Bank Management

What is bank management?

• Bank management refers to the process of overseeing and controlling a bank’s operations, resources, and strategies to
ensure profitability, compliance, and stability.

It involves planning, organizing, directing, and monitoring the activities of a bank to meet financial goals while managing risks and
satisfying regulatory requirements.

Koch and MacDonald (Bank Management):

“Bank management is about managing the risks banks face while maximizing shareholder value, ensuring capital adequacy, and
delivering competitive financial services.”

Dr. A. R. Khan (Bangladeshi scholar)

In Bank Management: A Fund Emphasis:

“Bank management is the prudent and strategic handling of bank funds to ensure liquidity, solvency, and profitability through
planning, governance, and operational control.”

Functions of bank management:

1. Liquidity Management: Making sure the bank has enough cash to pay bills and give people their money when needed.
2. Asset-Liability Management: Balancing what the bank owns (like loans) and what it owes (like deposits), so it can earn
money without taking too much risk.
3. Capital Adequacy Management: Keeping enough "backup money" (capital) in case the bank faces losses, like when
loans aren’t repaid.
4. Credit Risk Management: Checking how likely it is that borrowers will repay their loans, and avoiding risky loans.
5. Profit Planning and Control: Making sure the bank earns good profits by planning smart and avoiding bad financial
decisions.
6. Funds Management: Deciding where to get money (deposits, loans) and how to use it (give loans, invest), wisely and
efficiently.
7. Strategic Planning: Making long-term plans to help the bank grow and compete in the market.
8. Performance Evaluation: Checking if the bank is doing well using numbers like profits, costs, and loan quality.
9. Loan Portfolio Management: Keeping a mix of different loans and making sure most of them are being paid back.

Why Bank Management is important?

Bank Management is important because it ensures that a bank operates safely, profitably, and in line with laws and public trust.
Leading books on bank management—by authors like Peter S. Rose, Hempel & Simonson, and Koch & MacDonald

Several key reasons For the bank management are below:

1. Protects Depositors' Money – Good management ensures banks can return customers' money when needed.
2. Supports Economic Growth – By wisely lending to businesses and individuals, banks help economies grow.
3. Controls Financial Risks – Helps avoid failures due to bad loans, fraud, or mismanagement.
4. Improves Profitability – Through smart financial planning, banks earn stable profits.
5. Maintains Financial Stability – A strong management system prevents crises and builds confidence.
6. Enhances Long-term Success – Through strategic planning and performance evaluation.
7. Balances Growth and Safety – Avoids rapid expansion that could lead to collapse.
8. Handles Complexity – Banking is complex; management brings structure and oversight.
9. Builds Investor and Customer Trust – People only keep money in banks they believe are well-managed.
10. Ensures Regulatory Compliance – Helps avoid legal penalties and reputational damage.

Responsibilities of bank manager:

The Responsibilities of bank management are below:

1. Ensuring Profitability – Plan and supervise strategies to make the bank earn steady profits.
2. Managing Risk – Identify and control risks like loan defaults, fraud, and interest rate swings.
3. Maintaining Liquidity – Ensure there’s enough cash to meet customer withdrawals and payments.
4. Overseeing Lending – Supervise loan approvals, monitor repayments, and ensure credit quality.
5. Customer Service Management – Improve service quality and maintain client relationships.
6. Regulatory Compliance – Ensure the bank follows all laws, central bank rules, and ethical practices.
7. Strategic Planning – Set long-term goals and guide the bank’s direction.
8. Human Resource Oversight – Lead teams, train staff, and ensure good employee performance.
9. Operational Efficiency – Ensure smooth day-to-day functioning across branches or departments.
10. Financial Performance Monitoring – Use financial reports to assess and improve bank health.
11. Security and Control – Prevent fraud, cyberattacks, or mismanagement.

What is Bank?

• A bank is a financial institution that accepts deposits, provides loans, and offers various financial services for earning
profit.

Crowther (1941):
"A bank is a business that holds money on behalf of customers, lends it out, and facilitates the exchange of money by
means of cheques and other instruments."

Prof. Sayers:
"Banks are institutions whose debts – usually referred to as ‘deposits’ – are commonly accepted in settlement of other
people’s debts."

