Group Assignment FIN657 PDF

Preview

Summary

UNIVERSITY TECHNOLOGY MARA, CAMPUS DUNGUNFACULTY BUSINESS ADMINISTRATIONISSUES AND ETHICS IN FINANCE(FIN657)GROUP ASSIGNMENT:BUSINESS ETHICS AND ITS IMPORTANCE IN BANKING INDUSTRYGROUP:BA242 5BPREPARED BY:NO. NAME STUDENT ID1 QYAIRUNIESA AMALYA BINTI ZAHIR AFFENDY 20198929162 SITI NUR AISHAH BINTI S...

Description

UNIVERSITY TECHNOLOGY MARA, CAMPUS DUNGUN FACULTY BUSINESS ADMINISTRATION ISSUES AND ETHICS IN FINANCE (FIN657)

GROUP ASSIGNMENT: BUSINESS ETHICS AND ITS IMPORTANCE IN BANKING INDUSTRY

GROUP: BA242 5B PREPARED BY: NO.

NAME

STUDENT ID

1

QYAIRUNIESA AMALYA BINTI ZAHIR AFFENDY

2019892916

2

SITI NUR AISHAH BINTI SHARUGANI

2019892892

3

MUNIRAH SYAFIQAH BINTI MUZAIMI

2019476374

4

NUR SYAZMIMI BINTI ABD GHANI

2019654192

PREPARED FOR: SIR MOHD HUSNIN BIN MAT YUSOF

0

ACKNOWLEDGEMENT

First and foremost, we would like to thank Allah, the Almighty, for showering us with His blessings throughout this research, allowing us to successfully complete our group task. This research will require significant effort, such as identifying key aspects of the chosen topic and summarising everything in our own words. They do not believe, however, that this will prevent us from finishing the project. As a result, we discussed and completed our report within the time frame established by the lecturer. Next, we'd like to thank Sir Mohd Husnin bin Mat Yusof, our lecturer in Issues and Ethics in Finance (FIN657), for giving us the opportunity to write this report and for providing us with invaluable advice throughout the course of our assignment work. We would also like our lecturer's help in completing the project on time. We are grateful to him for his unwavering support and advice throughout this process. It's because we couldn't complete this assignment without our lecturer's guidance and assistance, and we couldn't complete our research properly without it. Last but not least, we are grateful to everyone who helped us, including family, friends, and others who were indirectly involved in this assignment, as a result of which we were able to successfully finish my assignment. They provided us with numerous helpful remarks that greatly aided us in preparing this assignment. At the same time, this assignment also taught us on how to be successful person with wise and critical thinking.

1

TABLE OF CONTENT NO.

PARTICULAR

PAGE

1.

ACKNOWLEDGEMENT

1

2.

SYNOPSIS

3

3.

1.0 INTRODUCTION OF THE STUDY

4

4.

2.0 ANALYSIS

5-8

2.1 PROBLEMS OR ISSUES FACED BY MALAYSIAN BANKS 2.2 PROBLEMS OR ISSUES FACED BY INDIAN BANKS 5.

3.0 CAUSE AND EFFECT

9 - 12

3.1 CAUSE (GLOBAL PENDEMIC) 3.2 EFFECT 6.

4.0 RECOMMENDATION

13 - 14

4.1 RECOMMENDATION FOR MALAYSIA AND INDIA BANKS 7.

5.0 CONCLUSION

15

8.

REFERENCES

16 - 17

9.

APPENDICES

18 - 21

2

SYNOPSIS The research is conducted by Amith Menezes from Senior Lecturer, Srinivas Institute of Management Studies, Pandeshwar, Mangalore, Karnataka. The aim of this research is to define "the process of evaluating decisions, either before or after, with respect to the moral standards of society." Core ethical values include honesty, integrity, fairness, responsible citizenship and accountability. In short, business ethics means "choosing the good over bad, the right over wrong, the fair over unfair, and the truth over lie". One of the most basic professional requirements for banks is that they follow the law. In order to make the appropriate ethical decisions on a daily basis, they must also pay great attention to moral considerations. Regulators, banks, employees, and customers all have a stake in maintaining an ethical culture in banking. Banking ethics refers to the moral or ethical ideals that some banks have chosen to follow. There is no ethics ombudsman or universal rule of ethical conduct, but banks that show off about their ethical credentials examine potential investors and partners as well as selecting the companies they invest in based on their ethical policies. Plus, in this report, the research will be discussing the concept of Business Ethics, and its importance in banking.

