Ethics in banking
Ethics in Banking
Ethical
Issues with reference to Banking sector:
Adam Smith (2003, 372) in Book II of The
Wealth of Nations identified three essential conditions for confidence in
banks. They are, in his words, " the fortune, probity and prudence of a
particular banker" The fortune of a bank today corresponds to its capital
and prudence may be equated to its efficiency. Both these qualities are
essential for management not only of banks but also of any corporate
enterprise. What makes a bank unique in the corporate world is the requirement
of what Adam Smith calls “probity". Webster's Third New International
Dictionary defines the term probity as
"uncompromising adherence to highest principles and ideals" Business
Dictionary. Com characterizes probity as "adherence to a code of ethics
based on undeviating honesty, especially in commercial (monetary matters) and
beyond legal requirements".
Banking business is based absolutely on
trust. Sir John Hicks (1969, 78) in his Theory of Economic History used the
term trust twice in the same sentence to explain the emergence of banking:
"Here the loan is given to an intermediary (one of those who is trusted by
prime lender) in order that he should relend to those whom he trusts".
Trust is a relationship of mutual reliance. Usually, trust is placed on those
who are expected to be ethical in their activities and thoughts. Trust creates
a social environment of mutual cooperation. The unbroken honoring of trust
generates more mutual dependence and confidence in each other while breach of
trust creates an environment of uncertainty and suspicion. As a result, the
shocks resulting from loss of confidence in a financial institution are not
usually confined to that particular institution only. By triggering panic, the contagion effects of
such incidents may pose a threat to entire financial system. Banks, the
citadels of material wealth, are, therefore, highly fragile without solid
ethical foundation.
Normative Ethical Theories
Ethics is usually
defined as "the branch of philosophy that is concerned with what is
morally good and bad, right and wrong, a synonym for it is moral
philosophy" (Encyclopedia Britannica,
6,976). However, there is no
unanimity on how to define and operationalize moral principles like good or bad
and right or wrong.
Broadly speaking
there are three approaches to normative ethical .There are:
1. Virtue ethics
2. Deontotogy or
deontological ethics
3.
Consequentialism
The roots of Virtue ethics lie in the ancient
Greek Philosophy, particularly in the works of plato and Aristotle. According
to this View, goodness or righteousness is an attribute of the individual .The
acts are not judged by rules or consequences for example, lying is always wrong
even. If lying in a particular case may be beneficial.Vitue is not therefore,
relevant to artificial person like banks, which are joint stock companies with
limited liabilities of owners. Though in reality natural persons like the
members of Board of directors and top
managers run banks, legally a corporate veil shields them. Of late, the courts
have pierced in significant ways the corporate veil that treats corporations as
totally separate from shareholders. These decisions of the courts in industrial
counties treat the rights or duties of a corporation as the rights or
liabilities of its shareholders and directors.
The
second normative ethical approach is known as deontology or deontological
ethics. The term deontology is derived from the Greek word deon, which implies
'obligation' or 'duty'. Deontology is described as 'duty', 'obligation' and
'rule' based ethics. It is concerned with the goodness and rightness of an act.
The act is right if it is prescribed by rules as duty or obligation, even if it
produces a bad consequence Because of its several limitations, deontology
cannot serve as a satisfactory ethical foundation of banking system. First,
deontology believes in unconditional and absolute primacy of moral laws and
rules out any choice between two wrongs. In real life, there may be a choice
between lesser and greater wrongs.
The third normative approach in ethics is
known as Consequential ism. It postulates that the only way to assess
the morality of a particular action is to judge its consequences. In other
words, it suggests that ends justify the means. An act per se is not right or
wrong; consequences of a particular action make it right or wrong. From the
operational point of view, there are several advantages of this approach.
First, it gives us an opportunity to choose the best course of
action by comparing possible outcomes. The best course
of action is the one that produces greatest happiness to maximum number of
people. Secondly, consequences could be used as yardsticks of rightness not
only for personal decisions but also for public actions.
