Corporate Governance and its Meaning
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Literature Review on Corporate Governance and its Meaning
This chapter will explore the literature materials related to this study. In particular this section will be exploring the literature review on:
- What is Corporate Governance and its numerous meanings;
- The history and background of Corporate Governance;
- Corporate Governance in Africa and in Mauritius; and
- Prior studies and Findings on Corporate Governance.
It will encompass all the historical studies that existed from the date that Corporate Governance was created and utilized in the global aspect of each and every banking and non-banking institutions for a good differentiation and a better understanding about the difficulties and the variabilities in which the Mauritian code succeeded in adapting itself to Corporate Governance. Meanwhile, discussions will also be done to pinpoint the positive and the negative relationships encountered throughout the globe but also focusing on the Mauritian code.
What is Corporate Governance?
Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations. A well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels.
In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.
“Despite this widespread interest on the matter, the concept that is corporate governance is poorly defined because it potentially covers a large number of distinct economic phenomenons. As a result different people have come up with different definitions that basically reflect their special interest in the field”
(e.viaminvest.com – The Corporate Finance's Encyclopedia)
Certain group focuses on corporate governance as the protection of shareholders targeting mainly the minority shareholders. As an example, the following phrases were quoted from the book of Zinkin J. and Wallace P. (2005).
2.1.1 The Essence of Corporate Finance
“If the position of stockholders cannot be well protested by contract, then how is it made viable? There are two mechanisms in particular that serve this function. One is the law: rules that require managers (agents) to act in the best interests of stockholders (principals). The other is governance: a set of provisions that enable the stockholders by exercising voting power to compel those in operating control of the firm to respect their interests. Legal rules can best address relatively clear conflicts of interests; managerial competences, except in occasional cases such as Enron and Parmalat, fall in the domain of governance. Obviously corporate governance is not a problem for the 100%-ownermanager of a business. Nor is it much of a problem for the majority stockholders (or group) which controls the Board of Directors and can fire the managers any time. (Protection for minority interests in such a firm will have to come primarily from legal rights, since their voting power is generally ineffectual.) So CG is an issue mainly for minority stockholders, in a firm controlled by the managers where there are no significant stockholders that can easily work together.” (Scott, 2002)
Others even focuses on maximizing the return to shareholders as the underlying principal of Corporate Governance, as evidence in the following quotes:
“Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment”, The Journal of Finance, Shleifer and Vishny (1997)
"Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance", taken from the Organization for Economic Co-operation and Development (OECD) website (www.oecd.org) document dated April 1999. OECD's definition is consistent with the one presented in the Report of the Committee on the Financial Aspects of Corporate Governance, commonly known as the Cadbury Report, published in December 1992.
2.1.2 The Combined Code on Corporate Governance:
The Combined Code on Corporate Governance is a set of principles of good corporate governance and provides a code of best practice aimed at companies listed on the London Stock Exchange. It is overseen by the Financial Reporting Council and its importance derives from the Financial Services Authority's Listing Rules. The Listing Rules themselves are given statutory authority under the Financial Services and Markets Act 2000 and require that public listed companies disclose how they have complied with the code, and explain where they have not applied the code - in what the code refers to as 'comply or explain'. Private companies are also encouraged to conform; however there is no requirement for disclosure of compliance in private company accounts. The Combined Code adopts a principles-based approach in the sense that it provides general guidelines of best practice. This contrasts with a rules-based approach which rigidly defines exact provisions that must be adhered to.
The Combined Code is essentially a consolidation and refinement of a number of different reports and codes concerning opinions on good corporate governance. The first step on the road to the initial iteration of the code was the publishment of the Cadbury Report (1992). The Cadbury Report was a response to major corporate scandals associated with governance failures in the UK (such as Robert Maxwell's executive abuses). The result of this was the accompanying Cadbury Code; the first explicit guidelines on corporate governance in the UK.
2.1.3 The Greenbury Report:
The Greenbury Report released in 1995 was the product of a committee established by the United Kingdom Confederation of Business and Industry on corporate governance. It followed in the tradition of the Cadbury Report and addressed a growing concern about the level of director remuneration. Following this the Hampel report drew upon Cadbury and Greenbury as well as elaborating on their recommendations and others that it considered to be relevant (including the roles of executive directors, non-executive directors and institutional investors). It is the Hampel Report, which the first iteration of The Combined Code is based upon.
