So many scams in the country's banking industry in recent past have pushed the entire sector towards grave danger. Scams in 14 banks in the past decade cost Tk 225.02 billion, according to a report of the Center for Policy Dialogue (CPD). Latest Bangladesh Bank (BB) data show the total bad loans account for 9.32 per cent of total outstanding loans (as of December 31, 2019).
Despite higher rescheduling facilities that helped reduce the default loans to Tk 943.31 billion from Tk 1162.89 billion, the impact of actual figures will be visible in the first quarter (Q1) of 2021 following a one-year moratorium if delinquent borrowers fail to repay installments of rescheduled loans. This culture of impunity, in turn, discourages good borrowers from repaying debts.
Bankers are sometimes involved in corruption and approved loans under political pressure without judging eligibility and creditworthiness of the borrowers. In banks, decision-making or loan sanctioning is based on honesty, integrity, trust and confidence of the market participants that reflect ethical and professional practices. So, bankers at all levels must be aware of company policies, procedures and guidelines regarding Banking Code of Ethics and Professionalism with a view to making right decision in challenging business conditions. They also need to know how to face conflict of interests or ethical dilemmas and when and where to report unethical or unprofessional practices.
However, ethics in the banking industry is referred to as standards derived from principles of right and wrong conduct, which guide bankers to practice their banking operations in terms of integrity, impartiality, reliability, transparency, obligations and benefits to society, and prevention of money laundering and combating of terrorist financing. As defined, banks must operate fairly to earn confidence of depositors, the key stakeholders.
On the other hand, professionalism encompass skills, good judgment, moral standards and principles that determine professional behaviour in operations. Banks are more regulated financial institutions worldwide than any other institutions because of their fiduciary and intermediary roles. But laws and regulations alone are not enough to bring discipline in banking operations. Therefore, high ethical standards are required to guide banking operations where legal rules are ambiguous or where legal provisions are failed to curb banking frauds and mismanagement.
Why do bankers need to practice professional ethics and establish their professional body or institute in the banking industry?
Banking is truly a profession based on trust and professional ethics. But the entry into banking profession is not limited to related academic disciplines or professional degrees such as Banking, Finance, and Economics. Bangladesh Institute of Bank Management (BIBM), the pioneering institute for developing professionally qualified and competent bankers, primarily focuses on providing training to officials of banks and financial institutions and educational degrees to strengthen and update their skills. It also carries out research in banking and finance, holds seminars and roundtable discussions, and aids in bank recruitments.
Many public and private universities also provide Bachelor's and Master's degrees on banking. Also, the Institute of Bankers, Bangladesh (IBB) provides two-tier certification or diploma examinations. These institutes certainly contribute a lot to developing professionally sound human resources. But the scope of mandatorily practicing professional standards and ethical guidelines has been received little attention among these activities. Also no professional body or Chartered Institute for Bankers like ICAB or ICMAB is established under any administrative ministry in Bangladesh to help bankers learn professional ethics during the course of profession. In no way, it implies that persons lacking professional ethics can enter into the banking industry.
Banks must not appoint any person who has been terminated or dismissed of service for dishonesty or fraud or convicted for any offence. A good reference from reputable individuals or previous employers is also expected before recruiting the fresh or lateral entrants. To be a professional banker, s/he must acquire characters of a professional and be firmly adhered to code of ethics. Moreover, professional ethics is not just earning a professional degree or certificate from an established professional body but, importantly, practicing standards of professionalism in their operations. Sometimes, employers and big borrowers unduly influence bankers to get unethical benefits. Even in facing such difficulties, professional bankers never compromise with their demands or abuse power. They always conform to standards and fair practices.
Many professions worldwide have developed their professional code of ethics. And in most cases, it's mandatory that members of professional body and candidates for professional designation must practice their institutional code of ethics that includes:
* Upholding high level of professional integrity and ethical standards with the public, clients, employers, employees and colleagues in the banking profession and other participants in global banking system;
* Conducting professional responsibilities with high level knowledge, skills, and competence;
* Conducting activities with transparency and accountability for their actions;
* Promoting integrity and viability of the industry for ultimate benefits of society;
* Maintaining and improving their professional competence and independent judgment.
BENEFITS OF ETHICAL PRACTICES IN BANKING INDUSTRY: Benefits of complying with ethical standards are manifold. These benefits include increased liquidity, profitability and efficiency in the banking industry.
First, employees behaving ethically increase confidence of depositors and strengthen fairness and market participation of the banking industry. This additional participation, in turn, increases liquidity and promotes understanding of financial system among participants.
Second, an employee following ethical standards won't create any unexpected situation or risk for his employers. This can directly support economic objectives such as profitability and market share and non-economic objectives such as customer satisfaction and reputation.
Third, banks must comply with all laws, rules and regulations related to the banking industry. But violation of laws is rare if bankers are ethical.
Fourth, Banks must comply with fair and transparent accounting practices. It helps curb banking frauds and mismanagement.
Finally, compliance with ethical standards may enhance job security and career development. This positively affects position, compensation, reputation, team work and business success, thereby providing long-term career and skill development.
CONSEQUENCES OF UNETHICAL CONDUCT IN BANKS: Violation of ethical and professional standards can have long-lasting negative effects on the banking industry and the economy as a whole. These effects include:
First one, effects of unethical practices can spill over from one company to another despite not being directly involved in unethical practices. If bankers behave unethically, clients lose their trust in integrity of financial markets and professions. Their effects may be in the form of reduced economic growth potential, decreased economic output, and increased unemployment, thereby creating widespread crisis for the industry and potentially damaging the economy. An example of financial crisis occurred in the USA in 2008 as aggressive mortgage lending by some markets participants led to bankruptcy of US-based global investment firm Lehman Brothers.
Second one, breaches of legal and ethical standards increase clients' mistrust in financial integrity and possibly in the industry as a whole. Inappropriate advices or services may cause excessive risks, income loss, personal distress and wealth loss. In every case of unethical behaviour, clients may suffer both financially and emotionally.
Third one, the consequences of violation of ethical and professional standards are loss of reputation and company value, and additional administrative and analysis costs for increased legal liabilities and regulators' scrutiny. Clients often associate company employees with its company's brand and its market position. So, unethical behaviour of one can have serious repercussion on many including coworkers and employers. Even the company may face closure because of unethical conduct of one or more employees within the company.
Finally, an individual can lose job and career for violating ethical and professional standards. S/he can suffer loss of current and future income as a result of disciplinary action by employers and/or regulatory body. His career is restricted because of loss of reputation. In extreme case, he can be alienated from family and friends and even, from colleagues, and clients.
The following steps can promote ethical practices in our banking industry:
# Banks should give emphasis on greater awareness and publicity of ethical issues among market participants.
# There is also need for establishing Chartered Institute for Bankers to continue various enlightenment programmes such as workshop, seminar, certification training, and Continuing Professional Development (CPD), research, and publications.
# Bankers in sensitive assignment should be well-paid to avoid fraudulent temptation.
# Top management should be under regulator's security to ensure transparency and corporate governance.
# Monetary authorities should enforce an Insurance Coverage against bankers' fraud and defalcation.
# The code of ethics along with laws and regulations should be enforced to curb fraud and forgery.
# Unrealistic government directives which encourage corrupt practices should be addressed in banking ethics.
# An independent audit of international standards should be conducted to check the real health of banks.
Mohammad Nuruddin is a Senior Executive Officer at Jamuna Bank Ltd in Chattogram.
© 2020 - All Rights with The Financial Express