Vietnamese commercial banks and corporate governance

Corporate governance is a subject of focus for both bank managers and stakeholders, especially following the global financial crisis. A critical factor leading to firm and bank difficulties and financial distress is weakness in managing both internally and externally, making corporate governance an essential element in firm performance. This is even more important for banks since they play a central role in the economic system by facilitating capital allocation and minimizing risk for businesses and individuals, helping to ensure economic stability and sustainability of the economy. Due to the weaknesses and failures in operation of many commercial banks in the post crisis period (2008-2016), corporate governance and risk management have become important issues not only in developed countries such as the USA, UK and Japan, but also in developing countries where the financial industry is at an early stage, including Vietnam.
This paper aims to study the importance of corporate governance in both performance and risk management of banks. This exploration is developed based on theoretical frameworks and empirical studies of bank corporate governance. The paper gives an overview of the fundamental aspects of corporate governance in general and bank corporate governance in particular with two widely used frameworks. The empirical studies show previous research and findings about the relationship among bank performance, represented by share return and return on assets (ROA), risk management, shown by the capital adequacy ratio (CAR) and corporate governance as measured by board size, number of committees and ratio of independent directors to total. As the models reveal, the number of board members, the number of committees and the ratio of independent directors have a positive relationship with Vietnamese commercial bank performance. Similarly, CAR is also affected positively by a robust bank corporate governance mechanism, which leads to some recommendations made. The conclusion in general is that banks need to build up an effective and efficient system in both board of directors and committees that must oversee better performance.

This is an Accepted Manuscript of an article published by Global Academy of Training & Research (GATR) Enterprise in GATR Journal of Finance and Banking Review, the final published version is available online via: http://gatrenterprise.com/GATRJournals/JFBR/vol4.2_4.html