Executive Summary
Agrani Bank Limited (ABL) is the largest government commercial bank in Bangladesh addresses social concerns that threaten the structure of society and redress social conditions that adversely affect the well-being of people and society of Bangladesh.
Banking industry in Bangladesh is now a day very prospective and competitive. To give a competitive edge, CSR is a very strong and helpful tool for any bank. Agrani Bank Limited took the tool and work with it before anyone does in the banking industry in Bangladesh. ABL is one of the most successful banks in Bangladesh and still growing having enough prospects. Other player in the banking industry should take a part in this field to gain certain competitive edge.
Today, Corporate Social Responsibility (CSR) goes far beyond the old philanthropy of the past –donating money to good causes at the end of the financial year and is instead an all year round responsibility that companies accept for the environment around them, for the best working practices, for their engagement in their local communities and for their recognition that brand names depend not only quality, price and uniqueness but on how they interact with companies workforce, community and environment. CSR encourages companies to look at a wider range of stakeholder interests, which can widen understanding of the potential risks and opportunities for the business while offering wider social or environmental gains.
ABL practice thus encompass the professional activities of helping individuals, families, groups, organizations, and communities to enhance or restore their capacity for optimal social functioning and of creating societal conditions favorable to this goal. They see Corporate Social Responsibility as the business contribution to sustainable development.
Chapter 01: Introduction
1.1 Origin of the Study
The internship program is required course for the students who are completing BBA from the Department of Finance in the faculty of business studies of University of Dhaka. It is a 3 credit hour program with duration of ninety days (90) days. Students who have completed all the required courses are eligible for this program. In the internship program I was attached to the Agrani Bank Limited at Elephant Road Branch, Dhaka, for 45 days. During this period I have acquainted with the real organizational environment.
Business organization is a part of society. It is surrounded by several factors of society. On the other hand business has some impact on the society. Business is also accountable for maintaining relationship with a wide range of stakeholders. The concept of corporate social responsibility came from this type of social view.
The days when individual companies were judged solely in terms of economic performance and wealth creation have long disappeared. Today, companies have far wider responsibility to the community, to the environment and to improve the quality of life.
Corporate social responsibility (CSR) is mainly about the awareness of and actions in support of environmentally sustaining be societal development. Yet to be mainstreamed into corporate practice with a firmed up definition, CSR actions aim at mitigating the diverse environmental impacts of the activities of the business, and at reducing inequalities and alleviating deprivation and poverty in the communities across the country. In the wide range of possible CSR actions, each business is expected to focus on areas of their core others. Well chosen, well executed CSR actions can enhance the longer run competitive position of a business bringing in environmentally sounder practices, increased employee loyalty and commitment, actual and potential increase in customer base.
1.2 Objectives of the Study
Business organization is a part of society. It is surrounded by several factors of society. On the other hand business has some impact on the society. Business is also accountable for maintaining relationship with a wide range of stakeholders. The concept of corporate social responsibility came from this type of social view.
The days when individual companies were judged solely in terms of economic performance and wealth creation have long disappeared. Today, companies have far wider responsibility to the community, to the environment and to improve the quality of life.
Corporate social responsibility (CSR) is mainly about the awareness of and actions in support of environmentally sustaining be societal development. Yet to be mainstreamed into corporate practice with a firmed up definition, CSR actions aim at mitigating the diverse environmental impacts of the activities of the business, and at reducing inequalities and alleviating deprivation and poverty in the communities across the country. In the wide range of possible CSR actions, each business is expected to focus on areas of their core others. Well chosen, well executed CSR actions can enhance the longer run competitive position of a business bringing in environmentally sounder practices, increased employee loyalty and commitment, actual and potential increase in customer base.
1.2 Objectives of the Study
The broad and specific objectives of the study are as follows:
Broad Objective
The broad objective of this report is to evaluate the CSR practices and how it influences the corporate financial performance.
Specific Objectives.
To find out the areas of CSR practices by AGRANI BANK LIMITED.
§ To assess different banking sector’s services potentiality as well as promotional activity through CSR messages and marketing opportunities for the government owned banks of Bangladesh.
§ To observe and analyze the performance of CSR activities of the bank.
To gain practical exposures in CSR activities conducted by Agrani Bank Ltd.
§ To find out the effect of CSR activities in the country both for the stakeholders and the organization.
§ To assess the business opportunities in banking sectors through CSR.
1.3 Methodology
Generally it seems that there is existence of a positive relationship between CSP (Corporate Social Responsibility) and CFP (Corporate Financial Performance), the results cannot be generalized to all markets and sectors so this study will examine this relation in Agrani Bank Limited, so the study determines the factors as follows:
Variables
- CFP(Corporate Financial Performance): Dependent variable and the financial performance are measured using the Return on Assets (ROA). ROA is the ratio of net income before tax to total asset value
- CSR(Corporate Social Responsibility): independent variable it is measured in this study by the ratio of the amount of donation disclosed in annual report.
- Firm size (SIZE): independent variable, Size of company is measured by the total assets.
- RISK: independent variable is a source of corporate finance from third parties (i.e., deposits).Leverage is measured by the ratio of total liabilities to total assets. Leverage a previous period represents an enterprise risk that could affect the company’s financial performance in the future.
Upon these factors we hypothesize that
H01: There is no significant relationship between the levels of bank (CSR) and the bank’s (CFP).
H02: There is no significant relationship between bank size and (CFP).
H03: There is no significant relationship between the level of risk in the bank and (CFP).
Corporate Financial Performance (CFP) is the function of three factors-
CFP = f (CSRi, SIZEi, DEPOSITi, )
Data Collection
Data will be collected from two main sources- primary sources and secondary sources.
Primary sources interviews and discussions with the officials of various departments, Study of different files of different sections.
Secondary sources Annual Reports of Agrani Bank Limited. , Official website of Agrani Bank (http://www.Agranibank.org), http://www.bangladesh-bank.org/ besides, data is also collected from different books, journals and internet.
The data set will be on the expense made on CSR, revenue, net income, deposit amount, loan disbursement, and value of the firm. Data collection period is 2008 to 2012.
Hypothesis Test
Depending on the statistical analytical plus simple and multiple regressions, using MS Excel, the study found the following results:
- H01 Test: There is no significant relationship between the levels of bank (CSR) and the bank’s (CFP).
Where the calculated t is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between the levels of bank (CSR) and the bank’s (CFP), and we accept the alternative hypothesis that said there is a significant relationship between the levels of bank (CSR) and the bank’s (CFP).
- H02 Test: There is no significant relationship between bank size and CFP.
Where the calculated t is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between bank size and (CFP), and we accept the alternative hypothesis that said there is a significant relationship between bank size and (CFP).
- H03 Test: There is no significant relationship between the level of risk in the bank and CFP.
Where the calculated t is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between the level of risk in the bank and (CFP), and we accept the alternative hypothesis that said there is a significant relationship between the level of risk in the bank and (CFP).
By using regression analysis relationship among these variables will be find out.
1.4 Limitations of the Study
The study is conducted with an objective to make a thorough study of CSR activities. I have availed many facilities and faced some obstacles during my study. These obstacles may be termed as the study. The following limitations are faced to prepare the report:
Ø Time is the first limitation as the duration of the program. It’s mandatory to complete this study within a short period of time which may not be sufficient to get all data which assist to make my report fruitful.
Ø Another limitation of this report is Bank’s policy for not disclosing some data and information for obvious reason, which could be very much useful.
Ø The bank’s officials sometimes were busy enough to explain me some of the functions though their cooperation was unquestionable.
Ø It was harder to collect various data, books and journals related to the topic due to limited accessibility of resources.
Ø Many up-to-date data and documents are not beingavailabe, which have not made the study more informative. So a major constraint of the study was the insufficient information.
Ø Unavailability of recent annual reports of different Banks.
Ø This bank is not listed either of the stock market of the country. So proper data regarding the bank is unavailable.
Chapter 02: A Brief Overview of Agrani Bank Limited
Broad Objective
The broad objective of this report is to evaluate the CSR practices and how it influences the corporate financial performance.
Specific Objectives.
To find out the areas of CSR practices by AGRANI BANK LIMITED.
§ To assess different banking sector’s services potentiality as well as promotional activity through CSR messages and marketing opportunities for the government owned banks of Bangladesh.
§ To observe and analyze the performance of CSR activities of the bank.
To gain practical exposures in CSR activities conducted by Agrani Bank Ltd.
§ To find out the effect of CSR activities in the country both for the stakeholders and the organization.
§ To assess the business opportunities in banking sectors through CSR.