3

1.0 INTRODUCTION OF THE STUDY The year 2020 has brought with the world economy's deepest recession since the coronavirus pandemic spread, mainly through the enforcement of restrictions on traffic, border closure and international travel shutdown. The unprecedented situation severely reduced global economic activity and brought a sharp contraction in the world economy. The weaker domestic activities have also led to a deterioration in the conditions of labour markets and loss of revenue, impacting consumption expenditures and affecting the banking sector. This paper was selected in accordance with such criteria as ethics and financial issues. The selected journal article, “Business Ethics and Its Importance in Banking Industry” will be discussed in this report. Business ethics is defined as "the decision assessment process before or after social moral standards." Ethical core values include honesty, integrity, equity, accountability and responsible citizenship. The word ethics comes from the Greek word 'ethos,' meaning character. Ethics is a philosophical branch that is about human nature and behaviour. The discipline is good and bad in terms of moral duty and duty. The same action or practise is regarded by the school of moral thought one subscribes to as ethical or unethical. In this report, we are going to explain about the 7 Basic Ethical Principles which are from the article and discuss about the principles that been applied by global and local banking industry which currently been under pressure due to Movement Control Order (MCO) which have been imposed. The 7 Basic Ethical Principles in Banking are Principle of Mutual Trust, Principle of Mutual Benefit, Principle of Good Intentions, Principle of Business Compromise and Business Tolerance, Principle of ethical improvement of business behaviour, Principle of Demonopolization of One's Own Position, and Principle of Conflict Between One's Own Interests.

4

2.0 ANALYSIS

2.1 PROBLEMS OR ISSUES FACED BY MALAYSIAN BANKS We will talk first of all about the issue of fraud in Malaysia. Fraud can be defined as a careful misrepresentation, often in the form of financial losses caused by concealment or deceit by companies or people (Homer, 2019). The fraud triangle theory, according to Donald Cressey, suggests that a fraud propensity in an organisation depends on three critical elements, Opportunity, Rationalisation, and Pressure (Said & Alam, 2019). These critical elements relate to organisational fraud, and every executive must understand this theory to let them know why fraud is committed by employees and how. One of the fraud issue, an ongoing political scandal in Malaysia, is the 1Malaysia Development Berhad scandal (1MDB scandal). Malaysia's formerly Prime Minister, Najib Razak, was charged with channelling the governmental strategic development company (composed of Low- Taek Jho, commonly referred to as Jho-Low), to his personal bank accounts for a total of more than RM 2.67 billion (approximately US$700 million) in 2015, from 1Malaysia Development Berhad (1MDB). There were many who called for the resignation of Najib Razak, including Mahathir Mohamad, a predecessor to Najib's leadership who then defeated Najib and re-emerged to power in the general elections in 2018. 1MDB credentials were openly questioned by Anwar Ibrahim, a political leader in opposition to Najib. He told Parliament that the company "has no business address and no appointed auditor," according to reports kept by the Companies Commission. 1MDB has nearly RM 42 billion (US$ 11.73 billion) of debt, according to its accounts publicly filed. Some of that debt was due to the 2013 government-guaranteed $3 billion debt issue under the Goldman Sachs investment bond, which was reported to be charged up to $ 300 million for the deal, although this figure was disputed by the bank. Nevertheless, in the case of Foreign Bribery and in a settlement with the U.S.'s Department of Justicia, Goldman Sachs was charged with over $2.9 billion. In order to investigate the scandal quickly, the Malaysian Conference of Rulers called for Malaysia to cause a crisis of trust. Following 2018 election, Mahathir Mohamad, a newly elected Prime Minister, reopened the 1MDB scandal investigation. The Department of Immigration in Malaysia has prevented Najib Razak from leaving the country, whereas the police have confiscated over US$270 million of handbags and jewellery, estimated at 12,000 units. Najib has been accused of criminal breach of confidence, money laundering, and power abuse, while Jho Low was accused. Jho Low and other conspirators including officials from Malaysia, Saudi Arabia and the United Arab Emirates have alleged that more than 4.5 billion dollars have been diverted from 1MDB by 5

