Tuesday, August 01, 2006
Corporate Governance of Asian Banks
The OECD recently issued a "Policy Brief on Corporate Governance of Banks in Asia."
The report notes that directors of banks may have a heightened fiduciary duty because of banks acceptance of the public's money. An audit committee is especiallly important at a bank, and should be comprised of directors with appropriate financial expertise. Internal auditors should report directly to the audit committee on a regular basis.
The report notes the Asian countries need to consider whether rules barring related party transactions (RPTs) are sufficient to assure that transactions occur on an arm's length basis. RPTs should be reviewed and approved by independent directors. Included in these RPTs are transactions with other companies that may be part of the same corporate group as the bank. Controls should be in place to assure that abusive transactions within the conglomerate group are avoided.
Public disclosure is important for assuring that banks are properly governed and state-owned banks should play a leading role in modelling good governance. The report recommends that banking regulators, together with other financial regulators, in each Asian jurisdiction work to develop corporate governance codes for banks and consider developing a mechanism to rate the effectiveness of each bank's governance.