YANGON UNIVERSITY OF ECONOMICS

DEPARTMENT OF COMMERCE
MASTER OF BANKING AND FINANCE PROGRAMME

EFFECT OF CORPORATE GOVERNANCE ON

FINANCIAL PERFORMANCE OF AYEYARWADDY
FARMERS DEVELOPMENT BANK (ABANK)

AYE NYEIN THET

(EMBF 6 th BATCH)

DECEMBER, 2019
 ABSTRACT
This study examines the effect of corporate governance practices on financial
performance of Ayeyarwaddy Farmers Development Bank Public Co.,Ltd (ABank)
and makes analysis on the effect of corporate governance practices on the financial
performance of ABank. Descriptive and quantitative method are used in this study, 36
respondents (69%) out of total (52) staff who are working at top management level at
ABank are selected the get the primary data. In corporate governance practices, the
study found that leverage of ABank has significant effect on financial performance.
Therefore, the member of BoD should be more represented with large creditors. The
board size, board composition, CEO duality and leverage are included as independent
variables and dependent variable is financial performance. The study found that the
board regularly meet to review financial performance and operations during the year,
non-executives directors face more challenge and discipline than the CEO and
management, debts affect the performance of a firm.
 TABLE OF CONTENTS
page

ACKNOWLEDGEMENTS i
ABSTRACT ii
TABLE OF CONTENTS iii
LIST OF TABLES v
CHAPTER I INTRODUCTION
1.1 Rationale of the Study 1
1.2 Objectives of the Study 2
1.3 Scope and Method of the Study 2
1.4 Organization of the Study 3
CHAPTER II THEORETICAL BACKGROUND
2.1 Definition of Corporate Governance 4
2.2 The Core Principles of Good Corporate Governance 4
2.3 The principles of good corporate governance 6
2.4 Previous Study 9
2.5 Conceptual Framework of the study 9
CHAPTER III OVERVIEW OF CORPORATE GOVERNANCE
STRUCTURE IN AYEYARWADDY FARMERS
DEVELOPMENT BANK
3.1 Profile of Ayeyarwaddy Farmers Development 10
Bank
3.2 Corporate Governance Committee in Abank 11
3.3 Organization Structure of Abank 14
3.4 Corporate Governance Committee Structure 15
in Abank
CHAPTER IV ANALYSIS ON EFFECT OF CORPORATE GOVERNANCE
PRACTICES ON FINANCIAL PERFORMANCE OF
AYEYARWADDY FARMERS DEVELOPMENT BANK
4.1 Survey design 18
4.2 Demographic Profile of Respondents 19
4.3 Analysis on Corporate Governance Practices 21
 4.4 Effect of Corporate Governance on Financial Performance of
ABank 31
CHAPTER V CONCLUSION
5.1 Findings and Discussion 33
5.2 Suggestions 33
5.2 Need to Further Study 34
 List of Abbreviation

ABank - Ayeyarwaddy Farmers Development Bank

AGM - Annual General Meeting

BOD - Board of Directors

CEO - Chief Executive Officer

ALCO – Asset-Liability Committee

AM&FC - Accounting Management and Financial Control

COO - Chief Operating Officer

IFRS - International Financial Reporting Standards

ROA - Return on Assets

ROE - Return on Equity

SPSS - Statistical Package for Social Sciences

BOS - Board Size

BODCOMP – Board Composition

CEODUAL – CEO Duality

OECD - Organization for Economic Co-operation and Development

ACMF – ASEAN Capital Markets Forum

 EFFECT OF CORPORATE GOVERNANCE ON FINANCIAL
PERFORMANCE OF AYEYARWADDY FARMERS
DEVELOPMENT BANK (ABANK)

A thesis submitted as a partial fulfillment towards the requirements for

the degree of Executive Master of Banking and Finance (EMBF)

Supervised By Submitted By

Dr. Aye Thu Htun Aye Nyein Thet

Professor Roll No. 9
Department of Commerce MBF 6th Batch
Yangon University of Economics 2018 - 2019

DECEMBER, 2019
 ACKNOWLEDGEMENT

Firstly, I would like to express my deepest gratitude to Prof. Dr. Tin Win,
Rector of Yangon University of Economics, for allowing me to undertake this study
as a partial fulfillment towards the Master Degree of Banking and Finance. Secondly,
I am deeply beholden to Prof. Dr. Ni Lar Myint Htoo, Pro-Rector of Yangon
University of Economics for leading me to successfully accomplish my study in many
ways.
My deepest thanks to Prof. Dr. Soe Thu, Head of Department, Department of
Commerce for her extensive and constructive suggestions, her supporting excellence
lecturers and comments to complete this thesis.

Furthermore, my heartfelt appreciation to my supervisor, Dr. Aye Thu Htun,

Professor, Department of Commerce, Yangon University of Economics for her
precious and valuable advice, guidance and suggestion throughout the preparation and
writing of the thesis. And then, I would like to show my special gratitude and thank to
the ABank which provide financial performance data. I also very thankful to Liberian
of Yangon University of Economic for giving reference to my thesis. Finally, I would
like to thank a lot my family, colleagues, friends for their supporting, understanding
and blessing in my process of completing this research study. In addition, I also
grateful to entire members that give full collaboration and involvement to complete
the research project.
 CHAPTER I
INTRODUCTION
Corporate governance is the system of practices, rules, and processes by which
a firm is directed and controlled. Corporate governance essentially comprises
balancing the interests of a company's many stakeholders, such as senior management
executives, shareholders, customers, suppliers, financiers, the government, and the
community. Corporate governance is the system by which companies are directed and
controlled. The Board of directors are responsible for the corporate governance of
their companies. In corporate governance, the shareholders’s role is to appoint the
directors and the auditors and to satisfy themselves that proper governance structure is
in place.
Accoring The Cadbury Report which was released in the UK in 1991 outlined
that "Corporate governance is the system by which businesses are directed and
controlled." Good corporate governance is a key factor in depend the integrity and
efficiency of a company. A company’s potential was weaken by poor corporate Comment [U1]: https://www.pearse
-trust.ie/blog/bid/108866/the-core-
governance, and it is lead to financial difficulties and in some cases can cause long- principles-of-good-corporate-
governance
term damage to a company’s reputation.
A company which operates the core principles of good corporate governance;
fairness, accountability, responsibility and transparency, will usually exceed other
companies and will be able to attract investors, whose support can help to finance
further growth.
In Arabian Journal of Business and Management Review, Muhammad Ali, 2016
stated that “the relationship between the corporate board and firm’s financial
performance and found out that setting up corporate board rules leads to the better Comment [U2]: https://www.omics
online.org/open-access/impact-of-
performance of the company. A study was conducted with the same objective to corporate-governance-on-firms-
financial-performance-acomparative-
create a variable to measure corporate governance and found that the board study-of-developed-and-non-
developed-mark
mechanism will impact on the performance.