Jho Low and the United States Department of Justice. Subsequently, Najib was found responsible for seven charges related to 1MDB dummy SRC International, and was sentenced to 12 years' imprisonment. Next, in Malaysia we are going to the second issue, the issue of data theft. The theft of data is the act of accessing company, computer and server information. This method of corporate fraud poses a major hazard to companies of all sizes and can occur both internally and externally. The term "data theft" could appear to be based on clear intent for this form of violation, but theft of data can also be an accidental act. An employee may for example, take home data or retain access after the contract has expired on an unsecured hard disc. On 20 November 2020, a senior official at a country's leading supplier company was arrested yesterday, after he was supposed to be involved in stealing customer data from the company, by the Malaysian Anti-Corruption Commission (MACC). Five days after appearing at the MACC headquarters, the 47-year-old suspect was detained. The Senior Officer in ECommerce is believed to have stolen customer data to promote another business owned by him which carries the same services, Telling Utusan Malaysia the source stated. "The MACC is currently assessing the participation of other persons in this customer information stolen operation in the company. 'Future investigations have been undertaken pursuant to Section 16 of the Malaysian Anti-Corruption Commission Act 2009,' he said. This proved that some irresponsible people in Malaysia are selling or stealing personal information from their customers to other organisations. In this matter the MACC plays an important role and has to be dealt with quickly. Personal information cannot be sold as provided in Malaysian law. This is because an organisation, through direct contact with user data that they have stolen or acquired, wants to promote their products or companies. Users will feel insecure if they continue to use their personal data. The task of the MACC is to examine those responsible for the theft of user data and arrest them.

6

2.2 PROBLEMS OR ISSUES FACED BY INDIAN BANKS First, we're going to an Indian bank to file a fraud complaint. On Friday, it was revealed that during the fiscal quarter that ended on December 31, 2020, 7 borrowing accounts totaling Rs 1012.7 crore were fraudulent. The Bank's Board of Directors also agreed to raise Rs 4,000 crore and Rs 3,000 crore through bonds from a share sale. The Bank of the Public Sector reported a 25% increase in profit in the December quarter, to Rs 514 crore, due to improved gross net income (NPA) and a slightly lower supply in this quarter. It reported a net loss of Rs 1,739 crore for the same period last year. The scam accounts include a Rs 500 crore company based in Delhi, procurement company and construction company, only a few MSME firms, a Rs 100 crore aviation firm, and the Rs 408 crore IL&FS account in the previous trimester. The bank holds 100 percent provision in relation to loans and advances classified as fraud. "These accounts have been previously reported. But in the December quarter, they were recognised as frauds," said MD Bank Padmaja Chundru. The bank of the public sector announced its net income at Rs 514.3 crore in Q3. Allahabad Bank was amalgamated into Indian Bank on 1 April 2020. "The Bank's Executive Board approved the collection of equity capital by way of a QIP or a Follow-On-Public Offer (FPO) or rights issue, to aggregate up to Rs4.000 Crore. In an AT 1 or Tier 2 increase, the bank reported on a press release that Capital aggregates Rs 3,000 by issuing Basel III Compatible AT1 or Tier 2 Bonds. The collection of these funds is subject to regulatory approvals. With respect to non-performing assets, its Gross NPAs fell by 365 bps from 12.69% on Q3FY20, at 9.04 percent of the gross advances. And net NPA fell to 2.35% compared to 4.22% on Q3FY21 and 187% compared with Q3FY20. Next issue we will discuss data theft in the Indian finance industry. This year, there was a recent case of serious violation of data security and financial online fraud, in Account Take Over posts in India. The majority of the crimes occur on major EdTech brands, OTT platforms and eCommerce and e-commerce applications, which are common or long-term passwords shared among many users. The online identity theft referred to in the Account Take Over (ATO) is the case when the cyber-criminal access a bank or the victim's ecommerce or OTT account, siphons or other cybercrimes, sometimes to the offender's loyalty or credit. Based on a study carried out by Kochi-based Technisanct Technologies Private Limited after assessing over the five-month period of January to May 2021, the situation in ATO is favourable because many Indian users are still using their 2014 brand passwords for their data breeding brand, which were evaluated by 12,000 OTT, 7 500 e-retail, e-commerce, 4,500 EdTech accounts from major Indian brands.