1.3 Methodology
Generally it seems that there is existence of a positive relationship between CSP (Corporate Social Responsibility) and CFP (Corporate Financial Performance), the results cannot be generalized to all markets and sectors so this study will examine this relation in Agrani Bank Limited, so the study determines the factors as follows:
Variables
- CFP(Corporate Financial Performance): Dependent variable and the financial performance are measured using the Return on Assets (ROA). ROA is the ratio of net income before tax to total asset value
- CSR(Corporate Social Responsibility): independent variable it is measured in this study by the ratio of the amount of donation disclosed in annual report.
- Firm size (SIZE): independent variable, Size of company is measured by the total assets.
- RISK: independent variable is a source of corporate finance from third parties (i.e., deposits).Leverage is measured by the ratio of total liabilities to total assets. Leverage a previous period represents an enterprise risk that could affect the company’s financial performance in the future.
Upon these factors we hypothesize that
H01: There is no significant relationship between the levels of bank (CSR) and the bank’s (CFP).
H02: There is no significant relationship between bank size and (CFP).
H03: There is no significant relationship between the level of risk in the bank and (CFP).
Corporate Financial Performance (CFP) is the function of three factors-
CFP = f (CSRi, SIZEi, DEPOSITi, )
Data Collection
Data will be collected from two main sources- primary sources and secondary sources.
Primary sources interviews and discussions with the officials of various departments, Study of different files of different sections.
Secondary sources Annual Reports of Agrani Bank Limited. , Official website of Agrani Bank (http://www.Agranibank.org), http://www.bangladesh-bank.org/ besides, data is also collected from different books, journals and internet.
The data set will be on the expense made on CSR, revenue, net income, deposit amount, loan disbursement, and value of the firm. Data collection period is 2008 to 2012.
Hypothesis Test
Depending on the statistical analytical plus simple and multiple regressions, using MS Excel, the study found the following results:
- H01 Test: There is no significant relationship between the levels of bank (CSR) and the bank’s (CFP).
Where the calculated t is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between the levels of bank (CSR) and the bank’s (CFP), and we accept the alternative hypothesis that said there is a significant relationship between the levels of bank (CSR) and the bank’s (CFP).
- H02 Test: There is no significant relationship between bank size and CFP.
Where the calculated t is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between bank size and (CFP), and we accept the alternative hypothesis that said there is a significant relationship between bank size and (CFP).
- H03 Test: There is no significant relationship between the level of risk in the bank and CFP.
Where the calculated t is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between the level of risk in the bank and (CFP), and we accept the alternative hypothesis that said there is a significant relationship between the level of risk in the bank and (CFP).
By using regression analysis relationship among these variables will be find out.
1.4 Limitations of the Study
The study is conducted with an objective to make a thorough study of CSR activities. I have availed many facilities and faced some obstacles during my study. These obstacles may be termed as the study. The following limitations are faced to prepare the report:
Ø Time is the first limitation as the duration of the program. It’s mandatory to complete this study within a short period of time which may not be sufficient to get all data which assist to make my report fruitful.
Ø Another limitation of this report is Bank’s policy for not disclosing some data and information for obvious reason, which could be very much useful.
Ø The bank’s officials sometimes were busy enough to explain me some of the functions though their cooperation was unquestionable.
Ø It was harder to collect various data, books and journals related to the topic due to limited accessibility of resources.
Ø Many up-to-date data and documents are not beingavailabe, which have not made the study more informative. So a major constraint of the study was the insufficient information.
Ø Unavailability of recent annual reports of different Banks.
Ø This bank is not listed either of the stock market of the country. So proper data regarding the bank is unavailable.
Chapter 02: A Brief Overview of Agrani Bank Limited
Agrani Bank Limited, a leading commercial bank with 879 outlets strategically located in almost all the commercial areas throughout Bangladesh, overseas Exchange Houses and hundreds of overseas Correspondents, came into being as a Public Limited Company on May 17, 2007 with a view to take over the business, assets, liabilities, rights and obligations of the Agrani Bank which emerged as a nationalized commercial bank in 1972 immediately after the emergence of Bangladesh as an independent state. Agrani Bank Limited started functioning as a going concern basis through a Vendors Agreement signed between the ministry of finance, Government of the People's Republic of Bangladesh on behalf of the former Agrani Bank and the Board of Directors of Agrani Bank Limited on November 15, 2007 with retrospective effect from 01 July, 2007. Agrani Bank Limited is governed by a Board of Directors consisting of 13 (thirteen) members headed by a Chairman.[1] The Bank is headed by the Managing Director & Chief Executive Officer; Managing Director is assisted by Deputy Managing Directors and General Managers. The bank has 11 Circle offices, 25 Divisions in head office, 62 zonal offices and 879 branches including 27 corporate and 40 AD (authorized dealer) branches.
2.1 Vision
To become a leading bank of Bangladesh operating at international level of efficiency, quality and customer service.
2.2 Mission
To operate ethically and fairly within the stringent framework set by the regulators. We fuse ideas and lessons from best practice to explore new avenues to become stronger, more efficient and competitive. We apply information and communication technology for the benefit of the customers and employees. We invest to strengthen the future of the Bank.
2.3 Motto
To adopt and adapt to modern approaches to stand supreme in the banking arena of Bangladesh.
2.4 Values
To value in integrity, transparency, accountability and professionalism to provide a high standard of service to all the customers and stakeholders.
2.5 Strategic Objectives
1) Winning at least 6 percent share of deposits and 4.5 percent share of loans and advances of Bangladeshi market.
2) Gaining competitive advantages by lowering overall cost compared to that of competitors.
3) Overtaking competitors by providing quality customer service.
4) Achieving technological leadership among the peer group.
5) Strengthening the Bank’s brand recognition.
6) Contributing towards the economic well-being of the country by focusing particularly on SME and agricultural sectors.
7) Strengthening research capability for innovative products.
2.6 Ethical Standards
a) Be Trustful: The bank believes in mutual trust and treat the customers in a way so that they can trust us.
b) Keep An Open Mind: For continuous improvement of the Bank the bank keeps the minds open to new ideas. The bank seeks opinions and feedback from both customers and team members through which the Bank will continue to grow.
c) Meet Obligations: Regardless of the circumstances, the bank does everything to gain the trust and confidence of customers and clients by honoring the commitments and obligations.
d) Be Transparent: The bank is transparent in the dealings with customers and all stakeholders. The bank ensure transparency by furnishing information through print & electronic media as the well as in Bank’s the website, journals and reports.
e) Be involved with the Community: The bank remains involved in community-related issues and activities, thereby demonstrating that the business is socially responsible.
f) Be Respectful: The bank treats all stakeholders with utmost respect and courtesy regardless of differences, positions, titles, ages, or other types of distinctions.
g) Be Environment conscious: The bank provides industrial financing decorously to keep the environment free from pollution and health hazard. The bank also ensures setting up ETP before installation of industries that may affect the environment. [2]
2.9 Major Achievements in 2012
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Shareholders’ Equity stood at Tk. 717 crore at the end of 2012.
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Paid-up capital increased to Tk. 991.29 crore in 2012 from Tk. 901 crore in 2011.
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Foreign remittance increased to Tk. 11,681 crore in 2012 from Tk. 8,682 crore in 2011.
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Operating profit stood at Tk. 1,007 crore at the end of 2012.
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Investment increased to Tk. 9,242 crore in 2012 from Tk. 8,533 crore in 2011.
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Return on Investment increased 8.70 percent in 2012 from 6.12 percent in 2011.
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Loans and Advances increased to Tk. 21,266 crore in 2012 from Tk. 19,409 crore in 2011.
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Credit deposit ratio reduced to 72.72 percent in 2012 from 76.95 percent in 2011.
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1 Chief Security Officer, 9 Principal Officers, 1,447 Senior Officers and 569 Officers were recruited in the year 2012
2.1 Vision
To become a leading bank of Bangladesh operating at international level of efficiency, quality and customer service.
2.2 Mission
To operate ethically and fairly within the stringent framework set by the regulators. We fuse ideas and lessons from best practice to explore new avenues to become stronger, more efficient and competitive. We apply information and communication technology for the benefit of the customers and employees. We invest to strengthen the future of the Bank.
2.3 Motto
To adopt and adapt to modern approaches to stand supreme in the banking arena of Bangladesh.
2.4 Values
To value in integrity, transparency, accountability and professionalism to provide a high standard of service to all the customers and stakeholders.
2.5 Strategic Objectives
1) Winning at least 6 percent share of deposits and 4.5 percent share of loans and advances of Bangladeshi market.
2) Gaining competitive advantages by lowering overall cost compared to that of competitors.
3) Overtaking competitors by providing quality customer service.
4) Achieving technological leadership among the peer group.
5) Strengthening the Bank’s brand recognition.
6) Contributing towards the economic well-being of the country by focusing particularly on SME and agricultural sectors.
7) Strengthening research capability for innovative products.