The
Fundamentals of Realizable Ethics in Banking
None of the conventional
normative approaches can provide an adequate basis for ethics in banking though
each one of them furnishes useful guidance. Ethics in banking should be
eclectic, broad and realizable. From the operational point of view, it is essential
to specify four fundamentals of ethics in banking:
(1) Why (2) Who
(3) What, and (4) How?
Why?
Broadly speaking: there are three justifications for emphasis
on ethics in banking operations:
• Ethics as a means of good business
• Ethics as an end in itself
• Ethics as the business itself
Ethics as a means of good business
This view draws its inspiration from the
doctrine of Corporate Social Responsibility (CSR). The CSR is a built-in
self-regulating mechanism whereby a
business would monitor and ensure its adherence to ethical standards and local
as well as international law. It is based on bottom lines of three P’s People,
Planet and Profit. Its purpose is to keep its stakeholders (People) happy, to undertake environmentally
sustainable activities (Planet) without sacrificing profit. It provides a
win-win situation where the business and its stakeholders benefit.
Ethics as an end in itself
Ideally, ethics is non-negotiable. As
Ferdinand I, the Holy Roman Emperor, said, "Let justice be done though the
world perish". One might wonder what will be the benefit of justice if the
world itself ceases to exist.
Ethical banks like Islamic banks believe that
ethics is not a means to an end but an end in itself. There are several
weaknesses of this approach. First, for ethical banks, no deviation from
ethical principles is permissible. In real life uncompromising ethics is not
realizable
Ethics as the business itself :
The typical ends and means views of ethics
provide a distorted notion of role of ethics in banking. The third view
underlines the fact that banks cannot exist without ethics. Nowhere in the
corporate world ethics is so important as in banking. Banks not only act as the
custodian of other people's money but also create money in the expectation that
much of funds withdrawn by its
depositors will be ploughed back as new deposits. Their capacity to attract
deposit and create money depends on the confidence they enjoy in the market.
Banking business is based absolutely on the trust of its depositors. With a
view to ensuring the safety of its depositors, a bank is required to screen out
unreliable creditors and non-viable projects. By dealing with trustworthy
clients, banks expand the circle of trust. The sustained trust in a bank
creates a virtuous circle that facilitates transactions in the economy as a
whole. On the other hand, breach of trust generates a vicious cycle that may
lead to panics and runs in banks and consequential contagion effects.
Who?
Broadly
speaking, the major actors in banks function in three capacities:
• Corporate I'
• Collective
• Personal
Corporate ethics
Though a bank is an artificial entity, it
cannot be absolved from ethical responsibilities. A bank interacts with natural
persons. But the ethical responsibilities of banks are not confined to their
corporate entities only. Persons who run banks also share them to a large
extent. They are individually and jointly responsible.
Collective
ethics
The doctrine of collective ethics highlights
the joint responsibility of the members of the Board of Directors and the top
management that runs the banks. However, banks are highly regulated
institutions. In many cases, the commissions and omissions of regulators of
banks may contribute to unethical acts. In that case, the regulators should
also be held liable for breach of ethics.
Personal ethics
Ideally, personal ethics involves adherence
to ethical principles and norms by all stakeholders in a bank. Such
stakeholders may be divided into two categories: direct and indirect. The
direct stakeholders include all employees, from a director to doorman. The indirect
stakeholders comprise the depositors, creditors and others having any
transaction with the bank. The indirect stakeholders may not always be ethical.
It is the responsibility of direct stakeholders to screen out unethical indirect
stakeholders. It is, therefore, sufficient to ensure compliance of ethical
responsibilities by direct stakeholders.
What ?
Broadly speaking, there are two ways of
defining the content of ethics: holistic or totalist and minimalist. Holistic
ethics has two important features. First, holistic ethics assumes the unity and
integral wholeness of all people and all nature. All people include present and
all future generations and the term nature is used in the widest sense.