7

There is also considerable demand for OTT user names and passwords since locking and many of the Indian brand credentials are regularly sold on Telegram and similar data sharing platforms on the Dark web. "With the same password to make it easier to use and many digital businesses do not impose a two-factor authentication and do not regularly change their login passwords, fearing they could create a dent in the consumer experience. There are also many mistakes as a brandrelated infringement," says Nandakishore Harikumar, founder & CEO of Technisanct Technologies. Credential stuffing is an automated web injection attack in which hacker uses credentials from data violations to access other accounts of the victim. Credential cracking is a new term for brute force attack in which hackers can devise their way to an account with dictionaries or common usernames and passwords.

8

3.0 CAUSE AND EFFECT

3.1 CAUSE (GLOBAL PENDEMIC) The global repercussions of the COVID-19 epidemic are unprecedented. Governments are mandating social distancing procedures and instructing non-essential businesses to close in order to halt the spread of the outbreak. However, it is unclear how these restrictions will affect people's lives and livelihoods. Companies that rely on direct client contact, such as hotels and transportation, are losing revenue streams, while households employed in these industries are losing income. The banking sector is also impacted, but in a largely indirect manner. While banking services can be supplied remotely and without direct client contact, the sector's connection to the real sector as a source of payment, savings, credit, and risk management services extends the Covid-19 crisis' detrimental impact to banks and other financial organisations. At the same time, the banking industry has a responsibility to play in assisting businesses and people throughout this period of lower revenues and incomes, which has prompted financial regulators and governments to take significant regulatory initiatives. How does the crisis affect banks? For starters, businesses that have ceased operations lose revenue and may be unable to fulfil their debts. Similarly, households with members who have lost their jobs or have been furloughed may not be able to repay their loans due to a lack of income. This will result in a loss of revenue as well as losses (if repayment capability is permanently harmed), hurting profits and bank capital. Banks can expect significant losses as a quick recovery becomes less likely, necessitating the need for greater provisions, further eroding their profitability and capital position. Second, banks have been harmed because bonds and other traded financial instruments have lost value, causing banks to incur more losses. Open derivative holdings that have shifted in unforeseen directions as a result of the crisis may also result in losses. Third, banks are seeing an increase in credit demand, as businesses, in particular, want greater cash flow to cover their expenses even when revenues are flat or declining. Borrowers have drawn down credit lines in some situations as a result of the increased demand. Fourth, banks are facing decreased non-interest revenues as demand for their various services declines. With lesser economic activity, there are fewer payments and transactions to be made, and fewer security issues by corporation’s limit fee revenues for investment banks. 9

Losses and reduced capital buffers in banks can have serious consequences, jeopardising the banks' solvency and jeopardising the economy as a whole. Banks may sell bonds and other traded financial instruments to increase liquidity or make up for losses, causing bond and other traded financial instrument values to fall and negatively impacting other banks. Banks may restrict credit provision to the economy, harming and jeopardising the viability of businesses that rely on such buffers. We saw similar spill over effects during the 2008/09 global financial crisis. This could amplify the economic shock.

10

3.2 EFFECT I.

Liquidity/Revenue

In the wake of a pandemic, economic activity has slowed as millions of individuals adopt new social norms that require us to stay at home and practise social distance. This is to prevent the infection from spreading the Covid-19. As a result, businesses are either experiencing or anticipating major financial or working capital difficulties, including potential liquidity issues. According to BNM, deferment of all loan repayments for a period of 6 months, effective 1 April 2020, and credit card outstanding balances can be converted to a 3-year term loan with reduced interest rates. Banks may drawdown on the capital conservation buffer of 2.5%. Bank Negara Malaysia (BNM) to supply daily ringgit liquidity to banks, and banks may operate below the minimum Liquidity Coverage Ratio (LCR) of 100%. However, in order to assist Financial Institutions in coping with and navigating the impact of the loan moratorium, BNM has lowered the minimum regulatory criteria for both LCR and NSFR ratios, allowing Financial Institutions to continue lending while meeting their liquidity needs during this stressful moment. Besides that, BNM has also taken proactive efforts to increase liquidity, including a recent 100-basispoint reduction in the Statutory Reserve Requirement (SRR) ratio, as well as increased SRR flexibility offered to Principal Dealers. Moreover, during this time, sufficient liquidity in the banking system has sustained financial intermediation activities, with BNM continuing to offer daily ringgit liquidity to financial institutions via various tools under open market operations. Hence, the exact scope of BNM's loan moratorium's impact is unknown. While banks will have until September 30, 2021 to restore their liquidity buffers, it is critical that financial institutions (FIs) conduct rigorous stress testing and scenario analysis to determine their exposure to various liquidity stress situations.

II.