall be kept in records. Any deviation from this shall be reported to Bangladesh Bank by the Bank’s Chief Executive Officer.

No such event

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B Copy of resolution for appointment of Alternate Director by the Board of Directors along with original Director’s probable date of return is to be sent to Bangladesh Bank.

No such event

C Any loan defaulter and anybody who is not eligible to be appointed as Director under Bank Company Act or Companies Act or any other law or rules shall not be appointed as Alternate Director.

There is no Alternate Director on the Board of SEBL

D No Alternate Director shall be appointed as a member of any committee of the Board of Directors.

No such event

E No credit facilities to Alternate Director or to entities where he has interest shall be allowed. All requirements of Law, Rules and Directives applicable to a Directors are also equally applicable to an Alternate Director

No such event

2 Depositor Director No requirement for appointment of Depositor Director. The tenure of office of current Depositor Directors shall be determined by the Board.

3 Particulars of Directors

A Updated list of Directors;

B Distribution of list of Directors to the scheduled Banks and NBFIs

C Updated profile of Directors in the website.

4

Responsibility and Power of the Board of Directors Board of Directors is responsible for policy framing and implementation, Risk Management, Internal Control, Internal Audit and ensuring compliance of Internal Audit objections etc.

4.1 Responsibility and Powers of the Board of Directors

A

Work Plan and Strategic Management

I. Board shall determine Bank’s goals and objectives and devise strategies and work plan. Progress towards achievement of work plan shall be reviewed quarterly by the Board.

II. Board of Directors shall include its analytical/critical review of Bank’s achievement and its failures in the Bank’s Annual Report. It shall also inform the shareholders about the Bank’s future work plan and strategies. KPI(s) of CEO and two grades below the CEO shall be determined and evaluated by the Board of Directors.

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B Credit and Risk Management

I. Board of Directors shall approve re-schedule & write off of credit within existing Laws and Rules & Regulations. Board shall delegate power to approve credit/investment. All policies relating to credit evaluation sanction, recovery re-schedule and write-off shall be approved by the Board.

II. Board of Directors review Risk Management Policy on quarterly basis Implementation of guidelines of Bangladesh Bank about major risks shall also be monitored by the Board.

C Management of Internal Control Board of Directors shall closely monitor Internal Control System in order to maintain qualitative standard of Credit/Investment. Board of Directors shall review on quarterly basis the reports of the Audit Committee submitted before it regarding compliance status of suggestions and recommendation of inspection report of Internal Audit, External Auditors and Inspection Team of Bangladesh Bank.

D Human Resource Management and Development of Human Resource

I. All policies and service Rules relating to Human Resources of the Bank shall be approved by the Board. The appointment, promotion, transfer and disciplinary action against an executive up to two grades below the CEO shall made/taken by the Board.

II. Board of Directors shall give special emphasis on Training for enhancement of capability of Bank’s Executives and Officers for accurate assessment of Credit/Investment proposals. Modern electronic and information technology and Management Information System (MIS) shall be stressed up and included in the annual work-plan.

III. Board of Directors shall devise Code of Ethics for all grades of Executives and Officers and it should be meticulously complied with by all Executives and Officers. Board of Directors shall promote high ethical standard for the purpose of developing a culture of compliance in the Bank.

E Financial Management

I. Bank’s Annual Budget and Statutory Financial Statements shall be prepared with the approval of the Board of Directors. Bank’s Income, Expenditure, Liquidity, Expired / Unrecovered Loans, Capital Base and Capital Adequacy, Provision, classified loans etc must be reviewed by the Board on quarterly basis.

II. Purchase and Procurement Policy shall be devised by the Board of Directors. Delegation of powers in this behalf shall be approved by the Board. Board’s prior approval shall be required to purchase Land,

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Building, Establishment, construction, Vehicle etc on business consideration.

III. Board of Directors shall review whether Asset-Liability Committee (ALCO) is formed and functioning observing the directives of Bangladesh Bank.