Secondly, according to holistic ethics, acts are not performed merely for
compliance with law, precedence and social norms but with a sense of doing good
freely.There are two extreme views on ethical duties of a bank. According to
the conventional view, a bank is a profit-making institution, which is subject
to certain extra-responsibilities prescribed by law. The intellectual
foundation of this view is rooted in Milton Friedman's exposition of corporate
social responsibility. "I have said " argued Milton Friedman,
"that there is one and only one social responsibility of business, - to
use its resources and engage in activities designed to increase its profits, so
long as it stays within the rules of the game, which is to say, engages in open
and free competition without deception or fraud". The rules of the game in
market economy are embodied in laws. Banking laws are designed mainly to
protect depositors; they are indifferent to considerations of equity, fairness
and justice. C J. Cowton (2002) made an attempt to combine the ethical obligations
of conventional and
ethical banks under three
categories: (1) banking on integrity, (2) lending with responsibility, and (3)
affinity. Integrity is needed in banking to generate the trust that is
essential for financial system to survive and thrive. The banks should lend
their funds responsibly so that risks to banks are minimized. Banking on
integrity and lending with responsibility are not only moral obligations of
banks but also their legal duties .From the ethical point of view, the duties
of banks can be divided into two categories: primary and secondary. The primary
ethical compulsion of a bank is to ensure safe financial intermediation by
protecting deposits and lending with due caution The secondary ethical
obligation of a bank may be defined in terms of Amartya Sen's theory of
justice. Sen argues that it is not possible to define justice. However,
inability to define justice cannot be the excuse for the continuance of
"manifest injustice" Following Sen, the secondary ethical
responsibility of banks may be defined as the "reduction of manifest
injustice.Nonetheless, it is possible to identify ethical deficiencies that may
be reasonably defined as "manifest injustice". The following is an
illustrative list:
•
Lending too much to too few. It is risky because if large borrowers fail, the
bank itself will be threatened. This also contributes to make the rich richer
and the poor poorer. Often, such lending results in 'relational capitalism' where
business conglomerates with the help of financial institutions monopolize the
market and dominate the entire economy.
•Lending
too little to the poor. This denies the basic rights of the poor and is,
therefore, morally unacceptable.
•
Taking too much risk. The higher the risk, the higher the return. On the other
hand, higher risk is a threat to depositors.
•Participating
in business, which knowingly causes environmental degradation
•Lack
of affirmative policies for the weak, deprived
and disabled. This involves a change in mind-set. It is not correct to assume
that the poor and disadvantaged persons are less responsible than others.
•Ensuring
highest ethical standards by owners and employees in the banks. This is at the
same time an individual as well as a collective responsibility.
How?
Ethical duties can be enforced in three ways.
First, in many cases, ethical obligations are imposed by the society in the
form of laws, rules, regulations and moral suasion of central banks. The
advantage of legislation is that the responsibility of enforcing ethical duties
is taken over by the State and its organs. As legal restrictions are imposed
from outside, many banks may try to evade the law by finding loopholes or
cheating the regulators. Too much legislation numbs the individual sense of
responsibility.
Secondly, ethical guidelines may be prescribed
by Codes of Conduct adopted by a bank individually or by an association of
banks collectively. Such codes of conduct are useful in specifying the ethical
issues, which are not covered by laws. However, the enforcement of such codes
of conduct lies with banks.
Finally, laws and codes are not enough; they
must be supplemented by the voice of conscience. Individuals in banks enforce
laws and codes. The ultimate ethical responsibility lies,therefore, with the
persons who run the banks.No single instrument is sufficient for enforcement of
ethics in banks.
Internal Ethical Cultute:
Internal ethical challenges in banks are no
less formidable than external threats. Internal ethical challenges in banks
arise at two levels:
•
Collective ethical responsibility
•
Personal ethical responsibility of bank employees
Collective
Ethical Responsibility
The collective ethical responsibility
primarily lies with the Board of Directors and top management. Some
restrictions regarding the qualifications of bank directors have been laid down
in the Banking Companies Act and the regulations framed under them. They are
not, however, adequate to ensure the vesting of stewardship of banks in the
hands of adequately qualified and honest persons. Similarly, top management of banks
should be carefully scrutinized. The following measures should be considered in
this connection:
1.The qualification of directors in banks
should be made more stringent
(regarding length, level and area of experience and educational
qualification).
2. More caution must be exercised in selecting
the directors of state-owned banks, which are very large and in severe
distress.