2.6 Ethical Standards
a) Be Trustful: The bank believes in mutual trust and treat the customers in a way so that they can trust us.
b) Keep An Open Mind: For continuous improvement of the Bank the bank keeps the minds open to new ideas. The bank seeks opinions and feedback from both customers and team members through which the Bank will continue to grow.
c) Meet Obligations: Regardless of the circumstances, the bank does everything to gain the trust and confidence of customers and clients by honoring the commitments and obligations.
d) Be Transparent: The bank is transparent in the dealings with customers and all stakeholders. The bank ensure transparency by furnishing information through print & electronic media as the well as in Bank’s the website, journals and reports.
e) Be involved with the Community: The bank remains involved in community-related issues and activities, thereby demonstrating that the business is socially responsible.
f) Be Respectful: The bank treats all stakeholders with utmost respect and courtesy regardless of differences, positions, titles, ages, or other types of distinctions.
g) Be Environment conscious: The bank provides industrial financing decorously to keep the environment free from pollution and health hazard. The bank also ensures setting up ETP before installation of industries that may affect the environment. [2]
2.9 Major Achievements in 2012
2.13 Economic Impact Report
The Bank’s overall mission is to deliver optimum value to the depositors, employees, shareholders and the business strategy is geared towards achieving this. This section covers the value the bank delivers to the shareholders and the nation at large. The Bank’s policy has been to deliver optimum value in a manner that is consistent with the highest levels of fairness and transparency. For the Bank, it has not been a case of building financial value and increasing profit at any cost, but rather participating in a process of creating value through fair and ethical means. Building sustainable value of all stakeholders is an important goal of the Bank. Some of the measures taken to create, sustain and deliver optimum value are as follows:
2.13.1 Maintaining capital adequacy
Capital adequacy symbolizes the financial strength and stability of a bank. It limits the extent up to which banks can expand their business in terms of risk-weighted assets. Like all commercial institutions, ABL too constantly looks at ways of expanding their operations by acquiring property, plant & equipment, opening branches, in addition to mobilizing loans and investing in other income generating assets. Regulatory capital requirements are, therefore, necessary to prevent banks from expanding beyond their ability to manage (over trading), to improve the quality of Banks assets, to control the ability of the banks to leverage their growth and to lead to higher earnings on assets, leading to peace of mind of all the stakeholders. ABL keeps a careful check on its capital adequacy ratios. Bank’s capital adequacy was constrained during the year due to (i) issuance of Bond by the Government against BPC, (ii) non-payment of LTR liability of some importing customers of food, raw cotton and fertilizer, (iii) expansion of credit especially on power sector, (iv) increase of interest cost on deposit of Tk. 794 crore, (v) introduction of new classification rules of Bangladesh Bank taking into consideration the international norms as per agreement with the IMF. Consequently, classified loans and required provisions have increased to a large extent. It has reduced profitability which adversely affected capital adequacy. However, we are expecting improvement in regards to classified loan, required provision as well as capital adequacy in the coming future.
Capital adequacy as per basel-2
Table 2.2 Minimum capital requirement (MCR) under risk based capital (Basel 2)
A.Eligible Capital
2012
2011
1. Tier-1(Core capital)
(1,319.54)
721.98
2. Tier-2 (Supplementary Capital)
-
665.47
3.Tier -3 (Eligible for market risk only)
-
-
4. Total Eligible Capital (1+2+3) :
(1,319.54)
1,387.45
B. Total risk weighted assets(RWA)
21,455.30
21,411.28
C. Capital Adequacy ratio (A4/B)*100
(6.15%)
6.48%
D. Core capital to RWA (A1/B)*100
(6.15%)
3.37%
E. Supplimentary capital to RWA (A2/B)*100
-
3.11%
F. Minimum Capital Requirement (9% of RWA)
2,145.53
2,141.13
G. Capital Surplus / (Shortfall)
(3,465.07)
753.68
Source: Annual report of ABL 2012
2.13.2 Economic Value Added
Economic Value added is a measure of profitability which takes into consideration the cost of total invested equity. Shareholders are always conscious about their return on capital invested. As a commercial banking company, ABL is deeply concerned for delivery of value to the shareholders/ equity providers.
2.13.3 Maintaining liquidity
The liquidity policy of the Bank has always been to carry a positive mismatch in the interest earning assets and interest bearing liabilities in the 1 to 30 days category. The liquidity remained at optimum levels during the year. The liquid assets ratio stood at 22.27 percent (required 19 percent of total demand & time deposits) in December 2010
2.13.4 Market Share
As on 30th June 2010 the Bank holds 4.06% of the total Loans and Advances and 6.26% of Deposit balance of all banks and financial institutions of Bangladesh.
2.14 Products and Services
a) Deposits
• Current Deposits (CD)
• Call Deposits
• Savings Deposits (SB)
• Fixed Deposits
b) Foreign Currency Deposit Accounts
• Foreign Currency Account
• Non Resident Foreign Currency Deposit
c) Loans & Advances
• Cash Credit (Hypo)
• Cash Credit (Pledge)
• Secured Overdraft (SOD)
• Temporary Overdraft (TOD)
• Weavers’ Credit
• Export Cash Credit
• Import Finance
• Loan Against Imported Merchandise (LIM)
• Loan Against Trust Receipt (LTR)
• Loan Against Export Development Fund (EDF)
• Payment against Document (PAD)
• Export Finance
• Export Cash Credit
• Pre-shipment credit
• Packing Credit
• Foreign Bills Purchased (FBP)
d) Treasury
i Primary Dealer Unit
• Treasury Bills
• Treasury Bonds
• REPO
• Reverse REPO
ii) Forex & Fund Management
• Import/Export Financing
• Custodian Services
• Money Market Lending
e) Special Services
i) Cash Services
• ATM Services
• Cheque encashment
• Foreign Currency
ii) Fund Transfer
• Inter-Branch Money Transfer
• SWIFT
• Telegraphic Transfer
• Issuing and Encashing Foreign Drafts
iii) Value Added Services
• Locker Service
f) Other Services
i) Letters of Credit
• Letter of Credit-Sight
• Letter of Credit-Usance
• Back to Back L/C
ii) Letters of Guarantee
• Advance Payment Guarantee
• Bid Bond
• Performance Bond
• Shipping Guarantee
• Guarantee- Others
g) New products and services introduced in 2012
• Merchant Banking Unit
• Agrani Bank Sanchay Scheme
• Loan for Overseas Employment
• Islamic Banking Unit
2.15 Risk Management
The risk of any banking institution may be defined as the possibility of incurring losses, financial or otherwise. Banking business is in fact a business of risk taking. Therefore, it is vital to manage all these risks efficiently to emerge as the winner out of these risk ventures.
In today’s challenging financial and economic environment, effective risk management is must for sustainable growth in shareholders’ value. The major areas of risk to which the activities of the banking operation are exposed to Credit Risk, Liquidity Risk, Market Risk, Operational Risk and Reputation Risk. Market Risk includes Foreign Exchange Risk, Interest Rate Risk and Equity Risk.
2.15.1 Risk Management Process
ABL has always been in the forefront of implementing different risk management approach which is emphasized not only for regulatory purpose but also to improve operational and financial performance of the Bank. The prime objective of the risk management is that the Bank takes well-calculated business risks while safeguarding the Bank’s assets and profitability from various risks.
The Risk Management Policy of the Bank operates under 6 broad principles:
Dedicated committee at management level has been set up to monitor risk viz. Credit Risk through Credit Committee, Operational Risk through Management Committee MANCOM and Internal Control and Compliance Division, Market and Liquidity Risk through Asset Liability Committee (ALCOM).
2.15.2 Credit Principles
Following principles are followed in credit disbursement:
Loan Deposit Ratio: Loans and advances shall normally be financed from customers deposit and sometimes from capital fund of the Bank. Usually loans and advances shall not be extended out of temporary fund or borrowing from money market.
Credit Quality: Credit facility shall be allowed in a manner so that credit expansion goes on ensuring optimum asset quality i.e., Bank’s standard of excellence shall not be compromised. Credit facilities will be extended to customers who will complement such standards.
Compliance: All credit extension must comply with the requirements of Bank’s Memorandum and Articles of Association, Bank Company Act 1991 as amended from time to time, Bangladesh Bank’s instruction circulars, guideline and other applicable laws, rules and regulations, Bank’s Credit Risk Management Policy, Credit Manual and all relevant circulars in force. The officer originating a credit proposal shall specifically declare that it complies with all above mentioned rules, regulations, policies etc.
Deviation: Any deviation from the internal policy of the Bank must be justified and well documented. Specially, all credit assessment forms shall invariably include the deviations from the policy, if any. However, no external regulations shall be compromised.