Banking System in Bangladesh:

The banking system in Bangladesh is a key component of the country's financial sector, playing a crucial role in economic
development, financial inclusion, and monetary stability. It consists of various types of banks operating under the
regulation of the Bangladesh Bank, the central bank of the country.

1. Structure of the Banking System

The banking sector in Bangladesh is primarily divided into the following categories:
• Central Bank: Bangladesh Bank (established in 1972) is the regulator and supervises monetary and banking policies.
• Scheduled Banks: These are licensed under the Bank Company Act, 1991 and include:
o State-Owned Commercial Banks (SOCBs): e.g., Sonali Bank, Janata Bank.
o Private Commercial Banks (PCBs): e.g., BRAC Bank, Dutch-Bangla Bank.
o Foreign Commercial Banks (FCBs): e.g., Standard Chartered, HSBC.
o Specialized Banks: Focused on specific sectors like agriculture and industry (e.g., Bangladesh Krishi Bank,
BASIC Bank).

2. Functions of Banks

• Accepting deposits and offering savings/investment products

• Granting loans and advances to individuals and businesses
• Facilitating trade finance through LCs and guarantees
• Offering remittance and mobile banking services
• Supporting government monetary and fiscal policy

3. Regulatory Framework

• Governed by Bangladesh Bank under acts like:

o Bangladesh Bank Order, 1972
o Bank Company Act, 1991
o Money Laundering Prevention Act, 2012
• Compliance with Basel Guidelines for risk management and capital adequacy

4. Recent Reforms and Innovations

• Introduction of agent banking and mobile financial services (e.g., bKash, Nagad)
• Implementation of Digital Banking Strategy
• Improved core banking solutions and automation
• Steps to reduce non-performing loans (NPLs)

5. Challenges

• Rising non-performing loans (NPLs)

• Lack of proper corporate governance in some banks
• Cybersecurity threats
• Limited financial literacy in rural areas

6. Monetary Policy Role

Bangladesh Bank uses tools like repo/reverse repo, CRR/SLR, and open market operations to regulate liquidity and inflation.

The banking system of Bangladesh has made significant progress in financial inclusion and economic support, though it faces
challenges that need continuous reform.

Factors of Environment of Bank:

There have two types of factors of environment of Bank. These are below-

1. Internal Factors
2. External Factors

• Internal Factors:
There have also two types of internal factors, these are-
1. Relating to Organization
2. Relating to Bank Employee

Relating to Organization

✓ Location of Bank – Easy access for customers and smooth operations.

✓ Layout Designing – Smart design helps staff work better and serve faster.
✓ Defined Goals & Policies – Clear goals guide the bank’s direction.
✓ Clear Duties & Responsibility – Everyone knows what to do and who does what.
✓ Adequate Space & Logistics – Enough room and tools to work properly.
✓ Trade Union – Protects staff rights and supports fair treatment.
✓ Promotion by Efficiency – Staff move up based on performance.
✓ Deposit & Credit Efficiency – Fast and safe money handling builds trust.
✓ Efficient Management – Good leaders keep the bank running well.
✓ Financial Solvency – Bank can pay debts and stay strong.
✓ Financial Discipline – Careful spending keeps the bank stable.
✓ Service Rendered – Good service keeps customers happy.
✓ Method of Work – Simple steps make work easier and faster.
✓ Modern Technology Use – Tech tools improve speed and security.
✓ Customer Relations – Friendly service builds strong trust.
✓ Bureaucratic Complexity – Too many rules slow things down.

Relating to Bank Employee

✓ Number of Employees – Enough staff to handle all customer and office work.
✓ Efficient Employee – Skilled workers who do their job quickly and correctly.
✓ Service-Oriented Attitude – Staff focus on helping and satisfying customers.
✓ Loyalty to the Bank – Employees stay committed and support the bank’s goals.

• External Factors:

Bank management is deeply influenced by external environmental factors, which shape how banks operate, make
decisions, and serve customers. These include economic, political, socio-cultural, legal, and technological conditions
that create both challenges and opportunities.

1. Economic Factors

• Financial System Development: A strong financial system supports banking growth.