1.1 Rationale of the Study

Professor PHD Eugeniu TURLEA,2010, Corporate Governance in the banking
industry stated that “Banks play a central role within the economy. They attract
citizens’ savings in the form of deposits, offer means of payment for goods and
services and finance the development of businesses. Banks are subject of stricter
regulations in comparison with other entities, because they are responsible for Comment [U3]: Mocanu_Corporate
governanceinthebankingindustry.pdf
protecting the rights of the depositors, ensuring the stability of the payment system
and reducing systemic risk. Moreover, the activity in the banking industry is
characterized by the complexity of the operations, which increases information
asymmetry and diminishes the stakeholders’ capacity to monitor the decisions of bank
managers. These aspects lead to the fact that corporate governance of banking
institutions has certain characteristic features.”
The lack of the corporate governance may lead to the financial crisis in
Myanmar. So need to assessment is important how does the following the corporate
governance system and practices. Now-a-days corporate governance committees are Comment [U4]: https://studentthes
es.cbs.dk/bitstream/handle/10417/39
well organized in strong public organization and that are connection among bank 43/bjoern_kaellen_og_tobias_nordblo
m.pdf?sequence=1 idea copy
managements, board of directors, independent directors, experts, consultants and
professional peoples. The major committee of Local bank are Asset-Liability
Committee (ALCO), Risk Management Committee, Credit Committee, Remuneration
& Corp. Governance Committee, Audit Committee.The number of the committees
Meeting and follow up activities are imported in Annual report of every public bank
and these are images of those bank.

1.2 Objectives of the Study

The objectives of this study are:
1. To identify the corporate governance of ABank (Ayeyarwaddy Farmers
Development Bank and
2. To analyze the effect of the corporate governance practices on financial
performance of ABank.

1.3 Scope and Method of the Study

This study selected one of the Semi Government Banks which is
Ayeyarwaddy Farmers Development Bank Public Co.,Ltd (ABank). The study
targeted to analyze the effects of corporate governance on financial performance of
Ayeyarwaddy Farmers Development Bank (ABank). In order to conduct the analysis,
the descriptive method and quantitative method are used with primary data from
interviews of responsible persons including board of directors, top management and
middle management. Both primary and secondary data were analyzed to find out any
outcome(s) which might be revealed to the objectives of the study. Secondary data is
collected from published annual reports and websites of the related bank in this
industry. Primary data is collected by using interview with survey questionnaires.

1.4 Organization of the Study

This study is organized with five chapters. Chapter I is introduction of the
thesis which consists rationale of study, objectives of study, scope and method of the
study. In chapter II, the theoretical framework of the study includes background,
fundamental and principles of corporate governance in banks. Chapter III deals with
the overview of corporate governance structure in Ayeyarwaddy Farmers
Development Bank (ABank). Chapter IV includes the effect of corporate governance
on financial performance of ABank. Final Chapter, Chapter V presents the conclusion
pertaining findings, suggestions and recommendation needs for further study as the
further researches.
 CHAPTER 2
THEORETICAL BACKGROUND
This chapter presents the theoretical backgrounds of corporate governance
which included the definition of corporate governance, core principles of good
corporate governance, role of shareholders, role of stakeholders, transparency and
disclosure and responsibilities of board.

2.1 Definition of Corporate Governance

Regarding the Cadbury Report which was released in the UK in 1991 outlined
that "Corporate governance is the system by which businesses are directed and
controlled." Good corporate governance is a key factor in underpinning the integrity
and efficiency of a company. Poor corporate governance can weaken a company’s
potential, can lead to financial difficulties and in some cases can cause long-term
damage to a company’s reputation.

2.2 The Core Principles of Good Corporate Governance

In this the Cadbury Report, stated that the core principle of good corporate
governance are fairness, accountability, responsibility, transparency.

(a) Fairness
Fairness refers to equal treatment, for example, all shareholders should receive Comment [U5]: https://www.pearse
-trust.ie/blog/bid/108866/the-core-
equal consideration for whatever shareholdings they hold. However, some companies principles-of-good-corporate-
governance
prefer to have a shareholder agreement, which can include more extensive and
1.Pearse Trust, 2014, The Core
effective minority protection. In addition to shareholders, there should also be fairness Principles Of Good Corporate
Governance
in the treatment of all stakeholders including employees, communities and public
officials. The fairer the entity appears to stakeholders, the more likely it is that it can
survive the pressure of interested parties.

(b) Accountability
Corporate accountability refers to the obligation and responsibility to give an
explanation or reason for the company’s actions and conduct. The board should
present a balanced and understandable assessment of the company’s position and
prospects. The board is responsible for determining the nature and extent of the
significant risks it is willing to take. The board should maintain sound risk
management and internal control systems. The board should establish formal and
transparent arrangements for corporate reporting and risk management and for
maintaining an appropriate relationship with the company’s auditor, and the board
should communicate with stakeholders at regular intervals, a fair, balanced and
understandable assessment of how the company is achieving its business purpose.

(c) Responsibility
The Board of Directors are given authority to act on behalf of the company.
They should therefore accept full responsibility for the powers that it is given and the
authority that it exercises. The Board of Directors are responsible for overseeing the
management of the business, affairs of the company, appointing the chief executive
and monitoring the performance of the company. In doing so, it is required to act in
the best interests of the company.
Accountability goes hand in hand with responsibility. The Board of Directors
should be made accountable to the shareholders for the way in which the company has
carried out its responsibilities.