Return: Credit operation of the Bank should contribute at optimum level within the defined risk limitation. In other words, credit facilities should be extended in such a manner that each deal becomes a profitable one so that Bank can achieve growth target and superior return on capital. Besides, credit extension shall focus on the development and enhancement of customer’s relationship and shall be measured on the basis of the total yield for each relationship with a customer.
Repayment Capacity: Credit facilities will be extended to those customers who can make best use of them thus helping maximize Bank’s profit as well as economic growth of the country. To ensure achievement of this objective Bank will base lending decision mainly on the borrowers’ ability to repay.
Diversification: The portfolio shall always be well diversified with respect to sector, industry, geographical region, maturity, size, economic purpose etc. Concentration of credit shall be carefully avoided to minimize risk.
Proper staffing: Proper credit assessment is complex and requires high level of numerical as well as analytical ability of the concerned officer. To ensure effective understanding of the concept and thus to make the overall credit portfolio of the Bank healthy, proper staffing shall be made through placement of qualified officials having appropriate background, right aptitude, formal training in credit risk management, familiarization with Bank’s credit culture and required experience as well.
Name Lending: The Bank shall carefully avoid name lending. Credit facility shall be allowed absolutely on business consideration after conducting due diligence. No credit facility shall be allowed simply considering the name and fame of the key person or corporate image of the borrowing company. In all cases, viability of business, credit requirement, security offered, cash flow and risk level will be professionally analyzed.
Single Customer Exposure Limit: Agrani Bank will always comply with the prevailing banking regulations regarding Single Customer Exposure Limit set by Bangladesh Bank from time to time. As per prevailing regulation, Bank will take maximum exposure (outstanding at point of time) on a single customer ( Individual, Enterprise, Company, Corporate, Organization, Group) for the amount not exceeding 35 percent of Bank’s total capital subject to the condition that the maximum outstanding against funded facilities does not exceed 15 percent of the total capital.
Large Loan: Credit facility to a single customer (Individual, Enterprise, Company, Corporate, Organization, and Group) shall be treated as large loan if total outstanding amount against the limit at a particular point of time equals or exceeds 10 percent of the total capital of the Bank
Chapter 03: Concepts about Corporate Social Responsibilities (CSR)
3.1 Corporate Social Responsibilities (CSR)
Corporate Social Responsibility (CSR) is an evolving concept that currently does not have a universally accepted definition. There are also different perceptions across different countries, societies, stakeholders and interest groups. Generally, Corporate Social Responsibility will be defined as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.
CSR is also known by a number of other names: corporate responsibility, corporate accountability, corporate ethics, corporate citizenship, sustainability, stewardship, triple bottom line and responsible business etc.
Ø “CSR is about how companies manage the business processes to produce an overall positive impact on society” – By Mallenbaker
Ø “The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.”
- Archie B. Carroll, 1979
Ø “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.
- The World Business Council for Sustainable Development (WBCSD)
Ø “CSR is about businesses and other organizations going beyond the legal obligations to manage the organizations interact with their employees, suppliers, customers and the communities in which they operate, as well as the extent they attempt to protect the environment.” - The Institute of Directors, UK, 2002
Ø EU Definition of CSR: “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”
In recent years, the impact of business on the society has become a crucial issue. Business corporations are considered accountable to society for their actions. Now it is said that businesses are accountable not only to the shareholders but also to a wide range of stakeholders – including business partners, employees, customers, suppliers and the overall community. This kind of social view gave birth to the concept of Corporate Social Responsibility.
Business cannot work independently. Like an individual, it also has to live in an environment surrounded by socio-cultural, economic, technological, competitive, legal and political forces. In order to survive, it has to adjust itself within these forces. As a result, just like any other social units, it has to live like a member of a community or a citizen of a country. It has to abide by several rules and ethical considerations so that it does not do anything that is harmful for the society. As a body that deals with the society and utilizes the people or other resources of the society, it has some duties and responsibilities to the society also. In order to perform their task in the society, businesses must act as the ‘socially responsible citizens’.
3.2 Potential Business benefits of CSR
The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones
1. Human resources
A CSR program can be an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm's CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering. CSR has been found to encourage customer orientation among frontline employees.
2. Risk management
Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. These can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of 'doing the right thing' within a corporation can offset these risks.
3. Brand differentiation
In crowded marketplaces, companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands are built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice.
4. Enhanced operational efficiencies and cost savings:
Company can enhance operational efficiencies and cost saving through a systematic approach to management that includes continuous improvement. For example, assessing the environmental and energy aspects of an operation can reveal opportunities for turning waste streams into revenue streams and for system-wide reductions in energy use.
3.3 Common types of corporate social responsibility (CSR) actions
There are many aspects of corporate social responsibility; whether a company decides to develop one area of CSR, or multiple, the end result is a more profitable company experiencing a higher level of employee engagement. The following is a list of common ways corporate social responsibility is implemented by organizations.
1. Environmental sustainability: Areas include recycling, waste management, water management, using renewable energy sources, utilizing reusable resources, creating 'greener' supply chains, using digital technology instead of hard copies etc. There is a business sector dedicated to specifically to environmental sustainability consulting for businesses of any size to utilize.
2. Community involvement: This can include raising money for local charities, supporting community volunteerism, sponsoring local events, employing people from a community, supporting a community's economic growth, engaging in fair trade practices, etc.
3. Ethical marketing practices: Companies that ethically market to consumers are placing a higher value on their customers and respecting them as people who are ends in themselves. They do not try to manipulate or falsely advertise to potential consumers. This is important for companies that want to be viewed as ethical.
3.4 The measurement of Corporate Social Responsibility (CSR)
There is much interest and a growing literature on the measurement of what is meant by corporate social responsibility.
Briefly, CSR is measured following a business organization's configuration into three levels:
I. Principles of social responsibility.
II. Processes of social responsibility.
III. Outcomes as they relate to the firm's societal relationship.
Level I: Principles of Social Responsibility:
The level of application of these principles is institutional and is based on a firm's basic obligations as a business organization. Its value is that it defines the institutional relationship between business and society and specifies what is expected of any business. This level of the CSR model itself is all about the relationship between business and society at large and it has three major elements:
Legitimacy concerns business as a social institution and frames the analytical view of the interrelationship of business and society. Public responsibility concerns the individual firm and its processes and outcomes within the framework of its own principles in terms of what it actually does. Managerial discretion whereby managers and other organizational members are moral actors. Within every domain of corporate social responsibility, they are obliged to exercise such discretion as is available to them toward socially responsible outcomes.
Level II: Processes of Social Responsibility:
Corporate social responsibility is a business's capacity to respond to social pressures. This suggests the ability of a business organization to survive through adaptation to its business environment. To do so, it must know as much as possible about this business environment, be capable of analyzing its data, and must react to the results of this analysis. But the environment of business is not static; it is a complex and ever changing set of circumstances. This environment can be unchanged for decades, if not centuries, and then it falls apart and is reformed like a kaleidoscope with increasing rapidity. The ability to successfully scan, interpret, and react to the business environment requires equally complex mechanisms.
Three elements are identified as basic elements of this level of the CSR model:
· Business Environment Scanning. Indicates the informational gathering arm of the business and the transmission of the gathered information throughout the organization.
· Stakeholder Management. A stakeholder is defined as any group or individual who can affect or is affected by the achievement of the firm's objectives for example: Owners; Suppliers; Employees; Customers; Competitors; Domestic and Foreign Governments; Nonprofit organizations; Environmental and Consumer Protection Groups; and Others.
· Issues Management. Having identified the motivating principles of a firm and having determined the identities, relationships, and power of stakeholders, the researcher now turns to the main issues which concern stakeholders.
Level III: Outcomes:
The main focus of measurement is the third level of the CSR model. To determine if "CSR makes a difference", all of the stakeholders relevant to an issue or complex of issues must be included in any assessment of performance. There are, again, three main categories:
v Internal Stakeholder Effects are those that affect stakeholders within the firm. An examination of these might show how a corporate code of ethics affects the day to day decision making of the firm with reference to social responsibility. Similarly, it can be concerned human resource policies such as the positive or negative effects of corporate hiring and employee benefits practices.
v External Stakeholder Effects concern the impact of corporate actions on persons or groups outside the firm. This might involve such things as the negative effects of a product recall, the positive effects of community related corporate philanthropy, or assuming the natural environment as a stakeholder, the effects of toxic waste disposal.
v External Institutional Effects refer to the effects upon the larger institution of business rather than on any particular stakeholder group. Several environmental disasters made the public aware of the effect of business decisions on the general public. This new awareness brought about pressure for environmental regulation which then affected the entire institution of business rather than one specific firm.
