Asian banks need to move towards top accountability
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Healthy profits at Wall Street's major banks are prompting increased regulator surveillance. This is something that irks the banks, which maintain that it will make them less competitive and reduce their ability to lend.
Despite the profits, the pace of lending has not picked up, says the International Herald Tribune (IHT). Nevertheless, regulators insist they may take further measures to ensure the safety of these big banks. No more assumptions of “too big to fail”, but instead, the big banks will be monitored for the risks they pose.
It has been five years since the financial crisis, and the regulators are keeping a sharp eye on the sector. A credible banking system is required for sustainable profits.
It is difficult to find a balance between under- and over-regulation, especially when it comes to banking giants with huge portfolios. Constant and well-planned supervision and consultation with the industry can ease resentment and build communication.
Pouncing on them in public may not be the answer, as in the United Kingdom; proposed measures are raining on them like bullets.
Of course, regulators know the turf well. It is a matter of how the actions are taken.
The six largest banks on Wall Street, which reported US$23 billion in profits for the second quarter of the year, now account for more than half the sector’s assets, says IHT.
Since the crisis, this has helped them make profits from mortgage and credit-card loans, as well as Wall Street activities like trading securities and underwriting deals. Their second-quarter profits were up 40 per cent compared with those in the period a year earlier.
Over the last 12 months, their combined profits were more than US$70 billion. Over that period, Morgan Stanley, Goldman Sachs and JPMorgan’s investment banks, all a big presence on Wall Street, paid compensation of $41 billion.
China has liberalised lending rates except for those on property. It has completely removed the lending floor, which previously was 70 per cent of the benchmark lending rate. This freedom to fix lending rates is aimed at, among other things, improving competition and spurring consumption activities.
The major banks in China may be reluctant, at this juncture, to embrace interest rate reforms, as it could lead to a margin squeeze. Nevertheless, the direction towards liberalisation is clear, and more types of rates will become competitive.
Lending has become a buzzword all over the world, as banks return to the business of basic banking amid government calls to help small companies in economic recovery. It is timely that China takes steps to improve lending.
The Singapore Business Times reports that only 10 per cent of Asia’s largest banks have an independent chairman on their boards, and only 5 per cent have a lead or senior independent director. A study covering 50 of Asia’s top banks indicates that most banks have very large boards, with the average size being 13 directors. Yet, less than 40 per cent undertake an annual board performance assessment, and only 16 per cent assess their directors individually every year.
These are just some of the findings of a report entitled “Corporate Governance (CG) of 50 Top Asian Banks”, released recently. The study, a first on the CG of the top-50 Asian banks, covers the largest public-listed banks and bank holding companies by total assets that had up-to-date disclosures on key CG practices.
It is time for these top Asian banks to scrutinise their board composition and performance. Banks in the West are moving towards top accountability as part of the measures taken to avoid another financial crisis. Asian banks should move in tandem and ensure that they are at least in line with CG practices.