3. A law should be enacted disqualifying the members of
political parties and their affiliates from directorship in banks and non-bank
financial institutions. The dominance of bank board’s by political directors
may promote unholy nexus between money and politics. Finally such directors may
exert undue pressure on bank regulators and supervisors.
4. Bangladesh Bank must punish promptly the top managers
for both their omissions and commissions.
5.CAMEL Ratings of Banks by Bangladesh Bank should
be published at regular intervals. This will exert moral pressure on banks to
improve their performance.
Personal Ethical Responsibility
The bank
employees represent the human faces of their corporate entity to their clients.
All employees from directors to doormen should scrupulously comply with ethical
practices. The following measures should be undertaken to improve internal
ethical climate in Bangladeshi Banks:
1. Each
bank should lay a comprehensive code of conduct. An ethics office should be
established in each bank to enforce the code of conduct.
2. There
should be a complaint desk in each branch. Complaints of fraud and harassment
against bank employees by customers must be attended promptly and banks should
compensate the customers for fraud, and negligence of their employees.
Recommendation on code of Banking
Ethics :
In view of above we may
recommended the following codes of Banking Ethics:
Ethics is an entire body of principles and
measures, which investigates the values, norms and rules that govern the
individual and social relations of the humans, from a moral viewpoint which is
essentially based on the parameters of right-and-wrong, good-and-bad, etc.
Professional ethics regulates the relations between the individual members of a
profession and the relations of these members with the rest of the society,
while corporate ethics identifies a corporate behavior culture by introducing
certain rules in dealing with the problems stemming from inside or outside the
organization.
The fact that banks, as organizations which fulfill
investment and saving functions by playing an integrating and intermediary role
between the fund-supplying and fund-demanding parties of the society, have also
adopted profitability and productivity
Principles, obliges them to stick to ethical
principles during their operations in both professional and corporate domains.
If we want to realize our general objectives of growing
our banking system, raising the banks’ service quality, using the resources
most appropriately, and preventing unfair competition between banks; we have to
formulate and regulate the relations of the banks with each other and with
other organizations as well as their relations with their customers,
Shareholders and employees in line with ethical principles.
General Provisions
Objective
and Scope
The fundamental motive behind the banking ethics to
apply to the procedures and transactions of the banks with each other and with
their customers and shareholders, and as well as with other organizations is to
ensure that the existing respect for the banking profession in the society is
set on a permanent footing, to maintain and improve this social respect, called
also as professional honor, and to maintain and protect the stability and trust
in the banking sector.
General
Principles
Banks are required to stick to the below-specified
general principles in their operations for the purposes of ensuring an
efficient operation of the deposit and credit systems, preventing the
procedures and applications which may cause considerable loss and damage to the
economy, serving to the best interests of the public and protecting the
environment, as well as in consideration of the professional obligations of the
banks such as protecting the rights and interests of the savers, maintaining
trust and stability in financial markets, and the requirements of economical
development of the country.
II Banks:
a)
Honesty
Banks, during their operations, stick to the
honesty principle in their relations with their customers, employees,
shareholders, group companies and with other banks, organizations and
companies.
b)
Impartiality
Banks should make no discrimination and should
avoid all forms of bias in their attitudes towards their employees as well as
to their customers. Banks should not make any discrimination towards their
customers based on their nationality, religion, financial and social standing,
and gender during their service.
c)
Reliability
Banks should offer clear, comprehensible and
correct information to their customers within the principle of reciprocal trust
during their entire services and transactions; and they should provide the
customer services in a timely and complete manner.
d)
Transparency
Banks should inform their customers in an open,
easily understandable and clear way regarding the underlying rights and
responsibilities, benefits and risks attached to the products and services
offered to them.
e)
Observing Social Benefit and Respect to Environment
Banks should show due diligence to support all
kinds of social and cultural activities in the light of the principle of
observing, aside from the profitability, the social benefit and respect to the
environment.
f)
Fighting with Laundering of Crime-Originated Assets
They should adopt the fight against corruption,
laundering of crime-originated assets, etc. as a significant principle as
stipulated by international norms and the provisions of national laws and
regulations, and do their utmost for the due cooperation with each other, with
other organizations and institutions related with the subject, as well as with
the competent authorities. They should also assume the required measures inside
their organizations for this purpose, and device training programs to instruct
their personnel on the matter.
g)
Insider Trading
Banks should take all measures in order to prevent
the use of insider information for the trading purposes.