(d)Transparency
A principle of good governance is that stakeholders should be informed about
the company’s activities, what it plans to do in the future and any risks involved in its
business strategies.
Transparency means openness, a willingness by the company to provide clear
information to shareholders and other stakeholders. For example, transparency refers
to the openness and willingness to disclose financial performance figures which are
truthful and accurate.
Disclosure of material matters concerning the organization’s performance and
activities should be timely and accurate to ensure that all investors have access to
clear, factual information which accurately reflects the financial, social and
environmental position of the organization. Organizations should clarify and make
publicly known the roles and responsibilities of the board and management to provide
shareholders with a level of accountability.
Transparency ensures that stakeholders can have confidence in the decision-
making and management processes of a company.
2.3 The principles of good corporate governance
Lakshna Rathod, 2019, wrote in What Are the Principles of Good Corporate
Governance?, “Corporate governance involves a set of relationships between a
company’s management, its board, its shareholders and other stakeholders.
Corporate governance also provides the structure through which the objectives of
the company are set, and the means of attaining those objectives and
monitoring performance are determined.” The OECD principles also take into account
the importance of good corporate governance to the economy as a whole:
“The Principles are developed with an understanding that corporate
governance policies have an important role to play in achieving broader economic
objectives with respect to investor confidence, capital formation and allocation. The
quality of corporate governance affects the cost for corporations to access capital for Comment [U6]: https://diligent.com
/en-gb/blog/principles-good-
growth and the confidence with which those that provide capital – directly or corporate-governance/

indirectly – can participate and share in their value-creation on fair and equitable 2.Lakshna Rathod, 2019, What Are
the Principles of Good Corporate
terms. Together, the body of corporate governance rules and practices, therefore, Governance?

provides a framework that helps to bridge the gap between household savings and
investment in the real economy. As a consequence, good corporate governance will
reassure shareholders and other stakeholders that their rights are protected and make it
possible for corporations to decrease the cost of capital and to facilitate their access to
the capital market.”
The basic principles of corporate governance involve how the board should
develop, take action and be held accountable. The first principle of the Code states
that: Every organisation should be headed by an effective board. The board’s
effectiveness is widely regarded as a prerequisite for sustained corporate success.
“The quality and effectiveness of directors determine the quality and effectiveness of
the board. Formal processes for appointment, induction and development should be
adopted.”
Leadership is the first aspect addressed by the Principles of good corporate
governance, the Institute points out:
 The role of the board. Every company should be headed by an effective
board which is collectively responsible for the long-term success of the
company.
  Division of responsibilities. There should be a clear division of
responsibilities at the head of the company between the running of the board
and the executive responsibility for the running of the company’s business. No
one individual should have unfettered powers of decision.
 The chairman. The chairman is responsible for the leadership of the board
and ensuring its effectiveness in all aspects of its role.
 Non-executive directors. As part of their role as members of a unitary board,
non-executive directors should constructively challenge and help develop
proposals on strategy.
With the components of leadership determined, the Principles consider the board’s
composition and operations:
 The composition of the board. The board and its committees should have
the appropriate balance of skills, experience, independence and knowledge of
the company to enable them to discharge their respective duties and
responsibilities effectively.
 Appointments to the board. There should be a formal, rigorous and
transparent procedure for the appointment of new directors to the board.
 Commitment. All directors should be able to allocate sufficient time to the
company to discharge their responsibilities effectively.
 Development. All directors should receive induction on joining the board and
should regularly update and refresh their skills and knowledge.
 Information and support. The board should be supplied in a timely manner
with information in a form and of a quality appropriate to enable it to
discharge its duties.
 Evaluation. The board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees and individual
directors.
 Re-election. All directors should be submitted for re-election at regular
intervals, subject to continued satisfactory performance.
The evaluation of the board is not the same as its accountability, but rather a hard look
at its performance, and that of individual members.
Transparency is a key principle of good corporate governance, and so accounting and
reporting are a critical part of it:
 Financial and business reporting. The board should present a fair, balanced
and understandable assessment of the company’s position and prospects.
 Risk management and internal control. The board is responsible for
determining the nature and extent of the principal risks it is willing to take in
achieving its strategic objectives. The board should maintain sound risk
management and internal control systems.
 Audit committee and auditors. The board should establish formal and
transparent arrangements for considering how they should apply the corporate
reporting and risk management and internal control principles and for
maintaining an appropriate relationship with the company’s auditors.

2.4 Previous Study

David Wanyonyi Wanyama, 2013 studied Effects of Corporate Governance on
Financial Performance of Listed Insurance companies in Kennya. In this study,
dependent variables, financial performance that includes Return on Assets (ROA) and
return on Equity (ROE) and independent variables consist of board size, board
composition, leverage and duality of CEO. The study found that the board
composition, CEO Duality are strongly effect on financial performance of the
insurance companies in Kennya.

Figure (2.1) Conceptual Framework of the previous study

Board Size

Board Composition Return on Assets (ROA)

and return on Equity
(ROE) (proxy for firm
CEO Duality
financial performance) for
the period 2007-2011
Leverage

Independent Variables Dependent Variable

Sources: David Wanyonyi Wanyama, (2013)

 Kyereboah – Coleman, Biekpe, 2006; Alsaeed, 2006) examined the
relationship between Corporate Governance practices and financial performance of
Companies in Japan. In their attempt to justify taking leverage as a control variable,
these studies have revealed that the debt has an effect on the financial performance of
a Company.

2.5 Conceptual Framework of the study

Figure (2.2) is the relationship between board size, board composition, CEO
Duality, Leverage and financial performance of ABank and how to effect of the
Corporate Governance.

