Research Paper on Corporate Governance Disclosures by Banks in Singapore

Abstract

The banking sector in Singapore plays a central role in economic sustainability. The centricity of financial institutions in growth and development makes the institutions critical and subject to proper governance and scrutiny. In Singapore, the Monetary Authority of Singapore (MAS) plays essential regulatory roles by providing the guidelines and fostering robust implementation and compliance. Financial institutions in the country fall under two major categories: those listed on the Mainboard and form part of the SGX corporations and those listed under Catalyst category because they have not yet publicized their ownership through IPO. This study investigated the level of disclosures and governance requirements for these two categories as well as the general nature of the banking sector governance in the country. The secondary research found out that the level of corporate governance and disclosures in Singapore require comprehensive policy reformation and harmonization for the two listing categories to enhance compliance and sanity in the financial sector.

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Chapter 1: Introduction

Background

Cases of financial crises created an awakening in the sector across the globe to establish regulatory and control measures to curb managerial challenges and enhance risk mitigation. The Asian and European nations are good examples in line with the implication of financial crises on interest and economic resilience (Alexander, 2004). The fragility and vulnerability to economic recession risks influenced the level of policy-based frameworks enacted to bring sanity in the corporate sector in major economies. With an increase in knowledge regarding how the dynamics and triggers of economic crises occur has increased the level of awareness and reforms are tailored to address management prudence and risk mitigation. Corporate management and regulations have played a key role in ensuring the implementation of robust strategies for economic growth and resiliency as well as public protection while addressing the needs of shareholders (Cheserem et al., 2000). In fact, Cheserem et al. (2000) point out that corporate regulation, especially in the financial sector, has contributed towards the current stability witnessed in the United States and the United Kingdom. Mehran and Mollineaux (2012) also subscribed to similar postulates while examining the performance of banks in New York. Corporate governance arrangements have become central to the success of the banking sector through the regulatory bodies that support policy formation and implementation (Mehran and Mollineaux, 2012).

The scope of regulation in the banking sector has become the interest of government as well as non-governmental organizations. For example, in 2007, MENA under the OECD umbrella conducted an analysis of the Asian banks to determine the extent to corporate governance (MENA-OECD, 2007). The working group noted that improving board structures, enhancing the administrative roles and expectations, and increasing disclosure requirements for the sole purpose of control and not exposure could create competitive financial institutions (MENA-OECD, 2007). Such institutions support effective capital allocation for economic development and growth. Scholar has therefore been keen to investigate and research on corporate governance and disclosures to determine the measures and frameworks that are effective in line with the market of operation and the level of economic performance (Cheserem et al., 2000). The studies that have been carried out on the dynamic nature of the financial sector to determine how corporate governance and disclosure requirements are influencing the overriding objectives of banking safety and sanity (MENA-OECD, 2007; Mehran and Mollineaux, 2012). In the current study, a focus on Singapore's banking sector was considered to determine the level of governance and disclosure for Mainboard and Catalyst listings.

Problem Statement and Justification

The banking sector in Singapore is one of the most dynamic areas of investment in the Asian market after the financial crises in the region. The desire to create a robust financial system with risk-based structures to enhance performance has been part of the government concern. The sector compliments the other industries in the corporate domain and requires comprehensive managerial approaches and control to enhance sanity. In the recent years, the country has undertaken several reforms to foster effective governance and disclosure across the banks listed on the Mainboard and Catalyst category (SGX, 2017; Ong, Tiah, and Sook, 2018). The nature of the framework and how it influences the level of success in the sector remains unclear. Comparative analyses have been carried out to determine the deficiencies of the current strategies in line with those in countries such as the United Kingdom and the United States; however, there is limited literature regarding the interrelation between those measures restricted to Mainboard bank and those exclusive to Catalyst institutions (Teen and Kiong, 2000; Phan and Yoshikawa, 2014). Therefore, there is a need for more studies that examine the level of disclosures and corporate regulations in the banking sector by giving attention to the existing two categories of listings and the reforms being undertaken in the financial sector.

Research Questions and Objectives

The study examined the level of corporate governance in the banking sector in Singapore. The researcher focused on two major aspects: the current critical dimensions that define the existing framework and the relationship between the regulations for Mainboard and Catalyst banks. The two issues were meant to reveal the status for corporate governance for banks to set the baseline for future considerations when seeking to enhance performance and efficiency in the sector. therefore, the following two objectives and research questions defined the scope of this research.

Study Objectives

To determine the level of corporate governance and disclosure in the banking industry in Singapore

To assess the difference in the level of corporate governance and disclosure between banks listed on the Mainboard and Catalyst categories

Research Questions

What is the level of corporate governance and disclosure in the banking industry in Singapore?

What is the difference in the level of corporate governance and disclosure between banks listed on the Mainboard and Catalyst categories?

Chapter 2: Literature Review

Overview of the Banking Sector in Singapore

According to Jin (2003), the history of banks and the sector can be traced back to the economic activities of the early 1958. ABN is remembered as the first foreign financial institution to be established in the region. By the late 1980s, the banking sector in Singapore became one of the largest sectors and stable industry in the Asian region (Jie, 2017). MAS has maintained that the banking sector in Singapore remains resilient, which inspires economic transformation in the country (MAS, 2017). The level of lending, which includes domestically and globally, has contributed towards a robust industry. The existence of risk is a common phenomenon since the financial sector is vulnerable and volatile. It has been the role of MAS to ensure that the banks are operating under the outlined standards by regular monitoring and implementation of regulatory policies (MAS, 2017).

As at 2017/2018 financial year, the non-resident loans attracted a 12.2% growth rate and the trade volumes grew at an average of 23.0%. The essential liquidity ratios in the sector also indicate that the financial institutions are playing a central role in economic development. The special mention loans dropped by a margin of 3.3% with a corresponding provisional coverage of about 114% by the third quarter of 2017 (MAS, 2017). Bellens and Hwa (2016) argue that there exist multiple opportunities for the sector in line with the global growth targets and the dynamics of the emerging market. The Financial System Stability Assessment report by the IMF in 2013 found out that the banking sector in Singapore met the FSAP standards, which makes it one of the stable financial industries across the globe (IMF, 2013). In this case, there have been diverse efforts to sanitize the sector while creating robust structures to mitigate risks and enhance public protection while creating wealth for shareholders.

Evolution of Corporate Governance and Disclosures in Singapore's Banking Sector

Scholars have been attracted to examine the nature of the banking sector disclosures and governance requirements in Singapore. The diversity of findings and view as presented in their findings have contributed towards the development of knowledge and filling of gaps regarding the evolution of the regulatory frameworks in the country. The Bank for International Settlement outlined the recent expectations for financial institutions to enhance the level of corporate governance (BIS, 2015). The objective of the monetary authorities in respective countries is to ensure that these guidelines have been implemented and monitored to enhance compliance. In fact, Osebe and Chepkemoi (2016) postulated that the effectiveness of the regulatory guidelines depends on the level of implementation and regular harmonization of the frameworks based on economic changes and globalization.

According to Khan (2011), corporate governance is a comprehensive process that emanates from the separation of the managerial roles from the ownership control. This separation exists because of the interests of the shareholders and those of the manager are conflicting. The presence of this agency conflict calls for the formulation of measures to bring a mutual balance for long-run results. In Singapore, the recent changes regarding disclosures and governance requirements in the corporate sector have been centered on achieving a stable financial position across the Asian market and beyond. When Espiritu (2005) assessed the effect of corporate governance regulation in the banking sector, the scholar affirmed that practices of the director, as well as the needs of the shareholders, are conflicting but a mutual consensus is...