III.
Banks’ Relations with Public Organizations and Institutions
Banks, during their relations with public
organizations and institutions, should act in observance of the principles of
honesty, accountability and transparency, and should show the utmost care for
the correct, complete and timely communication of the information, documents
and records the public organizations and institutions may request from them for
supervision and control purposes in accordance with the laws and regulations.
IV.
Relations Between Banks
Banks should conform to the following principles in
their relations with each other:
Exchange
of Information
Banks should carry out all information exchanges
between each other on all possible subjects authorized under the laws and
regulations accurately and systematically.
Personnel
Behaviors
Banks should avoid all kinds of practices and
applications that may cause unfair competition on the employment of the
personnel.
Competition
Banks should take the competition as a contest
which is in compliance with the laws and regulations and which helps the
individuals make their free economical decisions from among all banks in the
banking industry. Therefore, during all their activities within the free market
economy, all banks should avoid statements and behaviors that may cause unfair
competition, as a requirement, aside from their own interests, of the following
principles and objectives too:
a) A continued public trust for the banking sector
in general,
b) To work for development of the banking sector,
and
c) Observing the common interests of all banks.
These principles apply also to the statements and
behaviors of the banks’ employees just like the legal personality of the banks.
Banks should allow offer/provide benefits to employees of another bank in the
course of offering or rendering their services to their customers.
Advertisements
and Announcements
Banks should act honestly, realistically, and in
compliance with legal regulations and with the general moral principles during
their announcements, advertisements and notices under the publicity and
advertising activities regarding their banking products and services as well as
their own financial structures, and they should avoid all acts and behaviors
that may damage the reputation of the banking as a profession.
They should ensure that their announcements,
advertisements and notices do not contain any statements or expressions
degrading or humiliating other banks, or the products and services of other
banks.
V.
Relations of Banks with Their Customers
Banks should observe the following principles in
their relations with their customers:
Informing
the Customers
Banks provide accurate, complete and timely
information to their customers regarding all kinds of products and services
they offer to them in all phases of such service relationship and on all
subjects by also complying with the limitations stipulated under the laws and
regulations.
Secrets
of Customers
Banks are obliged to keep
confidential and maintain with due diligence all customer information and
documents, and not to show such information and documents to persons other than
the persons and authorities who are explicitly
authorized to request to see them under laws.
Service
Quality
Banks should assume the service quality as a
precondition of meeting the requirements and expectations of their customers.
They should do their utmost for the employment of the two fundamental elements
of this concept of service quality, the technological infrastructure and
qualified human resources, in a way to lead to a continuous improvement and
betterment of the service quality.
Banks should offer the same quality and the same
level of service to all their customers. However, differentiating the organizational
structure and product range in accordance with an identified target market, or
adopting different approaches to the customers in different risk groups can not
be interpreted as a discrimination or categorization of the customers.
Customer
Complaints
Banks should establish a system in order to respond
all and any kinds of questions of their customers stemming from the services
offered, and should accordingly inform their customers about this system.
They should investigate the causes for the customer
complaints, and implement the measures required for preventing the fair
complaints from repeating. They instruct their employees for the correction and
non-repetition of the complained, wrong practices.
Security
Banks should recognize that the concept of
"Security" includes all measures towards the protection of all and
any service mediums of the bank in banking sector against any adversities, as
well as the prevention of all violations that may bear technical hazards in the
services offered to the customers.
They should take all technical and legal measures
required for ensuring transaction security in all service mediums, a
requirement further highlighted by newly-developed services and changing
service channels prompted by technological improvement and electronic banking.
They should inform their customers about the measures they take, and the
measures that should be taken by their customers.
VI.
Relations of Banks with Their Employees
General Employee Qualities
Banks should be aware that they should show due
diligence in order to ensure that their employees possess the knowledge,
background and a sense of responsibility required by their jobs. Banks can not
employ persons who fail to comply with the legal conditions specified under the
laws and regulations, mainly under the Banking Law.