Figure (2.2) Conceptual Framework of the study

Independent Variables Dependent Variable

Board Size
Financial Performance
Board Composition  Return on Assets
(ROA)

CEO Duality  Return on Equity

(ROE)

Leverage

Sources: Adopted from David Wanyonyi Wanyama, (2013)

The main purpose of the study is examining the corporate governance

practices effect on financial performance dependent variables and independent
variable. Independent variables include corporate governance practices on the board
size, board composition, duality of CEO and leverage. On the other side, financial
performance is dependent variable in this study. Based on above Conceptual
Framework, Figure (2.2), this study attempts to analyze the effect of Corporate
Governance on Financial Performance in Chapter (4).
 CHAPTER III
PROFILE AND CORPORATE GOVERNANCE STRUCTURE IN
AYEYARWADDY FARMERS DEVELOPMENT BANK

Chapter III, consists of Ayeyarwaddy Farmers Development Bank Profile,

vision, mission, branches, corporate governance structure, duties and responsibilities,
committees, composition of board of directors and corporate governance practices of
ABank.

3.1 Profile of Ayeyarwaddy Farmers Development Bank

The Ayeyarwaddy Farmers Development Bank (ABank) is a commercial bank
established by (3/2014) Instruction of Central Bank of Myanmar. It’s under Financial
Institutions Law of Myanmar. Mother company is Ayeyar Hinthar Holdings Co.,Ltd
and background businesses are agrobusiness such as rice trading and export, eatable
oil import, construction and health care services.The bank under the permission
granted by the Central Bank of Myanmar, the Ayeyarwaddy Farmers Development
Bank opened its Head Office and Pathein Branch on 27 November 2015 with the
Paid-up-Capital of Kyat 15 billion. The bank has now (17) branches in around the
country. The Ayeyarwaddy Farmers Development Bank Paid-up-Capital was
increased to Kyat 40 billion at the end of September 2019.
The Ayeyarwaddy Farmers Development Bank started with the intentions of
banking services to the developing banking industry in Myanmar. The bank try to
provide top quality banking services to local people and currently providing the
following banking services,
- Deposits ( Savings, Current and Fixed Deposit Accounts )
- Remittance (Foreign and Local Banks )
- Commercial Loans ( Loans and Overdraft )
- Hire Purchase
- Housing Mortgage Loans
- Performance Bank Guarantee and
- International Trade and Finance Services
 3.1.1 Vision and Mission
The vision and mission of Ayeyarwaddy Farmers Development Bank
are as follows;
Vision
To become an innovative and dynamic bank in Myanmar with strong
commitments to cultivate positive and sustainable outcomes for all
stakeholders.
Mission
1. To deliver authentic, accessible, adjustable, advanced and accommodating
products and services.
2. To employ asset-light, cost-efficient and digital-driven approach.
3. To leverage our network of local and international partners to deliver
positive impacts.
4. To strengthen national financial inclusion efforts with providing accessible
and equal financial opportunity for all underserved populations through
innovative channels.

3.1.2 Branches and current employee of ABank

Ayeyarwaddy Farmers Development Bank firstly opened and operated its
banking business at No. 33, Mahabandoola Road, Pathein Township, Ayeyarwaddy
Division. It’s extension (2) branches in 2016. In 2017, ABank opened (3) branches,
and another (4) branches were opened in 2018. In the end of 2019, ABank was
opened (7) branches and it has totally (17) branches including Myawaddy and Muse
branches such as boarder trade area. At the end of December 2019, total employees
became (554) persons. Therefore ABank need to build Good Corporate Governance
practices for check and balance in organization.

3.3 Organization Structure of ABank

Ayeyarwaddy Farmer Development Bank has a proper organization structure
which is shown as below. The Board of Directors sits on the top of the organization
chart which directly goes down to Chief Executive Officer. The Chief Executive
Officer is supported by Chief Operating Officer in second tier. The Bank
Management Board includes eight members.
The Bank has one Chairman, one Vice Chairman, one Chief Executive
Officer, one Chief Operating Officer, one Chief Information Officer, two Executive
Directors, five General Managers and sixteen Heads of Departments to its respective
department. The number of Bank’s Employee reached total (554) persons at the end
of December 2019. The Bank’s Management and Organization Structure are shown as
in Figure (3.1).
 Figure (3.1) Ayeyarwaddy Farmers Development Bank Organization Chart

Board of
Directors

Internal Independent
Advisor
Audit Director

Corporate Audit Credit Risk ALCO Remuneration

Governance Committee Committee Management Group
Committee Committee

Chief
Executive
Officer

Chief
Operating
Officer

Chief Executive Executive

Information Director 1 Director 2
Officer

1.Legal & 1.Information 1. Retail 1. Corporate 1.Trade &

Compliance Security & Banking Banking Remittances
2.Risk Technology
2. Human 2. SME 2. Risk
Management 2. Digital Resource Banking Management
Banking
3 Customer 3. Financial 3. Credit
Services & Institutions Control
Experience
4. Treasury 4. AM & FC
4. General
5. Research &
Admin
Development

*AM & FC – Accounting Management & Financial Control

Source: Ayeyarwaddy Farmers Development Bank, 2019
3.4 Corporate Governance Structure in ABank
Board of directors are selected in two way in ABank, the first group come
from shareholder, the second one are selected by expertise in professional field. This
is two tier supervisory board system. Moreover Independent Director must be
composed at least two person in BOD. The board of directors selected Chief
Executive Director, Chief Operating Officer, Chief Information Officer, Executives
Directors and Head of Department in their monthly BoD Meeting.

3.4.1 Duties and Responsibilities of BOD in ABank

Board of directors are comprised in Leading Committee in ABank and they
need to sit monthly BoD Meeting. If they absent to attend BoD meeting over three
time, they will leave Board member as per Financial Institution Law (2016). In
Annual General Meeting (AGM), all of the board must leave and reassigned as per
shareholder voting. Before (1) months prior to held AGM meeting, they need to
summit CV to CBM as per CBM Directive 9/2019 for approval under the Directive on
Fit and Proper Criteria. The term of a director not exceed than (3) years and not more
than 3 consecutive times.

