Edited by James R. Barth, Chen Lin and Clas Wihlborg
Chapter 35: Corporate Governance and Bank Performance in Thailand
Tientip Subhanij and Wanvimol Sawangngoenyuang* 35.1 INTRODUCTION As the Asian financial and subprime crises have shown, one of the main causes of the crises was poor corporate governance and risk management from borrowers as well as from banks. Poor governance from borrowers often leads to overborrowing and poor investment decisions, while poor governance at banks usually leads to improper credit assessment and inefficient credit allocation. Furthermore, banks with poor corporate governance could not monitor and discipline borrowers. In the wake of financial crisis and a more globalized financial sector which results in more competition, more complex financial products and risk, good governance is a key factor to strengthen the soundness and stability of the banking sector. In this respect, corporate governance in the banking industry in Thailand has changed significantly. Many new regulations and measures have been initiated and implemented by the Bank of Thailand (henceforth, BOT) to improve corporate governance (henceforth, CG) practices as well as supervision. The rest of the chapter is organized as follows: section 35.2 discusses the background of the Thai banking sector after the 1997 crisis; section 35.3 provides an overview of policies implemented by the BOT to enhance CG of banks; section 35.4 presents the impact of CG on bank performance and section 35.5 concludes. 35.2 CHANGING FINANCIAL LANDSCAPE OF THE THAI BANKING SECTOR The Thai banking sector has undergone significant transformation through the financial crisis episode in 1997 and the Financial Sector Master Plan (FSMP). The first phase of the FSMP was implemented...
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