Organizational structure
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The document outlines the role, powers, responsibilities, and structure of the board of directors in banking institutions, noting that they serve as agents for shareholders and must ensure efficient bank operations. It details the various ways directors can be appointed and the differing compositions of boards depending on bank size and regulations in countries like Bangladesh and the USA. Additionally, it highlights the importance of directors in safeguarding the interests of depositors, shareholders, and regulatory bodies, and describes the functions and types of standing committees that support the board's activities.
Organizational structure
- 1. Definitionof Directors Board of directors, as agents of the shareholders, monitors the functions of the bank whether it is performed efficiently or not and also solves all the problems. A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Every public company must have a board of directors. Some private and nonprofit companies have a board of directors as well. The representatives of the shareholders who are elected to direct the bank are called board of directors. Composition of Bank board of directors For new banks, sponsors/promoters in particular numbers become directors. But for exiting banks, several categories of directors are seen to be involved. There are different ways through which directors of an existing are included in the board: 1. Appointment by the promoters or sponsors 2. Appointment by the shareholders 3. Appointment by the existing members of the board of directors 4. Appointment by the third party 5. Appointment by the government. There is no restriction as to the number of directors included in the board of directors of a bank. The size varies from country to country and in the same country from time to time. In Bangladesh the number of board directors are 13 to 11 members respectively for 3 years its depend on bank size. But in USA maximum 25 and minimum 5. directors of the bank board of directors is two types- full time and part time.
- 3. Al-Arafah Islami Bank ltd Powers of the Directors Powers of the directors depend on the size of the bank. If the size of the bank is small, the directors will scrutinize all the important problems for smooth operation of the bank. If the size of the bank is large, the directors will take the final decision when details of the important matters are dealt with elaborately by a committee appointed by the board of directors. The article of association describes the limit of the power of the directors and so this power is considered as legal. Some special powers of the directors are stated below: To call the so far uncalled portion of the share capital from the share holders. To invest properly funds of the bank. To adopt the general rules and policies farming regarding bank management Powers/ Responsibilities of the Directors To appoint one or more directors in case of premature death, resignation or discharge of the director. To appoint the CEO of the bank. To appoint the Chairman of the board, and To inspect the accounts. Responsibilities of the bank directors: The board of directors is responsible for ultimate success and failure of a bank. Directors are elected and appointed for achieving the right service or claim of the shareholders, depositors and other stakeholders. Bank directors sometimes are required to take decisions in advance keeping bank interest and before its implementation; keeping secrecy of such cases is a moral obligation of the directors. Responsibilities of the Directors Generally directors should look after the rights & perform proper duties to the following persons: Depositors Shareholders Central bank Tax authority Government Society
- 4. Depositors: Depositors supply the major portion of bank capital. So keeping the interest of depositors and expanding quality services due to them appropriately is the responsibility of the directors. The ways by which better-quality service can be rendered to the depositors are as follows: Responsibilities of the Directors Ensuring security of deposited money Ensure getting money immediately after giving cheque for withdrawal Rendering quality and quicker services in front counter Appointing efficient and service-oriented staffs and employees Shareholders: Directors are the agents of the shareholders. It is expected that directors will keep a close eye on behalf of the shareholders on the following matters: Remain careful so that shareholders get reasonable amount of dividend Develop innovative ideas & products so that goodwill of bank is raised Giving leadership on behalf of shareholders within and outside the bank with the related parties and interest groups Responsibilities of the Directors Implementing such kind of project so that bank staffs can sell the products/services profitably Making forward looking profitable plans to overcome competition Central Bank: Central bank is the guardian and leader of the banks of a country. The expectation of central bank from the commercial bank directors among others include the following: Operate banking activities following the regulatory guidelines and above all upholding the constitution of the country. Submit periodical reports to the central bank of specific forms and designs : weekly, monthly, quarterly, semi-annually and yearly statements as and when due. Accept the punitive actions/warnings awarded for repeated negligence of instructions. Responsibilities of the Directors Tax Authority: It is legally and morally binding on the bank directors to help government raise public funds through collecting taxes and duties from the banks and from the clients of the banks. Banks have to prepare tax statements on behalf of the clients for submitting to the tax authority. Government: Banks act as an important tool for the augmenting economic activities of the country. For implementation of the long term goal or overall plan of the country, directors of the banks can actively help the government by increasing or reducing the loan supply.
- 5. Society : A bank is an artificial person by law and it is being treated as a member of the civil society. The responsibility of directors is to participate in the social activities on demand of the society without hampering its own business activities. Functions of Bank Directors Director of banks perform many functions for the bank. Directors of banks are usually engaged in discharging the following functions: Determination of the banks’ goals and objectives: the most important function of the board of directors of a bank is to set down the goal of the bank business. Formulations of bank policies: once the goal has been established, the board has to lay down such specific policies as are conducive to the attainment of the goal. Selection of the bank management: the selection of capable executives requires a careful consideration of the bank directors. Creating required committee: in addition to selecting the officers, the board of directors creates required number of standing committee and elects the members for the same. Functions of Bank Directors Determining authority and responsibility of key executives: The appointment of the top corporate executives & framing their job description is an important function of the bank directors. Supervision of the banks’ relatively bigger loans Supervision of the bank’s major investment Counseling of the key personnel Counseling of the prime customers when sought Business development Reviewing bank operations Evaluating performance of bank executives and officers in the light of their job descriptions and expected standard of the banks. Recommendations of dividends to be distributed to shareholders. Signing contracts on behalf of the bank Maintaining books of records and accounts Issuing shares and distributing the same among the shareholders. Standing committee of the Board of Directors
- 6. Directors are usually very busy with their other businesses and that’s why they can not devote much time for the bank every now and then. Since it is difficult for the directors to be involved for the regular bank management, they perform mostly through Standing Committee. Types of Standing Committees: Executive Committee: The by Laws of the company empower this executive committee popularly known as EC. The EC usually takes any decision on behalf of the board of directors. Before any meeting of the board of directors, the EC submits usually relevant cases & Issues in details and recommends' to board logical suggestions. Loan committee: this committee is given the permission to consider short-listed loan applications up to a certain limit. A loan application above five lacs could be sanctioned by the Loan Committee but need the approval of the next board of Standing committee of the Board of Directors directors’ meeting. Investment Committee: This committee usually considers the investment proposal to the banks. By investment we mean the use of bank funds through money & capital market instruments. The maturity of the investment portfolio, size of the investment is basically decided by this committee. Salary and Employee Relations Committee: In the competitive market economy the competition is really high, so recruitment of professionally rich personnel in one side and reducing the employee costs per unit of service on the other. This body usually prepares a pay scale for the employee. Examining and Audit Committee: This committee usually examines whether the bank management is following the accounting & auditing standards of the bank. This committee also responsible for the examination of the financial transaction of any particular branch. Standing committee of the Board of Directors Management Evaluation Committee: Either the bank itself or any appointed management consultancy firm can evaluate the management policy of the bank. Trust Committee: This committee usually inspects or checks the financial transactions of different investment portfolios of trusts and assesses the income source from that particular investment. Discount Committee: This body basically implements the following jobs like determining interest rate for discounting bills apart from suggesting increase or decrease of use of funds for particular sectors. Business Development Committee: This committee could be two types of nature. Firstly, one team that would innovate newer financial products and services and secondly, build awareness among the customers through innovative publicity.