F Appointment of Chief Executive Officer Board of Director shall appoint a honest, skilled, experienced and a suitable person as Chief Executive Officer. Appointment of CEO shall require Bangladesh Bank’s approval.

G Board’s added Duty Board shall ensure proper execution and compliance of any duty vested upon it by Bangladesh Bank.

4.2 Meeting of Board of Directors One meeting of the Board in each month and if required more than one meeting in a month. But minimum one meeting of the Board shall be held in a quarter.

4.3 Responsibilities of Chairman of Board of Directors

A Chairman’s area of activities.

B He may visit a branch or Bank’s financial project. He may order for an enquiry, if required. He may take actions through the CEO with the approval of the Board.

C An Office Room, a personal Secretary / Assistant, one Peon / MLSS, Telephone at the office, one Mobile Phone and a vehicle may be provided to the chairman with the approval of Board.

5 Constitution of Supporting Committee Every Bank Company shall constitute one Executive Committee, one Audit Committee and one Risk Management Committee consisting of members of the Board of Directors.

5.1 Executive Committee In order to resolve urgent matters and day to day or / routine work during interval of meeting of Board of Directors, it shall constitute an Executive Committee.

A Structure

B Eligibility of the Members of the Executive Committee

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C Responsibilities and Duties of the Executive Committee

D Calling Meeting of the Executive Committee

5.2 Audit Committee Audit Committee to be constituted to carry out supervisory role on presentation of Financial Reports, Internal Control System, Auditing System, compliance of existing Laws and Rules and Regulations of regulators.

A Structure

B Qualification of Members of Audit Committee

C Duties and Responsibilities of the Audit Committee

I. Internal Control

II. Publication of Financial Reports

III. Internal Audit

IV. External Audit

V. Compliance of existing Laws and Rules

VI. Miscellaneous Work √

D Calling Meeting of the Audit Committee

5.3 Risk Management Committee Risk Management Committee shall be formed in order to play an effective role in lowering possible risks in respect of implementation of strategies and work-plan formulated by Board of Directors. Risk Management Committee shall analyze the policy / system of lowering risks properly by the management and maintenance of required capital against Risks and Provision for Reserve for Credit Risk, Foreign Exchange Risk, Internal Control and Compliance Risk, Money Laundering Risk, Information and Communication Technology Risk, Operation Risk, Interest Rate Risk, Liquidity Risks shall be looked after by the Risk Management Committee etc.

A Structure

B Qualification of Committee Members

C Responsibilities and Duties of the Risk Management Committee

I. Risk Identification and Control Strategy

II. Preparation of Organizational Structures

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III. Review of Risk Management Policy and approval

IV. Preparation of Information and Reporting System

V. Supervision of Implementation of Overall Risk Management Policy

VI. Miscellaneous Work

VII. Calling Meeting of the Risk Management Committee

6 Training of Directors

7 This Circular is issued to implement Section 15, 15 Kha and 15 Ga of Bank Company (Amended) Act, 2013.

-

8 Enforcement of the Circular.

-

3.2.9.6 Report on compliance with the Security and Exchange commission

BSEC Guidelines for Corporate Governance: Our Compliance Status of compliance with the conditions imposed by Bangladesh Securities and Exchange Commission

Notification No.SEC/CMRRCD/2006-158/134/Admin/44 dated 07 August 2012 issued under section 2CC of the Securities and Exchange Ordinance, 1969:

Sl.

No.

Titles Complied Not Complied

Remarks

1.1

The number of the board members of the company shall not be less than 5 (five) and more than 20 (twenty): Provided, however, that in case of banks and non-bank financial institutions, insurance companies and statutory bodies for which separate primary regulators like Bangladesh Bank, Insurance Development and Regulatory Authority, etc. exist, the Boards of those companies shall be constituted as may be prescribed by such primary regulators in so far as those prescriptions are not inconsistent with the aforesaid condition.

1.2(i)

At least one fifth (1/5) of the total number of directors in the company’s board shall be independent directors.

