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Md. Touhidul Alam Khan

Here's why it's high time for ethical banking in Asia

BY MD. TOUHIDUL ALAM KHAN


Ethics is more important in any profession. Without ethics an institution cannot run professionally, it can run only in its own way.

What is ethics? As per Encyclopedia of Finance and Banking, ethics is a branch of philosophy that is the systematic study of reflective choice, of the standards of right and wrong by which it is to be guided, and of the goods toward which it may ultimately be directed. It emphasizes deliberate choice, moral principles, and the consequences of decisions. In a broad sense, ethical behavior is that which produces good instead of an evil or that, which conforms to moral principles. In a word, we can say ethics is the study of right and wrong and of the morality of choices made by individuals. An ethical decision or action is one that is “right” according to some standard of behavior. Business ethics (or it is called management ethics) is the application of moral standards to business decisions and actions. 

There are many factors involved in business ethics. In other way, it can be said that general people expect many things from their respective institutions in some sort of level. It relates between a firm and its investors, customers, employees, creditors and competitors. Each group has specific concerns and each exerts some type of pressure on the management. Investors: they want management to make intelligent financial decisions that will boost sales, profits, and the return on their investments. Customers: they expect that a firm’s products will be safe, reliable, and reasonably priced. Employees: they want to be treated fairly in hiring, promotion and compensation. Creditors: they expect that bills will be paid on time and that the accounting information furnished by the firm will present an accurate picture of its finances. Competitors: they expect that the firm’s marketing activities will accurately portray its products.

In banking organization this term (ethics) is very important in terms of behavior with the customers and investors. It reflects through the behavior with the customers by the bankers. For bankers it includes: banking business should be conducted in full compliance and spirit of the law and code of conduct, employees must use confidential information properly, employees must recognize and avoid conflicts of interest, employees must protect ownership of property, products, services, and information, employees must conduct outside activities in a way that does not compromise the bank, employees must manage their personal securities and other financial transactions within the bounds set by the bank and report these transactions as specified in the rules. The Bank should establish a system to monitor and enforce the code and a procedure for reassessing and revising the code when necessary. Sample code/ethics procedures deal with corporate governance, bank business practices (credit policy, lending activities), departmental practices, statutory and regulatory compliance, standards of conduct for directors, officers and employees, bank relations with employees and the community and compliance with regulatory and statutory requirements. Many statutory and regulatory provisions have major ethical implications for banks.

In credit matter, the ethical implication is a major part. When an entrepreneur thinks to set up a project then he/she comes to any lending institution. The lending officer gives him/her suggestion to do the same successfully or give various types of idea so that it is possible to establish the enterprise in proper way. Basically, the entrepreneur believes the officer and accepts the guidance. If the project is a new one in the country and investment is required for small amount, the main capital is intelligence and innovativeness idea only than the money. In that case, the lending officer must maintain his/her ethics not to leak out the idea of the sponsors by any means or pressures from any corners. If it does not maintain, then the sponsors of the project will lose their confidence on the bank. If it is seen that after submitting the proposal to the respective lending institution, the project is being implemented by others by using that proposal which is very much unethical. It is also obstacle for growing the genuine entrepreneurship development in our country. Because, initially the project is initiated by the real sponsors after studying and analyzing for several years but who are setting the project by getting readymade profile it takes several months. In this case, it is necessary to maintain the corporate code of ethics and ethical behavior as defined by the respective corporation. Now a days it is very important for every organization.

In Asia a universal values (standards. Principles) driving an ethical banking industry which consists of integrity & trust; transparency, reliability, accountability a responsibility; honesty & truthfulness; consistency & fairness. The ethical banking is needed in Asia for the following reasons:

  • It is right thing to do;
  • Regulations require it;
  • Society demands it;
  • Stakeholders deserve it;
  • Strategic partners expect it;
  • Special interest groups and the media are always watching on banking industry activities.
  • As such we can form an ethical banking industry in Asia in the following ways:
  • Formulate goals and commitments;
  • Diagnose ethical risk;
  • Codify values and rules;
  • Educate and train in ethics;
  • Create ethics through sustainability

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Md. Touhidul Alam Khan

Md. Touhidul Alam Khan

Md. Touhidul Alam Khan is Senior Executive Vice President and Head of Corporate Assets & Client Origination. He is also the Team Leader-Green Banking Unit at Bank Asia Limited.

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