3.5 CSR and corporate Brands
Corporate success depends on various factors. Brand is one of the most important key factors of corporate success. Companies try to establish popular brands in consumer minds because it increases leverage, which is directly reflected in sales and revenue. All aspects of a company’s operations today feed into helping build the corporate brand. Crucial is how a brand is perceived by all stakeholders. Three benefits in particular indicate the positive value for a company in striving to remain in tune with the community within which it is based by implementing a strong CSR policy.
a) Brand-Building:
By implementing strong CSR policy the company can build their brands that are most environmentally sound and socially responsible companies. By taking strong brand building strategy. Companies can avoid the criticism against their operations, customer boycotts and their failure to recognize.
b) Brand Insurance:
Another important and strategic branding policy is the brand insurance which asserts that companies should assign a formal post as like as Vice-President for Corporate Responsibility and to publish an annual CSR Report, the company has a lot to do for the mitigation of public opinion, establish its brand as representative of a much more committed corporate citizen, and ‘insure’ itself against any repeat of the consumer boycotts.
c) Crisis Management:
Crisis management is mostly important for the brands those who are established and well-reputed for product and services in their particular industries. Crisis management is actually strongly monitoring the impact of product on the customer community and if there is any possibility of negative effects arises then the product should be excluded from the market. This action can be taken following a suspected poisoning/product tampering incident. This strategy will help the brand enabling to remain a strong revenue earner in the long run.
3.6 Key Steps for implementing CSR
Corporations today are best positioned when they reflect the values of the constantly shifting and sensitive market environment in which they operate. It is vital that they are capable of meeting the needs of an increasingly demanding and socially-aware consumer market, especially as brands move front and center of a firm’s total value. Global firms with global lifestyle brands have the most to lose if the public perception of the brand fails to live up to the image portrayed. Integrating a complete ‘social perspective’ into all aspects of operations will maximize true value and benefit for an organization, while protecting the huge investments companies make in corporate brands. Key steps for implementing CSR within all aspects of operations include:
· Ensure the commitment of top management, and particularly the CEO, is communicated throughout the organization.
· Appoint a CSR position at the strategic decision-making level to manage the
development of policy and its implementation.
· Develop relationships with all stakeholder groups and interests.
· Incorporate a Social or CSR Audit within the company’s annual report.
· Ensure the compensation system within the organization reinforces the CSR policies that have been created, rather than merely the bottom-line.
· Any anonymous feedback/whistle-blower process, ideally overseen by an external.
· Ombudsperson, will allow the CSR Officer to operate more effectively.
3.6 The two-dimensional model of Corporate Social Responsibilities (CSR)
Keeping the above literature review in mind a two-dimensional model of corporate social responsibility is proposed. The model is depicted in the following figure. The model has two axes. The horizontal axis having two extremes: a narrow and a wide responsibility. The right hand extreme (the positive side) represents the narrow view of social responsibility where business responsibility is perceived in the classical sense, that is in terms of supply of goods and services leading to profit maximization within the “rules of the game”(regulation). The emphasis here is on profit maximization in the short term. By contrast, the left extreme (the negative side) considers corporate social responsibility in a broader context reaching beyond regulation to serve the wider expectations of society in areas such as environmental protection, community development, resource conservation and philanthropic giving. The vertical axis of the model represents two extremes in the perceptions of the consequences of social action of businesses ranging from concern with the cost of social commitment to a focus on the benefits of social involvement. The negative end of this axis is concerned with cost of social action that is where the expenditure involved in the exercise of social responsibility in the short term is the main consideration. The emphasis here is on social costs in the short term. The positive end is concerned more with the long term benefits arising from social action, and perceives the potential benefits for business to outweigh costs in the long term.
Figure 3.1 A two dimensional figure of corporate social responsibility. (Developed by Ali M.Quazi & Dennis O’ Brain)
Thus the paradigm or model proposed has four with the broader matrix of society where there distinct quadrants. Each quadrant is named as follows:
Classical view: This is concerned with the classical view of social responsibility in which there is no provision to look beyond a narrow view of profit maximization as it is seen to generate a net cost to the company without any real benefit flowing from an activity.
Socio-economic view: This quadrant represents a narrow view of social responsibility but accepts that adopting some degree of social responsibility will lead to net benefit to the company in terms, for example, of avoiding costly and embarrassing regulation, building good customer relationships, good supplier relationships or the politics of networking. In this context, social responsibility can be justified even if a manager holds a narrow view. Quadrant 1 is then concerned with the socio-economic view in which business can simultaneously perform the dual function of profit maximization while serving social demand.
Modern view: Modern view captures a perspective in which a business maintains its relationship are net benefits flowing from socially responsible action in the long run, as well as in the short-term. This is modern view of social responsibility and includes the stakeholder view noted earlier.
Philanthropic view: This quadrant depicts a broader view of social responsibility in which business agrees to participate in the charitable activities even though this is perceived as a net cost. This impetus may come from altruistic or ethical feelings to do some good for society. This can be associated with the philanthropic view.
3.7 CSR activities of banks in Bangladesh
Historically, the banking sector of Bangladesh has been amply participating in various social activities especially, in the areas of education, health, sports, benevolent activities like donations to different charitable organizations, to poor people and religious institutions, city beautification and patronizing art & culture, etc. In June 2008, Bangladesh Bank issued a comprehensive circular titled ‘Mainstreaming Corporate Social Responsibility (CSR) in banks and financial institutions in Bangladesh’. In that circular, CSR was defined as (i) considering the economic, social and environmental consequences of a business, (ii) mitigating the negative impacts and bolstering the benign effects, (iii) initiating action programs and community investments to trim down social exclusion and inequality as well as to address the core sustainable development challenges (fulfilling the requirements of the current generation without cramping the capacity of future generations is a generally agreed meaning of ‘sustainable development’). BB has been motivating banks to expand lending to the under-served sectors both as business case and CSR obligation; expecting to lead to more broad-based inclusive growth, and therefore reduce poverty. BB has indicated some priority areas in the field of CSR like Self-employment and SME credits designed to create productive new on-farm/off-farm employment; Financing of biomass processing plants, solar panels, waste recycling plants, Effluent Treatment Plants (ETPs); Credit programs for diversified production of crops, oilseeds, spices, vegetables, fruits etc.; Mobile phone based/MFI supported programs for prompt delivery of remittances; card based/ mobile phone based delivery of financial services; Financing programs to promote domestic tourism and markets in cultural products/events. Bangladesh Bank has, of course, started guiding the banking sector to become more environmentally responsive (e.g. via refinancing new loan products on solar energy, bio-gas, effluent treatment plant etc). All the commercial banks are asked to formulate their own CSR policy with the annual outlay for CSR programs and include the CSR programs in their mainstream banking activities instead of short term social works like providing grants, aids and donations. In December 2010, Bangladesh Bank instructed the banks to establish separate CSR desk to pay special attention on this issue. Reporting of the CSR initiatives by banks was suggested as appendage to regular annual financial reports, ultimately to build up full length wide-ranging reports in the Green Reporting Initiatives (GRI) format. Alike the statutory financial reports, the CSR reports were also anticipated to be publicly available for stakeholders’ perusal. Bangladesh Bank has been publishing CSR review report annually for tracing advancement in mainstreaming of CSR activities. CSR initiatives of banks during last five years continued focus on i) financial inclusion of less privileged population segments and underserved economic sectors, ii) emergency relief in humanitarian distresses, ii) promotion of health, education and cultural/recreational activities for advancement and well being of underprivileged population segments, iii) financing and promotion of environment friendly projects, iv) adoption of energy efficient, carbon footprint reducing internal processes and practices in own offices and establishments. Besides CSR initiatives involving direct expenditure, financial inclusion initiatives of banks proceeded apace during last five years. All banks participated actively in promotion of lending to SMEs and agricultural. For broader, deeper financial inclusion, banks proceeded ahead on multiple fronts including increased rural bank branch presence, mobile phone banking, and opening of bank accounts for low income population free of charge with nominal Taka 10 initial deposit. In 2013, CSR expenditure of banks totaled 4.42 billion taka; eight times larger than in 2009. It will not be an overstatement to say that the banking sector led CSR initiatives in Bangladesh.
3.8 Income Tax Regulation in Bangladesh on CSR
National Board of Revenue (NBR) of Bangladesh issued Statutory Regulatory Order (SRO) by providing tax exemption on the expenditure made by corporates for CSR activities in 2011. The regulations stated in that SRO were further amended in 2012 and the area of CSR applicable for tax exemption was enhanced.The rules of tax exemption for CSR activities of corporate are mentioned below:
Ø Any company will get exemption of Income Tax at the rate of 10% for actual cost/money expended in Corporate Social Responsibility.
Ø
Ø Conditions for Income Tax Exemptions-
v ™ It will not be applicable for the amount expended in excess of 20% of gross income of the company or BDT 8 (eight) crore whichever is lower.
v ™ The companies which are interested to attain tax exemption facility as corporate entity, they-
v
Ø Have to pay salary-allowance of their employee-staffs regularly and Must have waste treatment plant in their factory/industry especially if industrial goods are manufactured.
