Corporate governance and efficiency in banking: evidence from emerging economies

ABSTRACT

This article investigates the impact of corporate governance on bank efficiency across a sample of 139 commercial banks from 17 countries of Central and Eastern Europe during the period 2005–2012. Data on governance characteristics are hand-collected from banks’ reports. The empirical findings indicate that implementing rigorous corporate governance structures is associated with higher costs for banks and a lower level of efficiency. However, during the crisis, a tight governance mechanism significantly increases banks’ cost and technical efficiencies. We also show that prudent risk management is associated with both higher cost and technical efficiency for more capitalized banks, while rigid supervisory boards are linked with greater technical efficiency for more capitalized banks.     

Getting South African banks to serve micro-entrepreneurs: An analysis of policy options

The lack of access to formal bank credit is one of the important problems faced by South African micro-entrepreneurs in the informal sector. Although the government has addressed this issue, private banks are still not interested in serving micro-enterprises. This article presents an analysis of the policies implemented by the government, as well as policies followed in other countries, to reach a conclusion with regard to the path to follow for solving this problem.     

The financial systems approach to development finance: Origin,evolution and prospects

This article focuses on the prospects of the financial systems approach to development finance to ensure sustainable access to financial services for microentrepreneurs. It discusses three prerequisites for the success of this approach: the continued application of financial liberalisation policies; the delivery of financial services on a commercially viable basis by emulating the successes of informal financial intermediaries in solving the problems normally experienced by the formal financial sector when serving microentrepreneurs; and the continued appropriate support from governments and the donor community. It is postulated that these prerequisites will be fulfilled, making the author cautiously optimistic that the financial systems approach to development finance will succeed in securing sustainable access to financial services for microentrepreneurs in the 21st century.     

Convergence of Bank Efficiency in Emerging Markets: The Experience of Central and Eastern European Countries

In this study, we investigate the effect of the European Union integration process on banks' efficiency and the convergence of cost efficiency across banking systems from Central and Eastern European countries for the period 2004-10. We observe large differences in the levels of cost efficiency among national banking systems, and we notice an increase in banking efficiency for all banking systems until 2008. However, starting with 2009, the evolution of the average scores of cost efficiency declines. The results provide evidence of β-convergence and σ-convergence in terms of cost efficiency among the banking systems, especially during the period 2009-10.     

Comovement of Exchange Rates: A Wavelet Analysis

In this article we investigate the behavior of exchange rates in Central and Eastern European countries. The results strongly indicate that interactions between exchange rates have different characteristics at different timescales. Our results show that CEE exchange rates are nearly perfectly integrated in the short and medium run, since the returns obtained in any of the CEE foreign exchange market can almost be explained by the overall performance in the other CEE markets. The discrepancies between CEE exchange rates are small, but increase within three to six months and that means in the long run the integration of foreign exchange markets is weak.     

Credit guarantee schemes as an instrument to promote access to finance for small and medium enterprises: An analysis of Khula Enterprise Finance Ltd's individual credit guarantee scheme

Small and medium enterprises (SMEs) face many constraints, such as lack of credit, which hinder them from reaching their job-creating potential. This article focuses on the constraints that increase banks' risk in lending to SMEs, and how credit guarantee schemes are used to overcome some of them. In South Africa, Khula Enterprise Finance Limited, a government initiative, operates three such guarantee schemes. This article explains the functioning of one of the schemes, namely Khula's Individual Credit Guarantee Scheme. Its performance is evaluated with reference to international best practices. Although it is generally found to operate efficiently, there are various aspects concerning the functioning of the scheme that influence negatively the willingness of banks to participate. These problems need to be addressed, as the authors are convinced that a credit guarantee scheme, with all its problems, still remains a viable way for the government to lower the normally high risk involved for banks in dealing with SMEs, and in this way to entice them to serve SMEs.     

Corruption and Banking Stability: Evidence from Emerging Economies

This article investigates the effect of corruption on banking stability using data from banks in emerging markets. The analysis first reveals that a lower level of corruption had a positive impact on bank stability and is associated with fewer credit losses and with more moderate credit growth. It then highlights the importance of bank and country characteristics in identifying the asymmetric effects of corruption on bank stability. Our evidence suggests that stability of banks that are acting in a country that has not adopted a corporate governance code or is not a member of the European Union is affected more by the corruption. Also, in countries with higher levels of corruption banks could increase their stability if they implement rigorous corporate governance practices.