Corporate Governance in the Banking Sector – Indonesia, Republic of Korea, Thailand, and Malaysia

Background of the Study

Corporate governance is essential to the success of firms in any industries. Still, the banking sector deserves special attention. The sector is mainly responsible for the allocation of financial resources to all other sectors of an economy, whose efficiency very much determines the performance of the economy. The Asian crisis was, to a large extent, attributable to the poor job of financial institutions in this function, due mainly to their poor corporate governance.

Also, by the nature of banking services, banks are inherently vulnerable to shocks and loss of public confidence. Deregulation and globalization, exposing banks to new and higher risks, call for strengthened financial safety nets and prudential regulation of financial institutions, which tend to weaken the incentives of market participants to monitor banks. All these give corporate governance of banks distinct features different from that of other firms.

Objectives of the Study

Even though some policy attention has been given to strengthening prudential regulation and the role of the boards of directors, an integrated approach to governance of banks has been lacking both in practice and in policy research work. This study aims at:

• Evaluating all the major aspects of bank governance including financial safeguards and regulation, the role of market disciplines, and banks’ internal governance mechanisms
• Comparative country studies based on the survey of individual banks in selected Asian countries – Indonesia, Korea, Malaysia and Thailand
• Providing practical lessons for better governance of banks in Asian economies including those whose banking sector is less developed or dominated by the state

Expected Output

• Four country papers by country consultants
• A synthesis paper: to be published as a monograph with chapters on
• Review of Banking Sector Restructuring and Reform Efforts
• Financial Safety Nets and Prudential Supervision of Banks
• Market Discipline in Bank Supervision and Governance
• Evaluation of Internal Corporate Governance Mechanisms (questionnaire survey): effectiveness of board of directors, compensation of bank executives, and risk management practices
• Policy Priorities
• Research policy brief

Time Schedule

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