Ø must pay income tax, VAT, duty and repay institutional debt/obligations regularly.
Ø can donate to the institutions under CSR only approved by Government.
Ø must comply with all regulations of Bangladesh Labor Act, 2006
Ø cannot treat the amount expended under CSR as an accredited expenses in Manufacturing Account, Commercial Account or Profit Loss Account.
Ø have to submit necessary documents/evidences for claiming the tax exemption on CSR to the concerned Deputy Tax Commissioner.
Ø have to submit CSR Work Plan by the company to NBR in written for availing Income Tax Exemption Certificate.
Ø
3.9: Fields/Sectors of CSR applicable for tax exemption
1. Aid through any government body for reducing mass crisis in natural disaster (Hurricane, Tremor, Cyclone and Flood) affected area.
2. Aid to organizations establishing and operating old homes.
3. Aid to any social organization pursuing welfare activities for mentally and physically challenged persons.
4. Aid to education institutions operating for teaching rootless children.
5. Aid to organizations pursuing housing projects for slam dwellers.
6. Aid to social organizations pursuing women empowerment and anti-dowry campaign.
7. Aid to organizations pursuing subsistence and rehabilitation of orphan and rootless children.
8. Aid to organizations involved in independence war related research, recovery and expanding of independence war spirit and honorable living of freedom fighters.
9. Aid to organizations involved in healthy sanitation activities Hilly Chittagong, Char region and River Eroded regions.
10. Aid to institutions providing medical treatment to cleft lip, cataract and cancer.
11. Aid to people and organization involved in medical treatment activities of acid victims.
12. Aid to hospitals providing free medical services to poor patients and specialized hospital improving medical treatment like cancer, liver and kidney diseases, thalassemia, ophthalmology, cardiology etc.
13. Aid to public universities.
14. Aid to government affiliated educational institutions in order to provide scholarship or financial aid to children of poor freedom fighter including poor brilliant students for technical or vocational education.
15. Aid to government or MPO listed non-government educational institutions to set up laboratory for computer or IT training or English language training.
16. Aid to institute providing technical or vocational training to unskilled or semi-skilled labors for manpower export.
17. Aid to institute providing sports training or development services at national level.
18. Aid to museum (built or under construction) for preserving memory of independence war.
19. Aid to any institution at national level involved in preserving memory of the father of the nation.
20. Aid to the fund formed under Prime Minister's Education Assistance Trust Act, 2012
21. Aid to non profitable and non government voluntary social welfare organization working for operating rehabilitation center for medical treatment and awareness building on HIV, AIDS and Narcotics.
22. Aid to non profitable and non government voluntary social welfare organization working for operating rehabilitation center for recovered children and women from trafficking.
Chapter 04: Analysis of CSR activities of Commercial Banks in Bangladesh
Now a day, Bank is playing a vital role in economy. Nobody can think a single day without bank. Beside all economic purposes banks are doing several social activities. CSR is directly related to the banks like other corporations. CSR can best be described as a total approach to business. So the banks are implementing CSR to increase their brand values. For evaluating CSR activities of different banks we have chosen thirty commercial banks of Bangladesh.
Table 4.1 CSR expenditure By Commercial Banks
Name of Bank
2009
2010
2011
2012
01. AB Bank Limited
-
-
-
50,200,000
02. Al-Arafah Islami Bank
Limited
-
12,500,000
8,030,000
70,400,000
03. Bangladesh Commerce Bank Limited
-
100,000
2,870,000
1,000,000
04. Bank Asia Limited
13,820,000
6,920,000
1,000,000
40,550,000
05. BRAC Bank Limited
-
7,360,000
21,569,660
38,551,000
06. Dhaka Bank Limited
9,400,000
22,400,000
22,926,000
36,041,000
07. Dutch-Bangla Bank Limited
39,206,500
171,016,500
159,206,500
168,860,000
08. Eastern Bank Limited
9,500,000
1,000,000
6,738,669
31,317,000
09. EXIM Bank Limited
-
19,300,000
-
231,825,000
10. First Security Islami Bank
Limited
400,000
1,000,000
-
43,630,000
11. ICB Islamic Bank Limited
-
125,000
-
2,518,000
12. IFIC Bank Limited
11,988,000
10,559,000
-
11,750,000
13. Islami Bank Bangladesh
Limited
-
-
116,270,000
232,631,000
14. Jamuna Bank Limited
14,217,894
1,451,338
4,576,813
17,000,000
15. Mercantile Bank Limited
14,615,000
12,170,000
9,276,000
99,530,000
16. Mutual Trust Bank Limited
5,000,000
-
3,500,000
18,865,000
17. National Bank Limited
-
47,269,000
68,404,000
142,350,000
18. National Credit &
Commerce Bank Limited
-
11,000,000
4,380,000
17,700,000
19. One Bank Limited
-
-
8,609,500
15,920,000
20. Premier Bank Limited
8,400,000
7,507,800
11,570,000
57,300,000
21. Prime Bank Limited
-
-
-
291,420,000
22. Pubali Bank Limited
27,491,500
24,492,600
18,883,200
49,510,000
23. Shahjalal Islami Bank
Limited
19,501,000
-
10,237,000
24,033,300
24. Social Islami Bank Limited
-
-
-
24,689,080
25. Southeast Bank Limited
22,414,000
14,654,375
-
38,400,000
26. Standard Bank Limited
-
6,000,000
-
38,800,000
27. The City Bank Limited
-
-
4,980,000
11,703,000
28. Trust Bank Limited
9,520,000
1,000,000
47,750,000
48,100,000
29. United Commercial Bank Limited
-
-
-
16,059,000
30. Uttara Bank Limited
10,000,000
8,900,000
3,080,000
60,000,000
Source: Bangladesh Bank
Highlights of engagements of banks in CSR practices
CSR activities of banks depended and broadened substantially in 2012, with 46 out of 47 banks reporting direct expenditure on this count. Direct CSR expenditure of the banks in 20112 totaled (Taka 2.32 billion) four times larger than in 2011.
Year
2009
2010
2011
2012
CSR expenditure (Million Taka)
226.40
410.70
553.80
2329.80
Besides higher direct expenditure, all banks reported increased engagements in CSR practices focusing on social and financial inclusion of excluded and underserved population segments and economic sectors, as also on environmental concerns. Among the diverse initiatives were
i) Lending to SMEs, small farmers including sharecroppers, student;
ii) ‘Green Banking’ including lending for renewable energy generation (household solar / biomass plants), installing solar power units in own offices/ branches, lending for effluent treatment and manufacturing/ processing plants/ equipments that minimize harmful emissions;
iii) State owned banks opening 9.13 million new bank accounts for rural farmers with nominal deposit as low as 10 taka, for receiving direct transfers of government input subsidies and also for use saving and transaction medium;
iv) Partnering with licensed microfinance institutions (MFLs) in lending to rural farmers.
v) Introducing cost effective mobile phone based delivery modes for financial services to customers in dispersed rural locations.
CSR expenditures of banks in 2010 include donations to voluntary/civil society organizations, and counting active involvement in beneficiary selection and disbursements in such schemes as scholarships for courses of studies. Also, some banks have established separate charitable foundations for their CSR expenditures.
TABLE 4.2 Trends of sectoral pattern of direct CSR expenditure reported by banks:
Taka in million
2009
2010
2011
2012
Humanitarian &
disaster relief
127.70
58.60
125.10
460.41
Education
14.30
30.50
94.80
400.79
Health
68.60
112.10
245.50
689.07
Sports
2.70
49.80
1.20
265.23
Art & culture
0.00
0.80
0.30
328.91
Environment
-
-
-
59.78
Others
13.10
158.90
86.90
125.58
Total
226.40
410.70
553.80
2329.8
Source: Bangladesh bank
From the above table it is seen that, major share of CSR expenditure of banks are humanitarian and disaster relief, health and education. Contribution to sports, art and culture also were significantly large expenditure. CSR expenditure on environment is seen for the first time in 2010.
Figure $.1: Sectoral shares of CSR Expenditure
Source: Bangladesh bank
Chapter 05: CSR practices In Agrani Bank Limited
5.1 Focus of Agrani Bank Limited in CSR
As an integrated part of the Corporate Social Responsibility, Agrani Bank Limited is much aware in support of environmentally sustainable social development since its introduction. The Bank is committed to CSR towards the community. Our ethics are clear i.e. not to earn excessive profits. Our vision is to build up a society where human dignity and human rights receive the
highest consideration and evaluation. Our motto is also to improve the society and its culture by means of CSR. Its activities are related to the needs of our valued customers, shareholders, the employees, & communities.
