Ethics in the banking industry (Courtesy,Financial Express Sep,30.2012)

Foyez Ahamed Bhuiyan

Bank is like the life blood of an economy. It may accelerate the motion of economy and ensures growth and development. On the other hand, collapse of a few banks may jeopardise the whole economy. Generally, banks do business with public money and thus the question of transparency and ethics comes to the fore.


The most recent dubious banking practices around the world like libor fixing scandal by Barclays Bank, IT errors by RBS Group, miss-selling scandals, miss-selling payment insurance scandal and most recent HSBC scandal have shaken the banking world.



Bribery, influence, corruption and abuse of power pose serious problems to the banking industry of the country. That is why the demand for ethical banking is getting louder day by day.

Banking business and ethics are synonymous. Demand of ethics in banking industry is very much important because we have about 7000 branches of existing 49 banks and also other 29 financial institutions which are contributing to our socio-economic development.

In Bangladesh, Sonali Bank is the largest state-owned commercial bank in the country. That is why trust on Sonali Bank is very important for our economy. Sonali Bank should act as a vanguard and standard-bearer of ethical practices but the real picture is different. Hall-Mark scandal shows the sign of many hidden scandals. That is alarming for our economy and contributes to the growing distrust in our banking industry.

Some bankers try to reap benefit without paying attention to the interest of the depositors. By forgetting ethical viewpoints and job responsibility, bank officials are busy in satisfying the defaulters. At the moment demand for ethics has been raised by the depositors and eminent economists to salvage the banking industry. If pragmatic decisions and necessary steps are not taken urgently then people's trust on the bank will decline. Already Sonali Bank, suffering from this trust crisis, has to borrow from call money market every day to meet the demand of the depositors whereas only last year it was the largest investor in the call money market.

The financial market is now more competitive than ever before. Banking failure may give the scope of alternative banking facility to different non-bank financial institutions (NBFIs) and NGOs. For example in the UK, co-operative banks, building societies, charity banks etc. are facilitating deposit and withdrawal facilities. Furthermore, co-operative banks are providing full range of current and savings accounts, mortgages, loans, and credit cards. Besides social movement, "Move Your Money Campaign," has received priority in the big cities worldwide. For this reason half a million people switch their current accounts to the alternative banking which are known as ethical banks. If this wave spreads in Bangladesh our traditional banking industry will fall in a crisis.

For this reason economists and civil society members suggest to ensure early initiatives for ethics and ethical tools and procedures considering sustainability and solidarity in the banking industry.

Ethical bank is a financial institution that deals with social and environmental impacts of its operation of investment and loans by giving priority to transparency, fair trade and corporate social responsibility. Ethical banking is an alternative to traditional banking and some of its particulars and approaches match with the Islamic banking system. In ethical banking, it is possible to use morality in a structured equation. In 1990, a survey was conducted in the UK by the cooperative bank among 6,000 clients about the positivity of ethical banking where 84 per cent responded that it was a good idea. For example, the activity of ethical banking relates to investment in an energy-efficient home appliance, less utilisation of papers and documents, lower interest rate for the low emission cars and vehicles, widen investment facility for the industry that have proper waste management system, environment-friendly products and services.

To ensure proper ethical banking, the practice of internal and external ethical standard should, first, be maintained. Internal ethics relate to the well-being of the employees and customer satisfaction, satisfied wage structure, fair treatment of benefits for all bank branches, adopting environment-friendly practices, less paper use, less electricity use, solar power, energy efficient light bulbs, more conscientious employee travel policies with concern to commuting and air travel.

So far as external ethical practice is concerned, a bank should look at the impacts of their business practices on the environment and society. For example, it should finance a business which is eco-friendly. In applying external ethics, banker should monitor how the sanctioned investment fund is being utilised and its purposes.

Prominent economist Prof Mirza Azizul Islam at a discussion has identified four pillars of ethics in banking that can strengthen the base of ethics-regulatory compliance with institutional behaviour: transparent financial discloser; fair and equitable treatment of all stakeholders; socially responsible behaviour of corporate citizens; and utility maximisation with consideration for justice and fairness.

Ethics differentiates between good and bad, but anything that is legal is not necessarily ethical. That's why to establish ethical banking, bankers and management should be ethical and moral. Ethical banker should consider three bottom-lines-people, planet and then profit for sustainable banking.

To regain trust and stability in the banking industry the central bank should take more precautionary measures and monitoring to ensure safety in the banking sector. Anti-money laundering laws and practices should be strengthened and enforced. Political appointment should be stopped by amending the regulation to ensure transparency. The Bangladesh Bank (BB) should also monitor the activities of the state-owned commercial banks as the private commercial banks are monitored. A committee should be formed with veteran bankers, scholars and civil society members by the Bangladesh Bank to set ethical banking principles and guidelines for the banks. It is the commitment of the Bangladesh Bank which can only ensure ethical excellence in our banking industry.