1.2(ii)(a)

who either does not hold any share in the company or holds less than one percent (1%) shares of the total paid-up shares of the company

1.2(ii)(b)

Who is not a sponsor of the company and is not connected with the company’s any sponsor or director or shareholder who holds one percent (1%) or more shares of the total paid-up shares of the company on the basis of family relationship. His/her family members

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also should not hold above mentioned shares in the company Provided that spouse, son, daughter, father, mother, brother, sister, sonin- law and daughter-in-law shall be considered as family members

1.2(ii)(c)

Who does not have any other relationship, whether pecuniary or otherwise, with the company or its subsidiary/associated companies;

1.2(ii)(d)

Who is not a member, director or officer of any stock exchange;

1.2(ii)(e)

Who is not a shareholder, director or officer of any member of stock exchange or an intermediary of the capital market

1.2(ii)(f )

Who is not a partner or an executive or was not a partner or an executive during the preceding 3 (three) years of the concerned company’s statutory audit firm;

1.2(ii)(g)

Who shall not be an independent director in more than 3 (three) listed companies;

1.2(ii)(h)

Who has not been convicted by a court of competent jurisdiction as a defaulter in payment of any loan to a bank or a Non-Bank Financial Institution (NBFI);

1.2(ii)(i)

Who has not been convicted for a criminal offence involving moral turpitude.

1.2(iii)

The independent director(s) shall be appointed by the board of directors and approved by the shareholders in the Annual General Meeting (AGM).

1.2(iv)

The post of independent director(s) cannot remain vacant for more than 90 (ninety) days.

N/A

No such

event

occurred 1.2(v)

The Board shall lay down a code of conduct of all Board members and annual compliance of the code to be recorded.

1.2(vi)

The tenure of office of an independent director shall be for a period of 3 (three) years, which may be extended for 1 (one) term only.

1.3(i)

Independent Director shall be a knowledgeable individual With integrity that is able to ensure compliance with financial, regulatory and corporate laws and can make meaningful contribution to business .

1.3(ii)

The tenure of office of an independent director shall be for a period of 3 (three) years, which may be extended for 1 (one) term only. The person should be a Business Leader/Corporate Leader/ Bureaucrat/ University Teacher with Economics or Business Studies or Law background /Professionals like Chartered Accountants, Cost & Management Accountants, and Chartered Secretaries. The independent director must have at least 12 (twelve) years of corporate management/ professional experiences.

1.3(iii)

In special cases the above qualifications may be relaxed subject to prior approval of the Commission.

N/A

1.4

The Position of the Chairman of the Board and Chief Executive Officer of the company shall be filled by

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different individuals. 1.5(i)

Industry outlook and possible future developments in the industry.

1.5(ii)

Segment-wise or product-wise performance.

1.5(iii)

Risks and concerns.

1.5(iv)

A discussion on Cost of Goods sold, Gross Profit Margin and Net Profit Margin.

1.5(v)

Discussion on continuity of any Extra-Ordinary gain or loss.

N/A

1.5(vi)

Basis for related party transactions- a statement of all related party transactions should be disclosed in the annual report.

1.5(vii)

Utilization of proceeds from public issues, rights issues and/or through any others instruments.

N/A

1.5(viii)

An explanation if the financial results deteriorate after the company goes for Initial Public Offering (IPO), Repeat Public Offering (RPO), Rights Offer, Direct Listing, etc.

N/A

1.5(ix)

If significant variance occurs between Quarterly Financial performance and Annual Financial Statements the management shall explain about the variance on their Annual Report...

N/A

1.5(x)

Remuneration to directors including independent directors

1.5(xi)

The financial statements prepared by the management of the issuer company present fairly its state of affairs, the result of its operations, cash flows and changes in equity.

1.5(xii)

Proper books of account of the issuer company have been maintained.

1.5(xiii)

Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment.

1.5(xiv)

International Accounting Standards (IAS)/Bangladesh Accounting Standards (BAS)/ International Financial Reporting Standards (IFRS)/Bangladesh Financial Reporting Standards (BFRS), as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure there-from has been adequately disclosed.

1.5(xv)

The system of internal control is sound in design and has been effectively implemented and monitored.