184.108.40.206 Guidelines for Companies:
This sets out the requirements for non-executive directors. The appointments committee should be run by NEDs and their independence should be assured by absence of previous or present personal or business links.
This sets out guidance for the committee which determines director remuneration. Its principle is that of performance related pay. It is meant to complement the rules in the Companies Act 2006 which require a say on pay by the general meeting. The remuneration committee is meant to be composed of NEDs, although it allows for the Chairman of the board of directors to sit in.
Accountability and Audit
Here rules are discussed about the audit committee, which is meant to be composed of only independent non-executive directors. In the wake of the Enron scandal, more emphasis has been placed on high standards of integrity.
Relations with Shareholders
This part sets out the best practice of maintaining good relationships with shareholders and keeping them well informed on company affairs.
These provisions deal with a unique part of the UK financial market structure, which is great involvement and influence of institutional investors.
In its 2007 response to a Financial Reporting Council consultation paper in July 2007 Pensions & Investment Research Consultants Ltd (a shareholder representative body) reported that only 33% of listed companies were fully compliant with all of the Combined Codes provisions. Spread over all the rules, this is not necessarily a poor response, and indications are that compliance has been climbing. PIRC  maintains that poor compliance correlates to poor business performance, and at any rate a key provision such as separating the CEO from the Chair had an 88.4% compliance rate.
The question thrown up by the Combined Code's approach is the apprehension between wanting to maintain "flexibility" and attain consistency. The tension is between an aversion to "one size fits all" solutions, which may not be precise for everyone, and practices which are in general agreement to be tried, tested and successful. If companies find that non-compliance works for them and shareholders agree, they will not be punished by a migration of investors. So the chief method for accountability is meant to be through the market, rather than through law.
An additional reason for a Code was the original concern of the Cadbury Report, which companies faced with minimum standards in law, would comply merely with the letter and not the spirit of the rules. The Financial Services Authority has recently proposed to abandon a requirement to state compliance with the principles, rather than the rules in detail themselves.
(1) The size of basic pay increases;
(2) The large gains from share options, particularly in the recently privatized energy and water utilities; and
(3) The compensation payments to directors on loss of office.
Given in terms of reference, Greenbury rejects the need for statutory controls, pinning its faith instead on the principles of accountability, transparency and performance. The proposals contained in its code are designed to ensure that directors' remuneration is linked to individual performance and that there is greater accountability and transparency in the determination of levels of remuneration.
The Greenbury Committee's Code of Best Practice deals specifically with the following:
* The establishment, membership and status of remuneration committees (RCs);
* The determinants of remuneration policy for executive directors and other senior executives;
* The disclosure and approval of the details of remuneration policy; and
* The length of service contracts and the determination of compensation when these are terminated.
The committee's proposals relating to each of these are discussed in turn.
220.127.116.11 The remuneration committee
Greenbury recommends that all public companies should establish an RC and that any company choosing to ignore this advice should be required to explain why and, in its next annual report, outline the alternative arrangements which have been put in place. To avoid potential conflicts of interest, the Board of Directors make use of RC of Non-Executive directors to determine on their behalf and on behalf of shareholders the company's policy on executive remuneration and specific remuneration packages for each of the Executive Directors including pension rights and any compensation payments.
2.1.4 The Cadbury Report:
The Cadbury Report  is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. The report was published in 1992. The report's recommendations have been adopted in varying degree by the European Union, the United States, the World Bank, and others.
The use of the Cadbury Report could be outlined as the case of Robert Maxwell. Robert Maxwell's death while cruising on the Canary Islands in 1990 shone a spotlight on his company's affairs. A series of risky acquisitions in the mid-eighties had led Maxwell communications into high debts, which was being financed by diverting resources from the pension funds of his companies. After his disappearance, it emerged that the Mirror Group's debts (one of Maxwell's companies) vastly outweighed its assets, while £440 millions (GBP) were missing from the company's pension funds. Despite the suspicion of manipulation of the pension schemes, there was a widespread feeling in the City of London that no action was taken by UK or US regulators against the Maxwell Communications Corp. Eventually, in 1992 Maxwell's companies filed for bankruptcy protection in the UK and US. At around the same time the Bank of Credit and Commerce International (BCCI) went bust and lost billions of dollars for its depositors, shareholders and employees. Another company, Polly Peck, reported healthy profits one year while declaring bankruptcy the next.