Shareholders:
The bank is fully committed to the interest of our shareholders .We increase our shareholders value by optimizing financial performance at least cost.
Valued customers:
The customers are business partners and ABL sincerely strive to improve business relationship with customers for the mutual benefits. ABL is offering different financial products and services to meet their need with the higher degree of ethics. ABL feel proud to provide services to the valued customers without any hidden cost.
Environment:
Corporate social responsibility contributes generously to the development of Green Banking. Lending policies with regard to environmental management are responsive to emergency support needs of population groups affected in natural and manmade disasters and thus nourishing the environment.
Business Partners:
ABL always try to maintain a good business relationship with business friends for mutual growth and development. Relationship is based on mutual trust and respect. ABL transact with them in a fair and transparent way.
Regulators:
As a responsible corporate body, ABL conform to all of the stringent regulations issued by the Government of the People's Republic of Bangladesh and the Bangladesh Bank.
Employees:
Human resources are the key to the success. ABL consider the human resources as a tool for development. As usual, the Staff Welfare fund which is run by Bank's employees out of their regular contribution, continued to stand by its members for their well being. There is a Board of Trustees to provide financial support to the staff members as admissible under the rules on their termination or retirement from the bank services or to their nominee's or legal heirs in case of death. To this end, two trusts Agrani Bank Limited Employees provident fund Trust and Agrani Bank Limited Super Annotation Fund Trusts are in operation. For the recreational program the Bank patronizes sports and cultural events with a very spontaneous fervor Program.
Community:
As an integrated part of Corporate Social Responsibility (CSR), ABL contribute generously to the nourishment of the country's education and healthcare, art, culture and sports. We share all sorts of values & sentiments irrespective of caste, creed or color. ABL keep the door open for empowerment of women workforce to ensure a level playing field in terms of promotion, placement and delegation of power.
5.2 Sectors facilitated against CSR : (Figure in lac)
Table 5.1 facilitating sector of CSR
Figure in lac
Sl. No.
Nature of Work
Amount
No. of beneficiaries
01
Education
344.55
38
02
Health
51.81
82
03
Natural Disaster
2.00
7
04
Sports
20.10
9
05
Art & Culture
79.46
28
06
Muktijoddha Jadugor
30.00
1
07
Others
43.81
17
Total:
571.73
182
Source: Agrani bank Limited
5.2 Recent CSR activities done by ABL
1) Agrani Bank to give Taka 36 lac to BHF for youth hockey:
State-owned Agrani Bank Limited came out in a big way as they have come forward to sponsor national youth hockey competition for the next three years. Agrani Bank will provide Taka 36 lac to Bangladesh Hockey Federation (BHF) in three installments for the youth hockey meets that will begin by the end of October 2014. In this regards, a Memorandum of Understanding (MoU) between BHF and Agrani Bank Ltd. was signed on Saturday at the Bangladesh Olympic Association conference room. Bangladesh Air Force chief and BHF president Air Marshal Muhammad Enamul Bari and Agrani Bank Limited managing director and chief executive officer Syed Abdul Hamid penned the MoU for their respective organization.
After the MoU, Agrani Bank Limited managing director and chief executive officer Syed Abdul Hamid handed over a cheque of the first installment of Taka 11 lac to BHF president. The remaining amount of Taka 12 and Taka 13 lac will be provide by Agrani Bank in the next two years.
2) Agrani Bank Donates Tk 23.98 lakh to Install Tube well at CU:
Agrani Bank Limited authority donated Tk 23.98 lakh to Chittagong University (CU) to install a deep tube well at the campus. On August 10, 2012 bank authority handed over the cheque of the said amount to CU Vice-Chancellor Anwarul Azim Arif at the circle secretariat office of the bank at Agrabad. Director of Managing Committee of the bank Shahjada Mahiuddin, Pro-Vice Chancellor of CU Professor Dr. Mohammad Alauddin, Chief Engineer of CU Mohammad Alamgeer Chowdhury, Managing Director of the bank AAM Shahjahan were present, among others.
3) Agrani Bank Ltd. Handed Over a Cheque of Taka 1 Core and 3 Lac to BUET:
Prof. Dr. Khandoker Bazlul Hoque, Chairman, Agrani Bank Ltd. handed over a cheque of Taka 1 Core and 3 Lac for a Bus and an Ambulance as donation for BUET to Prof. Dr. S. M. Nazrul Islam, Vice-Chancellor, BUET at a function organized by the University on Wednesday (21 September, 20112) at the BUET Cafeteria.
4) Donation for Savar victims:
More organizations and individuals donated cheques worth over Tk 10.14 crore to the Prime Minister’s Relief and Welfare Fund on Sunday for assisting the families of those killed and injured in the tragic ‘Rana Plaza’ collapse on April 24. PM’s press secretary Abul Kalam Azad told reporters that Sheikh Hasina received cheques worth Tk 10,14,40,721 from 38 different organizations and individuals at her office. Of the amount, Agrani Bank Ltd donated the amount of Tk 2.56 crore.
In response, the prime minister expressed her gratitude to the donors saying that her government has extended all necessary support and assistance to the families of the victims following the ‘Rana Plaza’ collapse in Savar..
5) Banks contribute tk 80 Crore to PM’s relief Fund
As part of corporate social responsibility (CSR), country’s private commercial banks has donated Tk 80 crore to the Prime Minister’s Relief Fund for the proper treatment and rehabilitation of the Rana Plaza victims. On behalf of the private commercial banks, Bangladesh Association of Banks (BAB) handed over a cheque for Tk 80 to Prime Minister (PM) Sheikh Hasina. In addition, country’s public commercial banks---Sonali, Janata, Agrani and Rupali---handed over donation cheques to the PM individually.
6) Agrani Bank Limited introduces scholarship for Students
Agrani Bank Ltd has introduced a scholarship program for primary school students styled 'Bangabandhu Shikkha Britti' under its Corporate Social Responsibility (CSR) program recently. This has been decided at the 149th meeting of the bank's board of directors recently, said a press release. A committee of seven board members has been formed under the chairmanship of Shekhar Dutta for this purpose. The other directors, Nagibul Islam Dipu, Engineer Md. Abdus Sabur, Barrister Zakir Ahammad, Shahjada Mohiuddin, KMN Manjurul Hoque Lablu and Luna Shamsuddoha will act as members of the scholarship program. The committee will select five boy and five girl students who have come out successful at primary school certificate examinations at upazila level but poor and meritorious.
Chapter 6: Analysis of the Impact of CSR on CFP of Agrani Bank Limited
6.1 The CSP-CFP relationship
A review of the different theoretical proposals on the relationship between corporate social
Performance (CSP) and Corporate Financial Performance (hereafter CFP) offers arguments for all the possibilities, negative, and neutral or positive, among which the most relevant are (Joseetal,2007)
Negative: Justified by the fact that companies that behave responsibly are at a competitive disadvantage as they incur costs that they would otherwise avoid, or could pass on to other agents
Neutral: A denial of the existence of any kind of relationship, either positive or negative, between social and financial performance. The authors who hold this view argue that there are so many factors or variables that intervene between social and FP that there is no reason for the existence of any relationship between the two variables, except possibly by chance, which, together with the measurement problems that have plagued CSP research, may have masked any such relationship.
Positive: This third perspective proposes that there is a tension between the explicit costs of the company (for example, payments to bondholders) and their costs implicit to other agents (for example, product quality costs or environmental costs). So, a company that tries to reduce its implicit costs by means of socially irresponsible acts will incur greater explicit costs, the result of
a competitive disadvantage.
The lack of consensus on the impact of CSR on firm performance can be attributed to many different causes such as a lack of a clear and precise definition of CSR, a lack of a clear CSR metric, and the impact of contextual factors.
6.2 Hypothesis Test
Depending on the statistical analytical plus simple and multiple regressions, using MS Excel, the study found the following results:
H01: There is no significant relationship between the levels of bank (CSR) and the bank’s (CFP/NI).
Where the calculated P Value is larger than Scheduled t. Therefore, we reject the null hypothesis that said there is no significant relationship between the levels of bank (CSR) and the bank’s (CFP), and we accept the alternative hypothesis that said there is a significant relationship between the levels of bank (CSR) and the bank’s (CFP).. now we see the calculation of the two variables
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.348
R Square
0.121
Adjusted R Square
-0.171
Standard Error
1.03E+10
Observations
5
ANOVA
Df
SS
MS
F
Significance F
Regression
1
4.36E+19
4.36E+19
0.414113
0.565
Residual
3
3.16E+20
1.05E+20
Total
4
3.59E+20
Multiple R shows the degree of relation of these two variables. Here the value of the Multiple R is 34.83%. the r-square indicates the change in NI that can be explained by the CSR. The adjusted error indicates that the 17.16% cannot be explained by the model. The significant level is more than 5%. So we reject the null hypothetic. So there is no significant relationship between the two variables.
