Relationship between CG and Bank Performance in Malaysia during Pre and Post Asian Financial Crisis

A SYNOPSIS PRESENTATIONBY GROUP III

AVASH BHATTARAIHIMALAYA BAN

KALPANA PARAJULIKUSHAL SHRESTHA

TABLE OF CONTENTS• Introduction– About Author – Research Context– Purpose of the Study– Study Methodology

• Data Analysis and Finding• Conclusion– Conclusion and Implication

PART I

What do you know about the year 1997?

Hint……………!1930…………..!2007…………..!Not Global but………………!

The countries most affected by the 1997 Asian financial crisis

About the Author

Peong Kwee Kimis the Faculty of Business and law . She has done MBA in Banking and Finance. Her areas of expertise include Finance, Banking and Corporate Governance

Devinaga Rasiah is a lecturer with the Faculty of Business & Law.Her MBA is from University of Wales, UK. Her research interests are in commercial and investment banking.

• “Corporate Governance in East Asian countries has been characterized by ineffective boards of directors, weak internal control, unreliable financial reporting ,lack of adequate disclosure ,lax enforcement to ensure compliance and poor audits. These problems are evidenced by unreported losses and understated liabilities .Regulators responsibility for monitoring and overseeing such practices failed to detect weaknesses and take timely corrective action” (p.67-68 World Bank 1998)

• Asian Development Bank (2000) found that weak corporate governance was on of the major contributors to the building up of vulnerabilities in East Asia(including Thailand, Indonesia and Malaysia)that finally led to the banking crisis (from Asian financial crisis) in 1997

Conceptual Framework

Board Ownership Structure(Internal Governance)Government connected Ownership

Corporate Governance

External Forces-Regulation(External Governance) Capital Ratio Fixed Assets and

Inventories to capital

Bank Performance

Purpose of the study• The study attempts to identify and

understand the difference between two types of banking ownership- the private domestic-owned banks and the foreign –owned banks in terms of relationship between corporate governance and bank performance in the pre and post Asian financial crisis.

Research Sample• From Secondary Sources from 1995-2005• Between 4 private banks out of 10• Between 7 foreign banks out of 13• Variables to seek in annual reports– % of shares in shareholders– Loans and advances– Total equity– Loan loss and provision– Net profit for the year– Fixed assets– Share capital

A. Private Domestically Owned Banks1.Affin Bank Berhad

2.Bumiputra commerce Bank Berhad

3.Eon Bank Berhad

4.Maybank BERHAD

B. Foreign Owned Banks1.ABN AMRO Bank(M) Berhad

2.Bangkok bonk(M) Berhad

3.Citibank(M) Berhad

4.HSBC Bank (M) Berhad

5.OCBC Berhad

6. Standard Chartered Bank (M) Berhad

7. United Overseas Bank (M) Berhad

List of Banks under study

4

6

Ownership Structure

Sample Private Domestic BankOther Private Domestic Bank

7

6

Ownership Structure

Sample Foreign Owned BanksOther Foreign Owned Bank

PART IIDATA ANALYSIS AND FINDINGS

Descriptive Statistics for Foreign Banks in Pre and Post Crisis

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-20

0

20

40

60

80

100

120

CARFAICROWNFROE

Trend line of Mean

ROE

InterpretationThe table illustrates that in both pre and post crisis CAR has positive relationship with CR,OWNG but negative relationship with FAI. Meanwhile it also has positive relationship with ROEThe CAR has significant effect on bank performance ROE at 5% level of alpha.

InterpretationThe table illustrates that in both pre and post crisis CAR has positive relationship with CR,OWNF but negative relationship with FAI. Meanwhile it also has positive relationship with ROEThe CAR has significant effect on bank performance ROE at 5% level of alpha.

PART III

CONCLUSION• Positive relationship between the CG and Bank

Performance in Malaysia• In the pre crisis the foreign owned banks had a

better good corporate governance and gained better performance than that of private domestically owned banks in Malaysia

• In post crisis the private domestically owned bank had a better implementation of corporate governance and gained better performance due to the prudential regulation of central bank.

IMPLICATION

• Helps managers to implement good corporate governance and concerns about ownership and government effects on bank performance.

• Similarly, shareholders with information have an important role to face the bank’s management to implement good corporate governance and to ensure the good corporate governance the manger should established the good control mechanism.

• To implement the good corporate governance the central banks have to play the vital role to encourage and protect the commercial banks by issuing the different policies in legal lending limits, the quality of assets, knowledge of your customers, protection against money laundering etc.

 

In Nepalese Perspective