• Communication System: Efficient networks help in fast banking services.
• Market Economy: Competition and private sector activity impact banks.
• Monetary & Fiscal Policy: These control inflation, interest rates, and credit flow.
• Industrial Policy & Investment: More industries mean more loan demand.
• Healthy Competition: Encourages better service and innovation.
• Pricing Policy: Affects interest rates on loans and deposits.
• Import-Export Policy: Impacts foreign exchange and trade finance.
• Income Level & Savings: Higher income increases deposits and investments.
• Money Market Access: Easy access boosts liquidity for banks.

2. Political Factors

• Role of Government: Policies and support influence banking direction.

• Central Bank Role: Controls reserve ratio, clearing house, loan facilities.
• Supervision & Guidance: Bangladesh Bank monitors and advises.
• State Ideology: The political system affects financial openness.
• Govt Development Projects: Boost demand for banking support.
• Business Support: Government policies should be business-friendly.

3. Socio-Cultural Factors

• Social Values & Trust: Public trust is key to deposit growth.

• Social Status of Businessmen: Influences credit behavior and banking habits.
• Education Level: Educated people use modern banking services.
• Cultural Awareness: Helps banks design customer-centric services.

4. Legal Factors

• Business & Control Laws: Define banking rules and compliance.

• Export Laws: Affect trade finance services.
• Banking Laws: Govern operations, mergers, and security.
• Consumer Protection: Ensures fair treatment of customers.

5. Technological Factors

• Modern Technology Use: Digital banking, ATMs, mobile apps improve services.
• Automation: Speeds up transactions and reduces costs.

Types of Bank in Bangladesh:

In Bangladesh, the banking system is mainly classified into three important categories: Central Bank, Scheduled Banks, and Digital
Banks. Each type plays a unique role in the country’s economy and financial system.

We can divide banks into three types:

1. Central Bank 2. Scheduled Bank 3. Digital Bank

Central Bank:
The central bank of Bangladesh is called Bangladesh Bank. It was established in 1971 after the independence of the country. This
bank does not provide services to the public like regular banks. Instead, it works as the head of all other banks. Bangladesh Bank
controls money supply, issues currency notes, manages foreign currency reserves, and supervises all other banks. It also sets rules
for banking operations and helps maintain the country’s economic stability.

Scheduled Banks:
Scheduled banks are those that are listed in the Second Schedule of the Bangladesh Bank Order, 1972. These banks follow rules
and keep a certain amount of reserve money with Bangladesh Bank. Scheduled banks are divided into several types, these are
below-

1. State-Owned Commercial Banks (SOCBs):

These banks are owned and operated by the Government of Bangladesh. Their main goal is to provide banking services
to the public, especially in rural areas. They often handle government funds and projects. Examples include Sonali Bank
Limited, Janata Bank Limited, Agrani Bank Limited, and Rupali Bank Limited.

2. Specialized Banks:

These banks are also government-owned but are created for specific sectors such as agriculture or industry. They provide
loans and financial services to targeted groups like farmers or small industries. Examples include Bangladesh Krishi Bank
(for farmers) and Rajshahi Krishi Unnayan Bank.

3. Private Commercial Banks:

These are owned by private individuals or business groups. They are the most common type of banks in the country and
offer a wide range of services like savings accounts, loans, cards, and digital banking. Some popular private commercial
banks are BRAC Bank, City Bank, Eastern Bank, and Dutch-Bangla Bank.

4. Foreign Commercial Banks

These are branches of international banks that operate in Bangladesh under Bangladesh Bank's rules. They mostly serve
large companies and international businesses. Some well-known foreign banks in Bangladesh are Standard Chartered
Bank, HSBC, and Citibank N.A.

5. Islamic Banks

Islamic banks operate under the principles of Shariah law, meaning they do not deal with interest. Instead, they use
profit-sharing and other Islamic financial methods. Examples include Islami Bank Bangladesh Limited, Al-Arafah Islami
Bank, and EXIM Bank, which has converted to full Islamic banking.

Digital Banks:
Digital banks are fully online banks with no physical branches, introduced in Bangladesh in 2023. Customers can open accounts,
send money, and pay bills using mobile apps or websites. These banks aim to make banking easier, especially for people in remote
areas. Nagad Digital Bank is one of the first digital banks in the country.