3.4.2 Composition of Board of Directors in ABank

The Board of Directors consist of (10) members in ABank and include: (1)
Chairman, (1) Vice Chairman, (2) Independent Directors, (3) governance
representative directors , (1) Managing Director and (2) Directors. Besides there are
two consultants, who are legal expertise and banking expertise. It’s match the
Financial Institution Law (2016) of CBM and strong corporate governance.

3.4.3 Corporate Governance Committee in ABank

There are (6) corporate governance committees in ABank. They are (1)
Corporate Governance Committee, (2)Audit Committee, (3)Credit Committee, (4)
Risk Management Committee (5) Asset and Liability Management Committee
(ALCO) and (6) Remuneration Committee.
(1) Corporate Governance Committee
The main duties of Corporate Governance Committee are review and
recommend to the Board with policies, codes, rules and guidelines to ensure the
highest standards, recommend the appropriate size and composition of the Board and
Board Committees, recommend the criteria and methods for the periodic evaluation of
the performance of the Board and Committees, report the results to the Board in
ABank.
(2) Audit Committee
The main duties of Audit Committee in ABank are review the Bank’s financial
statements to ensure accuracy and adequacy, review and ensure that the Bank has
suitable and efficient internal control system and internal audit that internal audit
function is independence, ensure compliance with the laws, regulations and other
relevant regulators including compliance report prepared by the Bank’s Compliance
unit, select, nominate and recommend remuneration of the Bank’s external auditor,
approve audit-related and other services engagements with the Bank’s external
auditor, review connected transaction or transaction that may lead to conflict of
interest and disclosed in compliance with the law, review the appropriateness of
corrective measures and actions taken by management in response to the reports or
instructions from related regulators.

(3) Credit Committee

The main duties of Risk Management Committee in ABank are to
approve credits, credit restructuring, NPL Write-off , NPA acquisition , NPL sales &
NPL write-off, These responsibilities are to approve which exceed the management’s
approval authority and are NOT related parties or customer group that limits NOT
exceeding the Single Lending Limit (SLL).The another duties is to review specific
credit proposals for related parties or in which group limits exceed the SLL prior to
submission to the Board for approval, to review the credit decisions of the most senior
executive credit committees, to approve credit and related risks for transactional
investments or underwriting commitments which exceed the management’s approval
authority.
(4) Risk Management Committee
The main duties of Risk Management Committee are propose to the Board for
overall risk management in ABank, including major risks such as credit risks, market
risks, liquidity risks, operational risks, strategic and reputational risks, etc. The
committee need to advise the Board on its risk appetite, tolerance and strategy for the
Bank and its business units, to recommend the risk and concentration levels for
approval by the Board and alignment with the Board’s risk appetite, to approval
significant policies and framework that govern the management of risks, including
risk governance matters, and which have been delegated to Risk Management
Committee by the Board.
The Risk Management Committee need to formulate strategies, that are
consistent with the risk management policy and which can assess, monitor and ensure
that risks are at appropriate levels, to approve the supplemental risk limits as defined
in the relevant policies and frameworks, to review the adequacy of the Bank’s risk
management policy and systems and the effectiveness of policy and systems
implementation in terms of identifying, measuring, aggregating, controlling and
reporting these risks, to review and monitor all risks and risk management practices,
including internal control and compliance processes and systems.
The appointment, review of committee structure and composition, and roles
and duties of the management – level risk management committees, to report the risk
management performance and all risk management matters and measures to BOD and
Audit Committee for any improvements required, to advise on the development and
maintenance of a supportive culture, in relation to the management of risk,
appropriately embedded through procedures, training and leadership actions, to advise
on the alignment of compensation structures in relation to the management of risk.
Scope and Responsibility of Risk Management Committee in ABank
1. To report the risk management performance and all risk management matters
and measures to the Board and to the Audit Committee for any improvements
needed to ensure the effectiveness of the policy implementation.
2. To advise on the development and maintenance of a supportive culture, in
relation to the management of risk, appropriately embedded through
procedures, training and leadership actions so that all employees are alert to
the wider impact of their actions on the Bank and its business units.
 3. To advise on the alignment of compensation structures in relation to the
management of risk, within the Board’s risk appetite.

(5) Asset and Liability Management Committee (ALCO)

The main duties of Asset and Liability Management Committee are assess the
probability of various liquidity shocks and interest-rate scenarios, position the bank to
handle the most likely of these scenarios at minimum cost (impact on earnings and
capital) while still achieving a reasonable level of profitability, allocate the bank’s
remaining assets and liabilities to meet risk and profitability objectives, review the
accuracy and reliability of the Bank’s interest rate and review performance and
profitability of each product.

(6)Remuneration Committee
The main duties of Remuneration Committee are review the overall
remuneration structures policies and practices of the Group, including those on
benefits, performance evaluation, incentive awards and severance payments to ensure
they are consistent with the decisions of the Board and the ABank’s culture,
objectives, strategy and control environment and take fair account of the roles,
responsibilities, management of risk and performance of the individuals concerned
and of market benchmarks and make recommendations to management and the Board
as appropriate, review the overall remuneration structures policies and ensure to
consistent with the decisions of the Board. Recommend the amount of actual
remuneration and benefits of members of the Board and of Board Committees.
Approve the actual remuneration and benefits, including any incentive award or
severance payment of Senior Management.

Table (3.1) Committee Structure of ABank

No. Committee Name Participant Position Committee

Responsibility
1. Corporate Chairman Chairman
Governance Vice Chairman Member
Committee BODs Member
Independent Directors Member
CEO Member
 COO Member
Executives Directors Secretary
2. Asset & Liabilities Vice Chairman Chairman
Management CEO Member
Committee COO Member
Executive Director (1) Member
Executive Director (2) Member
Head of Credit Control Dept Member
Head of Currency Member
Head of Treasury Dept Member
Head of AM & FC Dept Secretary
3. Risk Management CEO Chairman
Committee Director Member
Independent Director Member
COO Member
Executive Director (2) Member
Head of AM&FC Member
Legal & Compliance Secretary
4. Remuneration CEO Chairman
Committee COO Member
Director Member
Executive Director Member
Head of HR Secretary
5. Audit Committee Independent Director Chairman
Independent Director (Legal) Member
Consultant Member
Head of Internal Audit Secretary

6. Credit Committee Vice Chairman Chairman

CEO Member
Director Member
Executive Director (1) Member
Executive Director (2) Member
Head of AM & FC Dept Member
Head of SME Dept Member
Head of Credit Control Dept Secretary

Sources: ABank Corporate Structure

 CHAPTER IV
ANALYSIS ON EFFECT OF CORPORATE GOVERNANCE ON
FINANCIAL PERFORMANCE OF AYEYARWADDY FARMERS
DEVELOPMENT BANK

Chapter IV consists of research design, demographic profile of respondents

who are top management level and analysis of effect on corporate governance
practices on financial performance of ABank.