H02: There is no significant relationship between bank size and CFP.
If the calculated p value is larger than the significance level we cannot reject the null hypothesis that said there is no significant relationship between bank size and (CFP), and we accept the alternative hypothesis that said there is a significant relationship between bank size and (CFP). Here we show the bank size by the amount of assets of the bank. so we can comment the former relation in term of total assets and CSR of the bank. the regression of these two variables is given below
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.655
R Square
0.429
Adjusted R Square
0.239
Standard Error
826891834 5
Observations
5
ANOVA
Df
SS
MS
F
Significance F
Regression
1
1.54E+20
1.54E+20
2.257173
0.230
Residual
3
2.05E+20
6.84E+19
Total
4
3.59E+20
The multiple R of these two variables shows that about 65% relationships exist between these two variables. About 43% change in NI can be explained by the bank size. The model fails to explain about 24% change in NI. This is caused by external factors. Here the significant value is more than 5%. So we reject the null hypothesis. So we can comment that there is no significant relationship between bank’s CFP and Firm Size.
H03: There is no significant relationship between bank deposit and CFP.
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.720
R Square
0.519
Adjusted R Square
0.359
Standard Error
7.59E+09
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
1.87E+20
1.87E+20
3.2462
0.169
Residual
3
1.73E+20
5.75E+19
Total
4
3.59E+20
R Square equals 0.3596, which is a below average fit. 36%% of the variation in CFP is explained by the independent variable deposit.
Here p value is 17% which is greater than the significance level of 5%. So we cannot reject the null hypothesis.
Chapter 07: Suggestions, Conclusion and Bibliography
7.1 Suggestions
By analyzing CSR practices in banking sector following suggestions can be made-
CSR, corporate giving, philanthropy, community giving, etc. must be clearly defined and invite corporations to build more innovative CSR practice within their organizations.
The areas of CSR should be expanded.
Environmental concerns should receive greater attention by the banks.
Gender aspects should be more carefully addressed and monitored for their implementation.
More attention should be given toward consultation and communication with local communities
CSR has strategic and financial value have to be properly communicated by value- mapping the benefits of CSR. The economic impact of CSR has to be clearly defined with solid case studies.
CSR education has to be ongoing to keep aware corporate Bangladesh
CSR case studies may be developed by companies for wider dissemination. A set of case studies may be commissioned on CSR to champion the initiative of building CSR mindset among the corporate.
Corporations may retain CSR/partnership learning aide as they had nebulous idea of how CSR practices can offer value to both society and the organization.
Build CSR practices in the SME sector.
Corporations need to actively develop CSR departments so as to support CSR partnerships. Some pressure may be accorded by the government, NGOs, trade bodies, trade facilitative organizations and research bodies to bring in some fundamental changes in the way the corporations of Bangladesh run.
Legal enforceability may also push the companies to follow good-business practice from an ethical point of view, the companies that are highly profitable in Bangladesh or producing products/service that are risky like tobacco must be sanctioned to have a decent budget for CSR partnership implementations.
Myth that corporate giving is CSR has to be broken through information sharing.
Build countrywide CSR awareness and send signal to the corporate sector that CSR offers social and commercial benefit to the companies implementing CSR programs.
Contribution for environment protection and development is the least emphasized sector of CSR by the banks. Banks should make more expenditure for this sector. They can create awareness for protecting environment by organizing programs.
Profits of the banks are increasing every year but their CSR expenditure is not increasing in an equal ratio of profit. Their CSR expenditures are remaining same or in some cases it decreases. The banks should increase their expenditure for CSR.
Some websites of the banks are not updated and there is no evidence of CSR. So the banks should update their websites with recent events specially CSR.
There are some common fields of CSR that are contributed by the banks. But there are so many problems in the society. So the banks should search for new field for contribution to develop the community. For example banks can work for the street children.
All banks should consider CSR as their duty not as advertisement.
7.2 Conclusion
In past, the concept of social responsibility of business used to be considered as a phenomenon related to developed countries. The case is not the same anymore. Now it appears that corporate social responsibility (CSR) is an issue of growing interest in the business world, and that many organizations are voluntarily disclosing information regarding their CSR activities in their annual report and on their website. This study has reviewed a broad understanding of what is meant by corporate social responsibility and how and why business might undertake such behavior. This study identifies the CSR practices of four state owned commercial banks along with other banks dealing in Bangladesh and finds that the banking sector of Bangladesh is performing corporate social responsibility activities with issues like health, education, natural environment, women empowerment, disabled people, cultural development and infrastructural development of the country. From this discussion it can be said that the banking sector of Bangladesh is trying to aid in the general social problems of the country. These days, almost all the societies of the world are faced with new and complicated social and economic problems. Definitely, it is the responsibility of every government to try to solve the problems of the country, but in many developing economies, poor governments cannot deal with that in a good extent. In these cases, corporate sector can help in the solution of these kinds of problems. It is a good sign that the government is encouraging the corporate sector for performing CSR activities in a greater extent.
So, to serve the society as well as to increase the brand value the banks should perform their social responsibilities regularly and perfectly.
The banking sector is in a leading position in discharging Corporate Social Responsibility (CSR) in the country and the CSR practices by banks have become an integral part of their business in recent years. CSR ensures trade-off between economic and social goals of the efficient utilization of scarce resources. The banking sector can, in the course of their intermediation role, contribute a lot in this regard. CSR practices by banks not only improve their own standards but also catalyze the socially responsible behavior of other businesses. Banking industry itself can also be benefited from the positive effects of CSR on the society as a whole, particularly on its clients. So, the role of banks for pursuing appropriate CSR practices in the society, especially in a developing country like ours, need to be duly emphasized.
7.3 References
Agranibank.org, (2014). Agrani Bank Limited. [online] Available at: http://www.agranibank.org/ [Accessed 19 May. 2014].
Annual Report 2012. (2014). 1st ed. Agrani bank Ltd.
Bangladesh-bank.org, (2014). Bangladesh Bank Home. [online] Available at: http://www.bangladesh-bank.org/ [Accessed 19 May. 2014].
Bank CSR expenditure rises to Tk 304cr with no BB policy. (2013). New Age.
Banks play a leading role in CSR. (2014). Financial Express.
Choquette, M. and Turnbull, P. (2002). Emerging practices in CSR management. 1st ed. Ottawa: Conference Board of Canada.
CSR activities in bangladesh. (2014). Financial Express.
Evaluation of CSR in Banking sector. (2013). Financial Express. [online] Available at: http://www.thefinancialexpress-bd.com/2014/04/30/31450 [Accessed 21 May. 2014].
Keinert, C. (2008). Corporate social responsibility as an international strategy. 1st ed. Heidelberg: Physica-Verlag.
Nilsen, H. (2010). CSR in banking - the pursuit toward repairing legitimacy and reputation. 1st ed. Frederiksberg.
Wikipedia, (2014). Wiki. [online] Available at: http://en.wikipedia.org/wiki/Wiki [Accessed 19 May. 2014].
7.4 Appendix
Regression Between CSR and Net Income
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.348273
R Square
0.121294
Adjusted R Square
-0.17161
Standard Error
1.03E+10
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
4.36E+19
4.36E+19
0.414113
0.5657
Residual
3
3.16E+20
1.05E+20
Total
4
3.59E+20
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
2.24E+09
7.68E+09
0.292119
0.789232
-2.2E+10
2.67E+10
-2.2E+10
2.67E+10
X Variable 1
-118.052
183.4491
-0.64352
0.5657
-701.869
465.7646
-701.869
465.7646
Regression between Net incomes to bank size
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.655249
R Square
0.429351
Adjusted R Square
0.239135
Standard Error
8.27E+09
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
1.54E+20
1.54E+20
2.257173
0.230011
Residual
3
2.05E+20
6.84E+19
Total
4
3.59E+20
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
1.91E+10
1.43E+10
1.331906
0.275039
-2.7E+10
6.48E+10
-2.7E+10
6.48E+10
X Variable 1
-0.07472
0.049736
-1.50239
0.230011
-0.233
0.083559
-0.233
0.083559
Regression Between net income and bank deposits
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.720912
R Square
0.519714
Adjusted R Square
0.359618
Standard Error
7.59E+09
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
1.87E+20
1.87E+20
3.246276
0.16938414
Residual
3
1.73E+20
5.75E+19
Total
4
3.59E+20
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
2.26E+10
1.39E+10
1.623806
0.202879
-2.168E+10
6.68E+10
-2.2E+10
6.68E+10
X Variable 1
-0.11434
0.06346
-1.80174
0.169384
-0.3162989
0.08762
-0.3163
0.08762
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