1.5(xvi)

There are no significant doubts upon the issuer company’s ability to continue as a going concern. If the issuer company is not considered to be a going concern, the fact along with reasons thereof should be disclosed.

1.5(xvii)

Significant deviations from the last year’s operating results of the issuer company shall be highlighted and the reasons thereof should be explained.

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1.5(xviii)

Key operating and financial data of at least preceding 5 (five) years shall be summarized.

1.5(xix)

If the issuer company has not declared dividend (cash or stock) for the year, the reasons thereof shall be given

N/A

1.5(xx)

The number of Board meetings held during the year and attendance by each director shall be disclosed

1.5(xxi).a

Parent/Subsidiary/Associated Companies and other related parties (name wise details);

1.5(xxi).b

Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer, Head of Internal Audit and their spouses and minor children (name wise details);

1.5(xxi).c

Executives;

1.5(xxi).d

Shareholders holding ten percent (10%) or more voting interest in the company (name wise details).

1.5(xxii).

a a brief resume of the director;

1.5(xxii).

b nature of his/her expertise in specific functional areas;

1.5(xxii).

c Names of companies in which the person also holds the directorship and the membership of committees of the board.

2.1

The company shall appoint a Chief Financial Officer (CFO), a Head of Internal Audit (Internal Control and Compliance) and a Company Secretary (CS). The Board of Directors should clearly define respective roles, responsibilities and duties of the CFO, the Head of Internal Audit and the CS.

2.2

The CFO and the Company Secretary of the companies shall attend the meetings of the Board of Directors, provided that the CFO and/or the Company Secretary shall not attend such part of a meeting of the Board of Directors which involves consideration of an agenda item relating to their personal matters.

3(i)

The company shall have an Audit Committee as a subcommittee of the Board of Directors.

3(ii)

The Audit Committee shall assist the Board of Directors in ensuring that the financial statements reflect true and fair view of the state of affairs of the company and in ensuring a good monitoring system within the business.

3(iii)

The Audit Committee shall be responsible to the Board of Directors. The duties of the Audit Committee shall be clearly set forth in writing.

3.1(i)

Constitution of Audit Committee

3.1(ii)

Inclusion of independent Director on the Audit Committee

3.1(iii)

All members of the Audit Committee are ˝financially literate

3.1(iv)

When the term of service of the Committee members expires or there is any circumstance causing any

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Committee member to be unable to hold office until expiration of the term of service, thus making the number of the Committee members to be lower than the prescribed number of 3 (three) persons, the Board of Directors shall appoint the new Committee member(s) to fill up the vacancy(ies) immediately or not later than 1 (one) month from the date of vacancy(ies) in the Committee to ensure continuity of the performance of work of the Audit Committee.

3.1(v)

The company secretary shall act as the secretary of the Committee.

3.1(vi)

The quorum of the Audit Committee meeting shall not constitute without at least 1 (one) independent director.

3.2(i)

Chairman of the Committee

3.2(ii)

Presence of the Chairman of the Audit Committee in the AGM

3.3(i)

Oversee the financial reporting process.

3.3(ii)

Monitor choice of accounting policies and principles.

3.3(iii)

Monitor Internal Control Risk management process.

3.3(iv)

Oversee hiring and performance of external auditors.

3.3(v)

Review along with the management, the annual financial statements before submission to the board for approval

3.3(vi)

Review along with the management, the quarterly and half yearly financial statements before submission to the board for approval.

3.3(vii)

Review the adequacy of internal audit function.

3.3(viii)

Review statement of significant related party transactions submitted by the management.

3.3(ix)

Review Management Letters/ Letter of Internal Control weakness issued by statutory auditors.

3.3(x)

When money is raised through Initial Public Offering (IPO)/Repeat Public Offering (RPO)/Rights Issue the company shall disclose to the Audit Committee about the uses/applications of funds by major category (capital expenditure, sales and marketing expenses, working capital, etc), on a quarterly basis, as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for the purposes other than those stated in the offer document/prospectus.

