Ethics a must in banking

The banking sector should focus more on ethical activities as it relies on trust, said a noted economist.
“The banking system is based on trust. Any persistent violation of trust would have serious detrimental consequences,” said AB Mirza Md Azizul Islam, the former finance adviser to caretaker government.
He said banks should not gloat with satisfaction about fulfilling their social responsibilities by offering a few scholarships or making donations to charitable activities. “While such initiatives are welcome, these touch only the fringe,” said Islam
He asked bankers to see social responsibility from a wider perspective, taking into account the impact of the bank's activities on growth, employment and poverty alleviation.
Islam delivered the eleventh Nurul Matin Memorial Lecture on 'Ethics in Banking' on Wednesday at Ruposhi Bangla Hotel, organised by Bangladesh Institute of Bank Management (BIBM).
He said all societies demand ethics in banking to ensure 'the greatest good for the greatest number'.
The annual lecture is intended to keep ethical imperatives on the forefront of the personal ethos of bankers and their institutional goals, objectives and strategies.
In his lecture, the former finance adviser illustrated the threats from breach of trust, citing recent episodes of the unethical, greed-driven roles of bankers, precipitating institutional and market collapses, at times even triggering instability on a global scale.
He identified four pillars of ethics in banking. First, banks must comply with all laws, rules and regulations that are usually framed in any country to ensure soundness of operations. Any attempt to circumvent any legal provisions must be considered unethical.
Second, banks must ensure fair and equitable treatment of all stakeholders. For example, banks may be inclined towards offering low returns to depositors and changing high interest rates from the borrowers in order to maximise profits. Such conflict of interest must be ethically balanced.
Third, the banks must ensure full, truthful and transparent disclosure of their financial health. Toxic assets should not be treated as off-balance sheet items as it will help the stakeholder get a true picture of the organisation.
Fourth, banks must behave as socially responsible corporate citizens. Though their activities do not apparently violate any prevailing laws and regulations, these may inflict severe negative externalities upon the society.
Islam also suggested a number of do's and don'ts for banks to meet ethical standards. He said banks should ensure a fair return and safety of the depositors' money by minimising the spread between cost of funds and lending rates. He asked the banking community to develop an internal code of ethics and monitor those codes.
The noted economist also asked bankers to refrain from unhealthy competition or steal qualified employees or wean away depositors from other banks. He suggested banks avoid bubble financing activities and those activities that aggravate pollution, employ child labour and injure human health.
He said a symbiotic relationship is likely to emerge between ethics and competitive advantages. Through the pursuit of ethical practices, a bank can acquire brand reputation, which helps them expand their customer base and increase income.
The band reputation is also likely to attract ethically conscious clients. As a result, the banks will be greatly relieved of the problems of non-performing loans, said Islam.
The banks well known for their ethical conduct should be able to attract and retain bright and honest employees, he added.
At the event, Bangladesh Bank Governor Atiur Rahman, who chaired the lecture secession, said the ongoing financial inclusion in the banking sector is an action agenda driven by the ethical imperative.
He asked the banking community to pursue better heights of ethical rectitude collectively.
Toufic Ahmad Choudhury, director general of BIBM, also spoke at the event.