4.1 Research design

To examine the current practices of corporate governance practices in ABank,
descriptive method and quantitative methods are used in this study. The study
sampled is (36) respondents which sample are 69% of total Population who are
working at top managements including board of directors, CEO, department heads at
head office and heads of branch. Secondary information is collected from websites,
annual report, references, relevant books, previous thesis papers, professor.
Major instrument in survey are printed question paper and data are collected
by questionnaires. The questionnaires consist of three parts. The first part of the
survey questionnaire is demographic information of respondents, the second part
deals with corporate governance practices pertaining board size, board composition,
CEO duality, Leverage of corporate governance of ABank and the last part, part three
describe the financial performance of ABank. The agreement levels of Respondents
are measured by 5 points Likert Scales (1 is Not at all, 2 is Small extent, 3 is
Moderate extent, 4 is Large extent, 5 is Very large extent). The numbers in a Likert
scale are ordered such that they indicate the presence or absence of a characteristic
being measured. Data collected was mostly quantitative in nature and was analyzed
by descriptive analysis techniques using tools such as Statistical Package for Social
Sciences (SPSS).
4.2 Demographic Profile of Respondents
All the data received from the questionnaires are interpreted and summarized
in frequency distribution and percentage distribution. Demographic profile of
respondents presents the respondents’ gender, age, marital status, educational level.

4.2.1 No. of Respondents by Gender

The first analysis of the demographic characteristics of respondents is the
gender. The gender of the respondent is simply classified into male and female
groups. Table (4.1) shows the result of gender of respondents, as follows.

Table 4.1 No. of Respondents by Gender

Gender Frequency Percentage

Male 23 63.9

Female 13 36.1

Total 36 100.0

Source: Survey data, 2019

According to Table 4.1, the respondents consists of 63.9% males and 36.1%
females. Thus, male group is more than female group.

4.2.2 No. of Respondents by Age

There are five classifications in the age of respondents. They are from 30 years
and less, 31-40 years, 41-50 years, 51-60 years old, 61 years and above.
 Table 4.2 No. of Respondents by Age

Age Frequency Percentage

30 years and less 1 2.8

31-40 years 7 19.4

41-50 years 16 44.4

51-60 years 6 16.7

61 years and above 6 16.7

Total 36 100

Source: Survey data, 2019

According to Table 4.2, the respondents consists of middle age in 63.8% and
other are younger and older generation.

4.2.3 No. of Respondents by Qualification

There are four type of qualification in respondents, degree, master degree,
professional certificate and others. They are from 30 years and less, 31-40 years, 41-
50 years, 51-60 years old, 61 years and above.

Table 4.3 No. of Respondents by Qualification

Qualification Frequency Percentage

Bachelor Degree 16 44.4

Master Degree 18 50.0

Professional Certificate 1 2.8

Other (Please describe) 1 2.8

Total 36 100.0

Source: Survey data, 2019

 According to Table 4.3, half of the respondents are master degree holders and
44% of the respondents are bachelor degree holders, and nearly 3% of the respondents
are professional certificate holders and the remaining percentage is others.

4.2.3 No. of Respondents by Occupational Level

In the survey study, there are four type of occupational level such as board of
director, executive director, head of department and head of branch.
Table 4.4 No. of Respondents by Occupational Level

Position Frequency Percentage

BOD 14 38.9

Department Head 14 38.9

Branch Head 8 22.2

Total 36 100.0

Source: Survey data, 2019

According to Table 4.4, 14% of respondents are Board of Director members,
another 14% are department head of Abank, and the remaining 8% is the branch head.

4.3 Analysis of Corporate Governance of ABank

The study used the Likert type scale as the rating scale in questionnaires.
Likert scales are the easiest to construct and are based upon the assumption that each
statement/item on the scale has equal attitudinal value, importance or weight in terms
of reflecting an attitude towards the issue in question. This study focused on
Corporate Governance characteristics namely board size, board composition, CEO
Duality and Leverage. Dependent and independent variables were grouped into
components; namely, independent variables which consist of board size, board
composition, CEO Duality and leverage and dependent variables which consist of
performance indicators namely, Return on Assets and Return on Equity. The terms of
measurement to be used are described as in table below.
4.3.1 Board Size of Corporate Governance in ABank
In this section, the study sought to ascertain the effects of board size on
financial performance of ABank. Board Size is measured by (7) items such as being
the size, meeting regularly to review financial performance and operations during the
year, reviewing strategic matters and other issues that impact on the bank, being
important between the board and senior management, and being effective check their
senior management.
Table (4.5) Effect of board size on financial performance of ABank

Particular Mean Standard

Deviation

Size of the board influence the financial performance 3.67 1.195

in ABank

Board meet regularly to review financial 4.72 0.454

performance and operations during the year

Board review strategic matters and other issues that 4.53 0.506
impact on the bank

Outside formal board meetings are important 4.03 0.910

between the board and senior management are held.

Board members usually use themselves to support 2.97 1.028

management on areas of their expertise.

The board is effective check their senior 3.61 1.022

management

The board take on self-evaluation and review of its 3.61 0.645

performance

Overall Mean 3.88

Source: Survey Data (2019)

According to Table (4.5) the study found that majority of the respondents
rated the following to a very great extent, Board touches regularly during the year to
review financial performance and operations as shown by mean of 4.72. The board
considers strategic matters and other issues that impact on the bank and the board is
effective at monitoring senior management as shown by mean of 4.53.
These findings concur that size of the board and the financial performance in
ABank are not strongly related. Large boards may result to increase in agency
problems as some directors may tag along as free-riders. Board members usually avail
themselves to support management on areas of their expertise the respondent who
indicated yes.