N/A

3.4.1(i)

The Audit Committee shall report on its activities to the Board of Directors.

3.4.1(ii).a

report on conflicts of interests; N/A

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3.4.1(ii).b

suspected or presumed fraud or irregularity or material defect in the internal control system;;

N/A

3.4.1(ii).c

suspected infringement of laws, including securities related laws, rules and regulations

N/A

3.4.1(ii).d

any other matter which shall be disclosed to the Board of Directors immediately.

N/A

3.4.2

Reporting to the Authorities N/A

3.5

Reporting to the Shareholders and General Investors

4(i)

Appraisal or valuation services or fairness opinions.

4(ii)

Financial information systems design and implementation.

4(iii)

Book-keeping or other services related to the accounting Records or financial statements.

4(iv)

Broker-dealer services.

4(v)

Actuarial services.

4(vi)

Internal audit services.

4(vii)

Any other service that the Audit Committee determines.

4(viii)

No partner or employees of the external audit firms shall possess any share of the company they audit at least during the tenure of their audit assignment of that company.

4(iX)

Audit/Certification Services on Compliances of the corporate Governance as required.

5(i)

Provisions relating to the composition of the Board of Directors of the holding company shall be made applicable to the composition of the Board of Directors of the subsidiary company

N/A

5(ii)

At least 1 (one) independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of the subsidiary company..

N/A

5(iii)

The minutes of the Board meeting of the subsidiary company shall be placed for review at the following Board meeting of the holding company

5(iv)

The minutes of the respective Board meeting of the holding company shall state that they have reviewed the affairs of the subsidiary company also.

5(v)

The Audit Committee of the holding company shall also review the financial statements, in particular the investments made by the subsidiary company.

6(i)(a)

these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;

6(i)(b) These statements together present a true and fair view

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of the company’s affairs and are in compliance with existing accounting standards and applicable laws.

6(ii)

There are, to the best of knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violation of the company’s code of conduct.

7(i)

The company shall obtain a certificate from a practicing Professional Accountant/Secretary (Chartered Accountant/ Cost and Management Accountant/Chartered Secretary) regarding compliance of conditions of Corporate Governance Guidelines of the Commission and shall send the same to the shareholders along with the Annual Report on a yearly basis.

7(ii)

The directors of the company shall state, in accordance with the Annexure attached, in the directors’ report whether the company has complied with these conditions.

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Chapter 4

Conclusion Aspect

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4.1SWOT ANALYSIS Internal Environment of Southeast Bank Limited

STRENGTH

Sound Profitability and growth with good internal capital generation. High quality of asset. Quality products.

Experienced and effective Management Team. Better infrastructure facilities.

Good corporate culture and friendly working environment. Board with financial flexibility Very good reputation as a local bank

WEAKNESS

Small market share. High concentration of fixed deposits. Marginal capital adequacy.

Lack of effective marketing / promotional activities. Lack of full-scale automation.

High concentration of large loans.

External Environment OPPORTUNITIES

Scope of market penetration through diversified products. Regulatory environment favouring private sector development.

Increasing trend in international business. Introduction of credit card and Tele-banking. Value addition in products and services.

THREATS

Increased competition for market share in the common banking arena. Market pressure for lowering the lending rate.

Global and local unstable political situation. Vulnerable Government regulations.

Multinational banks with good services. Default culture all over the country.

.

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4.2 Findings

Positive

Southeast Bank has a excellent compliance report with the guidelines of both

SEC and BB.

Family Members are not in the Board of directors.

The board of directors has appropriate qualification.

There is hardly conflict among owner manager and BOD.

It is a well reputed organization in financial market

Awareness About corporate governance has increased in recent years

Negative

During my Internship I find that there is some lake of awareness about CG

among stuffs.

All employees are not well trained.

Communication with shareholders is not so good

Corporate social responsibility is not much followed by Southeast bank

In Oxygen Moor Branch of Southeast bank, foreign exchange is not executed.

Some Problems In executing regulations is still exist in authority to perform

Corporate governance.