Employment
and Career Development
Banks should offer equal possibilities to their
employees without any discrimination in terms of both during their
recruitment and during their career development
following their recruitment. They should, in line with the principle of
managing the human resources in the best possible way, offer trainings,
courses, seminars and similar opportunities
to their employees in order to ensure that they
reach to the level necessitated by the times and by the banking profession.
They should take into consideration the commitment
to banking ethics and the diligence shown in implementation of these principles
as well as the knowledge, skill and individual achievement during the promotion
decisions of their employees.
Representation
and Working Environment
They should introduce internal regulations
requiring that their employees look neat and clean in conformance with the reputation
of the banking profession and also with the awareness that they represent their
banks.
They should implement measures as required for the
improvement of the motivation of their personnel involved in all service units
and for their offering services in better conditions, and so ensure a healthy
and convenient working environment.
Work
Hours
Banks should show due diligence for the employment
of sufficient number of personnel required by the workload, organize their
employees in a way that they yield maximum productivity during the working
hours, and show utmost efforts for preventing overtime work and for their
employees use their annual leaves regularly.
Relations
of Employees with Customers
Banks should introduce internal regulations
providing sanctions and measures for the prevention of their employees
from:
- Being involved in relations with the customers
such as borrowing-lending, being guarantor and opening joint accounts with the
customers which relations can not be explained under ethical principles,
- Accepting presents from the current or potential
customers of the bank, or
- Deriving personal benefits from both their job
potentials and from the business potentials of their customers by using their
status.
Employees’
Rights
Banks should work for the timely and complete
satisfaction of their employees’ rights stemming from the provisions of the
lawsand regulations to which their employees are subject.
VII-
Professional Rules and Ethical Principles All Bank Employees Should Comply
Professional Rules and Ethical Principles The Bank
Employees Should Comply
Bank employees are required to comply with the
following obligations:
a) To comply with the applicable laws and
regulations during performance of their duties,
b) To inform their customers about the benefits and
risks of the products and services offered to them,
c) To offer unbiased and fair service to their
customers receiving the same services,
d) Not to disclose the secrets of their customers
and the banks which they come to learn by virtue of their positions
and
titles to anyone other than those persons and authorities who are explicitly
authorized under laws,
e) Not to cause any loss of reputation of their
bank during their works and attitudes,
f) Not to be engaged in any activity that can be
classified as "Commercial Enterprise" or "Merchant Enterprise
",
g) Not to behave in contradiction with the
principles of justice, integrity, honesty, reliability and social
responsibility,
h) To cooperate with other employees for common
purposes through building a courteous and diligent
communication
during their fulfillment of duties,
ı) Not to use the bank’s assets and resources
unproductively and outside the designated purpose,
j) Not to derive any personal benefits both from
their own job potentials and from potentials of their customers by
using
their positions and titles,
k) To refuse all such benefit offers immediately
and to inform such offers to the competent authorities and to their
superiors,
l) To direct the potential customers mainly and
first to their own bank,
m) Not to be involved in relations with the
customers such as borrowing-lending, being guarantor and opening
common
accounts with the customers which do not correspond with ethical principles,
n) Not to accept presents from the current or
potential customers, other than those presents accepted by the bank
personnel
under the established practices in the bank,
o) To be aware of his accountability regarding the
duties assumed during the performance of the services,
p) Not to assume any position in any private and
public organization other than associations, foundations,
cooperatives,
and similar organizations without the approval of his bank.
Ethics in
Islami Banking :
Established with the avowed goal of values based banking,
Islamic Banks now occupy an important place in Bangladesh. These Banks occupy a
large share of deposit and credit in the banking sector. Ethical practices is more
prominent in Islamic Banks than conventional Banks. Only “end justifies the
means’ is not enough in Islamic Banks. Here means must be justified. Making
profit by investing in sector harmful to the society like manufacturing wire
and cigarettes is not considered in Islamic Banking. Individual who work hard
are more service oriented & well behaved, charge fair prices, pay others their
dues and are inspired by Islamic ideals, Because of religious sprit the
employee are mostly self propelled good in morality. These Banks are, however
lacking in doing the Baking fully true to the spirit of their great religion
due to existing socio-economic condition. For example, the share of profit loss
sharing finance in total investment is very negligible.