4.3.2 Board Composition

In this section, the study sought to present board composition of ABank. The
questions of Board composition of Abank include impacts on financial performance
of bank, impacts on the way the board communicates with other stakeholders, impacts
on the board strikes the performance, and etc.,

Table (4.6) Board composition of Abank

Particular Mean Standard
Deviation

Board composition impacts on financial performance of 4 0.414

bank

Board composition impacts on the way the board 3.86 0.931

communicates with other stakeholders

The number of non-executive directors impacts on the 3.78 0.959

board strikes the performance

Outside directors are more fit than CEO and management 4 0.894
to face the challenge and discipline

Boards composed of directors with good mix of skills, 3.69 0.951

experience and competences to improve the business to
greater heights

The board should be handling for selecting top 3.72 1.031

management staff
The Boards can do better where expatriates sit on them 3.19 1.091

The work of the board includes active supervising of the 3.53 0.941
activities of management and resolution of internal
conflicts.

An expatriate CEO has excellent knowledge and is likely 2.97 1.028

to improve the performance of ABank

Overall Mean 3.75

Source : Survey Data (2019)

The study found that majority of the respondents rated the following to a very
great extent, the board composition impacts the financial performance of bank as
shown by mean of 4 and outside directors are more fit than CEO and management to
face the challenge and discipline in ABank as shown by mean of 4.
These findings concur that the board composition is important for the
effectiveness of financial performance in Abank and outside directors are face the
challenge and discipline than internal CEO and management. Therefore ABank
should be careful consideration on these facts.

4.3.3 CEO Duality and firm performance

Table (4.7) presents the mean scores on CEO duality of ABank. To measure these
mean scores, in this study (4) items are asked to respondents.
 Table (4.7) CEO duality of ABank

4Mean Standard
Particular Deviation

Roles of Chairman of Board and CEO are clear and 4.14 0.961
not authority in the same person

Bank’s CEO of ABank occupied is fixed 3.89 0.887

The remuneration of CEO is linked to performance 4.53 0.506

of ABank

The monitoring role of board is not strong when the 4.06 0.984
CEO is also Chair Person

Overall Mean 4.15

Source: Survey Data (2019)

The study found that the remuneration of CEO is linked to performance of

ABank as shown by mean of 4.53. Besides, roles of Chairman of Board and CEO
should be clear and not should be authority in the same person.
These findings concur that CEO salary should be linked to performance of the
bank, Roles of Chairman of Board and CEO should be clearly defined in ABank and
strongly related the financial performance of ABank. The total mean of the CEO
duality is 4.15 and it is strongly related the financial performance of ABank.

4.3.4 Leverage and firm performance

In this study, Leverage in ABank is measured by impact the ABank’ performance,
large amount of liability performig better than other banks, and being large creditors
representing board of directors. Table (4.8) represents the mean score of leverage in
ABank.
Table (4.8) Leverage in ABank

Mean Standard
Particular Deviation

Debts impact the ABank’ performance 3.56 0.877

ABank with large amount of liability performs better 3.08 0.967

than other bank with no or little debts

the board of directors of ABank represents large 2.89 0.979

creditors

Overall Mean 3.18

Sourec: Survey Data (2019)

The study found that the statement on Debts impact the ABank’ performance
has the higest mean score with 3.56 and the board of directors of ABank represents
large creditors has the lowest mean score with 2.89.
 4.4 Financial Performance in ABank
Financial Performance in ABank is presented in Table (4.9). Financial
performance is measured by perception on profitability, Return on Asset (ROA) and
Return on Equity (ROE).

Table (4.9) Financial Performance in ABank

Mean Standard
Particular Deviation

Good corporate governance of ABank makes 4.33 0.586

profitable to organization in terms of higher return in
assets investment.

Good corporate governance of ABank makes 4.39 0.549

profitable to organization in terms of higher return in
equity.

Annual ROA of ABank is increasing year by year 4.00 0.717

because of its good corporate governance practices

The ROE of ABank is increasing year by year because 3.94 0.715

of its good corporate governance practices

Overall Mean 4.17

Source: Survey Data (2019)

The study found that Good corporate governance of ABank makes profitable
to organization in terms of higher return in equity is showed as 4.39. Otherwise
profitable to organization in terms of higher return in assets investment is 4.33. Total
mean value of financial performance is 4.17 and it is good performance on financial
performance.

4.5 Effect of Corporate Governance on Financial Performance of ABank

In this study, a multiple regression analysis was conducted to test the influence
among predictor variables. The research used Statistical Package for Social Sciences
(SPSS V 20) to code, enter and compute the measurements of the multiple regressions
Regression.
Table (4.10) Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .446a .199 0.096 0.23429

Source: Survey Data (2019)

Adjusted R squared is coefficient of determination which tells us the variation

in the dependent variable due to changes in the independent variable. From the
findings in the above table, the value of adjusted R squared was 0.096 indicating at 1
percent level of significance.

Table (4.11) Effect of Corporate Governance on Financial Performance

Unstandardized Standardized
Coefficients Coefficients
Std.
Model B Error Beta t Sig.
1 Constant 3.768 0.546 6.906 .000

Board Size -0.77 0.162 -0.092 -0.478 .639

Board
.042 .108 .077 .390 .711
composition
CEO Duality .054 .085 .117 .631 .452
Leverage .096* .049 .366 1.943 .053
Dependent Variable: Financial Performance
*1 at the 1 percent level of significant
Source: Survey Data (2019)

This shows that financial performance of ABank change depend on four

variables. This is Board size, Board Composition, CEO duality and Leverage.
Y = 3.768 - 0.77 X1 + .042 X2 + .054X3 + .096 X4
From the finding on the correlation analysis between Financial and various
Corporate Governance practices, the study found that there was a positive correlation
coefficient between financial performance and board composition, CEO Duality, and
leverage as shown by correlation factor of 3.768.
According to the result, leverage is the most significance and show the
positive effect of leverage on financial performance. This result reveals that there is
no significance effect of Board size, Board Composition and CEO duality on financial
performance of ABank.
 CHAPTER V
CONCLUSION

The chapter presents the findings from the analysis of data by questionnaires
survey with Board of Directors, top managements and branches head of ABank about
the corporate governance on financial performance. It is also recommended to current
practices and its conclusion section has three parts as follows.