4.3 Recommendations

An excellent training programme needs to be developed to improve the

competence of employees.

Corporate social responsibility need to be performed in a larger environment.

For executing foreign exchange division the Oxygen Moor Branch need to

fulfil the terms of Bangladesh Bank to be a authorized dealer

Building the awareness among the corporations, public, beneficiaries and

other related stakeholders about consequences of the good governance. A

platform should be crated where different interest group can post their

concerns, issues and updates.

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c) International standard for financial reporting system should be incorporated

gradually into all corporations, where option for adjustment/tuning up will be

kept open for indigenous need.

Coordinating different laws, acts, regulations that handle the same category of

issues. It has been observed that most of the malpractice cases escaped due

to lack of uniformity of laws, rules and acts. A high powered coronation

committee can be formed in this regard, who will align the dissimilarities of

existing laws regarding the issues.

Forming a central watchdog to dig into the complaint, non-compliance,

misrepresentation, malpractices, window dressing and other negative matters.

It should be headed by the experts form different streams of expertise and

knowledge.

Our laws should be updated to cater to corporate governance framework and

make the Board of directors liable and committed to compliance of the

Corporate Governance code meticulously. The regulators, Securities and

Exchange Commission (SEC), Bangladesh Bank, Insurance Regulatory and

Development Authority (IRDA) etc. have to be strict in enhancing their

capacity to monitor the corporate governance compliance.

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4.4 Conclusion:

Since the banking service especially the private Banks are doing good business, so

it is clear that the modern people are more concerned about the securing their

valuable assets and get high quality and timely services. For this reason lot of new

commercial banks has been established in last few years and these banks have

made this banking sector very competitive, so now banks have to organize their

operation and do their operations according to the need of the market. Banking

sectors no more depends on the traditional method of banking. In this competitive

world this sector has trenched its wings wide enough to cover any kind of financial

services anywhere in this world. The major task for banks, to survive in this

competitive environment is by managing its assets and liabilities in an efficient way.

The study was conducted on the proceeding of the activities carried out by

Southeast Bank Limited (SBL) corporate governance. As the study was concentrated

towards the management efficiency and the stakeholder and investors services.

Therefore few limitations occurred while conducting the study. In spite of having

many challenges, adverse economic conditions and market pattern during the years,

the bank tried to maintain its growth trend through the indicators like strong

management efficiency, proper corporate governance and their timely services to

their client.

On the basis convincing reasons, Southeast Bank Limited (SBL) management

believes that in the coming years the bank will try it s level best to sustain good

corporate governance and maintain rest of the years. With the current performance

of the bank and they will certainly make Eastern Bank Limited (EBL) one of the best

private bank in Bangladesh

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4.5 References

Books and Ebooks

1 Business Ethics, A.C . Fernando , an Indian edition,2016-17 edition

2 Principles of Corporate Finance, 8th Edition, p.27, New York, Tata McGraw Hill Davies A. (2006).

3 Du, H. (2006), Roundtable Discussion on Corporate Governance Guidelines of SEC

and its implementation practices in Bangladesh, The Dhaka Stock Exchange, available online at http://www.dsebd.org/pdf/roundtable.pdf

4 Agrawal, A. and Knoeber, C.R. (1996), Firm Performance and Mechanisms to Control Agency Problems Between Manager and Shareholders, Journal of

Financial and Quantitative Analysis, Vol. 31

5 Alam, K (2011), “Evaluation of Corporate Governance Practices by the Banking Sector of Bangladesh”, A Research Study Report, Available at SOMBA Seminar

Library, Khulna University, Khulna, pp. 3.

6 Fama,E. and M. Jensen (1983), “Separation of Ownership and Control”, Journal of

Law and Economics, Vol. 26, pp. 301-325

7 Jensen, M.C. and Meckling, W.H. (1976), “Theory of the Firm Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, Vol. 3

Web Sites

1 Official web site of Southeast bank.(www.southeastbank.com)

2 Annual report of Southeast bank.

3 Web site of Central Bank Of Bangladesh.(www.bb.bd.com)

4 Web site of SEC