Ethics in
Banking in Bangladesh:
Govt of the people ‘s Republic of Bangladesh Central Bank Bangladesh
Bank and other regulators are of late became very critical to ensure
ethics in Banking in Bangladesh and
among others has successfully implemented
as follows :
l. Each Bank has laid a comprehensive code of
conduct.
ll. Complain desk and box has been implemented in
each Bank.
lll. Introduced National Integrity Strategy and Strengthened
monitoring to implement the strategy.
lv. To reduce the manifest injustices Central Bank
has given number of directives: Licenses are issuing for opening
more
branches in rural areas, minimum 2% of the total portfolio must be invested in
Agriculture Sector at lower
profit
rate of 13%
v. SME Financing has been encouraged and minimum
20% of the total portfolio are required to invest in SME Sector.
Vl. Refinance has been established investment in
certain enterprise. For example financing women entrepreneur is
backed
by refinance.
Vll. Consideration of large loan / investment and
in certain one sector is strongly discouraged.
Vlll. Rescheduling of habitual defaulter cases,
fund diversion cases and other credit indiscipline case has been
prohibited.
lx.
Introduced Green Banking to ensure healthy environment.
x.
Discouraged unhealthy completion and taking over of bad loans/investment
of other banks.
xl. CAMELS rating of Banks has been given more
significance to measure ethical standard of a Bank.
Conclusion
:
Ethics in
banking should not be misconstrued as a never ending journey for an
unattainable perfect situation. In the spirit of Amartya Sen's idea of justice,
ethics in banking should be interpreted as continuously evolving compulsions
that are incomplete but realizable. From this perspective, ethics in banking
may be divided into two categories: (1) primary ethical obligation of ensuring
the integrity of financial intermediation, and (2) the secondary ethical
obligation of reducing what Sen (2009) calls 'manifest injustice'. Some of
these manifest injustices arise from the operations of the banks themselves,
such as providing too much credit to too few rich persons, and too little to
too many poor people, taking too much risk with other people's money, and provision
of finances to businesses that contribute to environmental degradation and
other unethical activities. In banks, ethical compulsions will have to be
enforced at all levels corporate,
collective and personal.
The soundness of banks is
important not only from ethical point of view but also from practical economic angle.
Panic in banks is a sure recipe for macro instability. As a result, the safety
of banks can never be left solely at the discretion of their owners and top management.
Elaborate regulations backed by strong central banks and other supervisory
agencies have been established in financial sector in most countries. This has
not at all eliminated the threats of bank runs and insolvencies. Laws are not
enough to reduce risks to banks. The persons behind the corporate veil should
also be made accountable
A survey of ethical problems in banking sector in
Bangladesh suggests that both conventional and alternative financial
institutions in Bangladesh are beset by
ethical dilemmas. The insider -lending, political
patronage and corruption undermine the soundness of most conventional banks. On
the other hand, many alternative financial institutions like micro credit and
Islamic banks have degenerated into commercial and cosmetic operations. To ensure
soundness of banks in Bangladesh, the issues of ethical climate in the country
as a whole will have to be addressed. The major recommendations of this paper punishment
for financial swindles and willful large loan defaults, revamping deposit
insurance, improvement in the quality of directors in banks by specifying more
stringent qualifications and making members of political parties ineligible for
bank boards. The CAMEL ratings of Bangladesh Bank should be published. Code of
Conduct should be laid down for bank employees and mechanism for attending to
customer complaints should be strengthened. In fire the existing laws, rules
and guidelines should be strictly enforced. Obviously, ethical compulsions of
Bangladeshi banks are not fixed; they would undergo metamorphosis in response
to demands of time. The ethical dimensions of banking operations in Bangladesh
should be continuously monitored by the Central Bank, banks themselves,
academicians, researchers and civil society, The important thing is not to compile
a complete catalog of what needs to be done but to initiate prompt and
effective action in areas where something could be done.
Source: SIBL Training
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