5.1 Findings and Discussion

Regarding to the analysis of Corporate Governance on financial performance
of ABank, the study found that the various aspects of CEO Duality to a great extent.
From the regression analysis, the board size was found to negatively affect the
financial performance of ABank. On the effect of CEO Duality of the board affect the
financial performance of ABank.
In the demographic profile analysis, survey finds out more male respondents
than female respondents although the female percentage are more than male in
organization. Age level is also found (31) years above and under (50) years. So it is in
the young working group and the bank’s future is good. The board size and board
composition in ABank are related impact to the financial improvement.

5.2 Suggestions
With good corporate governance, there will more attractive to investors, find
easier to raise more capital from outsider for bank growth and less risky. The
scorecard was created by the ASEAN Capital Markets Forum (ACMF) in
collaboration with the Asian Development Bank to reinforce and align capital market
standards and practices across ASEAN countries. It is based on the OECD Principles
of Corporate Governance. It is benchmarked against international good practices to
encourage companies to go beyond legislative requirements. Like Pwint Thit Sa, the
Scorecard uses publicly available information. The ACGS is currently being used in
Malaysia, Thailand, Philippines, Indonesia, Vietnam, and Singapore to track and rank
(mostly publicly listed) companies for corporate governance
5.3 Need to Further Study
This research is only emphasized on one bank named ABank. Among the
several performance management systems, this study only focuses on the practices of
corporate governance system in that bank. And thus, study does not cover the whole
banking system of Myanmar and does not include other organizational management
system. This survey was only based on 36 respondents who are top management level
organization because of time limit.Thus this research cannot represent the whole
employees at that company. If the study can be conducted on the basis of larger
sample size, the result will be more favorable outcome. Moreover, the future analysis
on the relative importance to each characteristics at corporate governance mechanism,
such as, fairness, accountabilities, responsibilities, transparency, governance structure,
ethics, etc. The performance of ABank is not only the practices of corporate
governance at ABank. There are other influencing variables like special marketing
achieving activities and performance of employees. It could be concluded that ABank
should continue practicing good corporate governance system and also continue its
marketing efforts, employee learning and growth, building learning organization
culture, and trainings which are aimed to improve more organizational performance,
in general.
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 APPENDIX
Yangon University of Economics
Department of Commerce
Master of Banking and Finance Program

Questionnaires for Effect of Corporate Governance Practices on Financial

Performance of Abank .

PART I : DEMOGRAPHIC INFORMATION

(a) Gender

Male Female

(b) Age Group

30 years and less 31-40 years 41-50 years 51-60 years 61 years and above

(c) Qualification

Degree Master Degree Professional Certificate Other (Please describe)

(d) Position in the Organization (Any Person)

BoD Department Head Branch Head Other Position (Please describe)

 PART II : CORPORATE GOVERNANCE PRACTICES
(a) Board Size

Sr. Particular Not Small Moderate Large Very

at all extent extent extent large
extent

1. Do you think that size of the board

influence the financial performance in
Abank
2. Do you think that the board touches
regularly during the year to review
financial performance and operations
3. Do you think that the board review
strategic matters and other issues that
impact on the bank
4. Do you think that Outside formal board
meetings are important between the
board and senior management are held.
5. Do you think Board members usually
use themselves to support management
on areas of their expertise.
6. Do you think the board is effective
check their senior management
7. Do you think the board take on self-
evaluation and review of its
performance
(b) Board Composition and effectiveness of financial performance

Sr. Particular Not Small Moderate Large Very

at all extent extent extent large
extent

1. Do you think that Board composition strikes

the financial performance of bank
2. Do you think that Board composition strikes
the way the board communicates with other
stakeholders
3. Do you think that the number of non-
executive directors on the board strikes the
performance
4. Do you think that the Outside directors are
more fit than CEO and management to face
the challenge and discipline
5. Do you think boards composed of directors
with good mix of skills, experience and
competences to improve the business to
greater heights
6. Do you think that The board should be
handle for selecting top management staff.
7. Do you think that the Boards can do better
where expatriates sit on them
8. The work of the board includes active
supervising of the activities of management
and resolution of internal conflicts.
9. An expatriate CEO has excellent knowledge
and is likely to improve the performance of
ABank

(c) CEO Duality and Effectiveness of Financial Performance

Sr. Particular Not at Small Moderate Large Very

all extent extent extent large
extent
1. Do you think that Roles of
Chairman of Board and CEO
should be clear and not authority in
the same person
2. Do you think that CEO occupied
should be fixed
3. Do you think that remuneration of
the CEO should be linked to
performance of ABank

4. Do you think that the monitoring

role of board is not strong when the
CEO is also Chair Person

(d ) Leverage and Effectiveness of Financial Performance

Sr. Particular Not at Small Moderate Large Very

all extent extent extent large
extent
1. Do you think that debts may cause
the trouble of ABank
2. Do you think that the Bank with
huge Liability may perform better
than other bank with little or no
debts
3. Do you think that large creditors’
trust depend on the board of
directors
 III FINANCIAL PERFORMANCE

Financial Performance of ABank

Sr. Particular Not at Small Moderate Large Very

all extent extent extent large
extent
1. Good corporate governance of
ABank makes profitable to
organization in terms of higher
return in assets investment.
2. Good corporate governance of
ABank makes profitable to
organization in terms of higher
return in equity.
3. Annual ROA of ABank is
increasing year by year because of
its good corporate governance
practices
4. The ROE of ABank is increasing
year by year because of its good
corporate governance practices