Seng, Youradin (2022) Towards ASEAN Bank Governance Coherence: Theories of Convergence in Corporate Governance. Other Degree thesis, Victoria University.

Abstract

The ASEAN Banking Integration program aims to enable banks to operate freely and receive equal treatment as local banks operating across ASEAN. However, due to the lack of banking regulations, such as corporate governance guidelines, banking integration is limited to reciprocal bilateral agreements. This research identifies the gap in bank corporate governance rules across ASEAN based on the Basel Committee on Banking Supervision’s (BCBS) Corporate Governance Principles for Banks, and assessed the value of theories of convergence in corporate governance to achieve increased coherency. An original contribution of the study is its development of a single standard indices of bank corporate governance for ASEAN. Academically, this study contributes to knowledge by contributing original research into the corporate governance of ASEAN banks and validating convergence theories in corporate governance in the ASEAN context. Also, the study results provided policy and practical advice for ABIF workgroups, regulators at the national level, and banks in approaching a single standard of bank corporate governance. A single rulebook containing bank regulations applicable to all banks is the key to achieving ASEAN’s goal of an integrated financial and banking system across the region. This research is an exploratory project characterized by a qualitative study and case study methodology. The first section of the study is based on a methodology from previous studies “Law and Finance” (LaPorta, Silanes & Shleifer 1998) and “Corporate Governance in ASEAN Financial Corporations - Illusion or Reality” (Chuanrommanee & Swierczek 2007) which involved content analysis and indices development. The content of documents (laws, regulations, guidelines, and notifications) of each country were scrutinized and interpreted through a systematic classification process according to the content analysis approach, and certain patterns of bank governance rules across ASEAN countries were identified in respect to the developed indices. It is noted that the indices are based on the “BCBS’s Corporate Governance principles for Banks” consisting of 56 criteria that were used to evaluate six attributes of corporate governance. These attributes were derived from the stakeholder theory which is core to the organization of banking institutes. The development of the corporate governance indices was guided by an analytical framework for policy research. The assessment of the indices via scalogram analysis and univariate data indicators involved the measurement of dispersion, percentile analysis, scatterplots, the normal distribution bellshape curve, and a box-chart. These techniques allowed the description of the data from different perspectives. The second section of the study focused on the application of convergence theories in corporate governance to the country profiles (in terms of the data obtained such as aggregate foreign/domestic share ownership, loan portfolios by sector, political stability indicators, etc) and the assessment of the likelihood of bank governance convergence was based on the theories. The type of data used were secondary data. Information on bank corporate governance was drawn from legal documents and each country’s consolidated banking data. The cornerstone data were bank governance principles that were instrumentalized in the form of laws, regulations, guidelines, and notifications by the national banking supervisory authorities of each ASEAN countries and numerical data from the authority’s online database and Orbis database. In terms of the data source, data were accessed electronically via public databases through the official websites of the banking supervisory authority of each country (other sources are cited accordingly) and the Orbis online database. The study results suggested that bank governance rules are diverse across all ASEAN countries. Of the 56 assessed criteria, only two governance rules were common to all the studied countries. These were that cases that the board should approve the selection of the CEO and banks should establish a risk committee. There were also variances in terms of each country’s commitment to strengthening bank corporate governance. One of the contributing factors was the depth and stage of the development of a country’s financial sector. Another was the level of a country’s compliance with the BCBS’s governance principles for banks. For instance, Brunei, Singapore, and the Philippines were most compliant with BCBS’s principles with compliance rates of 88%, 73%, and 64% respectively. Myanmar was the least compliant country and accounted for only 20% of the overall compliance rate. Based on the study of four premises about legal systems, political conditions, cultural traits, and economics, the study suggested that there was a tendency towards convergence of the bank governance rules across ASEAN and that the adoption of a single standard was possible. Nevertheless, in order to approach a single rulebook of bank governance, several factors should be brought to the attention of the regulatory bodies and the ASEAN ABIF working group, such as differences in legal systems and political conditions, while the most important element was commitment and political will toward integration. The study also suggested that the most viable and optimal model for ASEAN is a hybrid model of governance convergence. This model requires benchmarking with the international standard and complements the features and conditions of ASEAN identities in terms of legal systems, financial sector development stages, regulator cooperation at a regional level, etc. Further characteristics of the proposed hybrid model are suggested for future research.

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