Following the raft of governance failures, Sir Adrian Cadbury chaired a committee whose aims were to investigate the British corporate governance system and to suggest improvements restore investor confidence in the system. The Committee was set up in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accountancy profession. The report embodied recommendations based on practical experiences and with an eye on the US experience, further elaborated after a process of consultation and widely accepted. The final report was released in December 1992 and then applied to listed companies reporting their accounts after 30th June 1993.
18.104.22.168 Importance of Audits:
The annual audit is one of the cornerstones of corporate governance. Given the separation of ownership from management, the directors are required to report on their stewardship by means of the annual report and financial statements sent to the shareholders. The audit provides an external and objective check on the way in which the financial statements have been prepared and presented, and it is an essential part of the checks and balances required. The question is not whether there should be an audit, but how to ensure its objectivity and effectiveness. Audits are a reassurance to all who have a financial interest in companies, quite apart from their value to boards of directors. The most direct method of ensuring that companies are accountable for their actions is through open disclosure by boards and through audits carried out against strict accounting standards.
2.1.5 The Hampel Report:
The Hampel Report (January 1998) in 1998 was created to be a review of the corporate governance system in the UK. The remit of the committee was to evaluate the Code laid down by the Cadbury Report (now found in the Combined Code). It asked whether the code's original purpose was being achieved. Hampel found that no need for an uprising in the UK corporate governance system. The Report aimed to merge, harmonize and simplify the Cadbury and Greenbury recommendations.
“The single overriding objective shared by all listed companies, whatever their size or type of business is the preservation and the greatest practical enhancement over time of their shareholders' investment”. 
It was asked the distinction between principles of corporate governance and more detailed guidelines like the Cadbury and Greenbury codes. With guidelines, one asks, ‘How far are they complied with? ‘; with principles, the right question is ‘How are they applied in practice? ‘. It was recommended that companies should include in their annual report and accounts a narrative statement of how they apply the relevant principles to their particular circumstances. Given that the responsibility for good corporate governance rests with the board of directors, the written description of the way in which the board has applied the principles of corporate governance represents a key part of the process. It did not prescribe the form or content of this statement, which could conveniently be linked with the compliance statement required by the Listing Rules
2.1.6 The Turnbull Report:
Internal Control: Guidance for Directors on the Combined Code  (1999) also known as the "Turnbull Report" is a report drawn up with the London Stock Exchange for listed companies. The committee which wrote the report was chaired by Nigel Turnbull of The Rank Group plc. The report informs directors of their obligations under the Combined Code with regard to keeping good "internal controls" in their companies, or having good audits and checks to ensure the quality of financial reporting and catch any fraud before it becomes a problem.
Here are the disclosure requirements:
the governing body acknowledges responsibility for the system of internal control;
an ongoing process is in place for identifying, evaluating and managing the significant risks;
an annual process is in place for reviewing the effectiveness of the system of internal control;
There is a process to deal with the internal control aspects of any significant problems disclosed in the annual report and accounts.
The Turnbull report states that in assessing what constitutes a sound system of internal control, deliberations should include:
the nature and extent of the risks facing the organization;
the extent and categories of risk which it regards as acceptable;
the likelihood of the risks concerned materializing;
The organization's ability to reduce the incidence and impact on the organization of risks that do materialize.
The report also says that the system of internal control should:
be embedded in the operation of the organization and form part of its culture;
be capable of responding quickly to evolving risks;
Include procedures for reporting any significant control failings immediately to appropriate levels of management. In the HE sector, this needs extension to the governing body, where appropriate.
Effective monitoring on a continuous basis is an essential component of a sound system of internal control. The board cannot, however, rely solely on the embedded monitoring processes within the company to discharge its responsibilities. It should regularly receive and review reports on internal control. Hence, the board should undertake an annual assessment for the purposes of making its public statement on internal control to ensure that it has considered all significant aspects of internal control for the company for the year under review and up to the date of approval of the annual report and accounts.
History of Corporate Governance:
Corporate Governance has been enacted in the 19th century where state corporation laws enhanced the rights to corporate directors to govern more efficiently in relation with Corporate Governance. In the 20th century, after the aftermath of the Wall Street Crash of 1929, two legal scholars, Berle and Means' came to a monograph in 1932 with their book “The Modern Corporation and Private Property” where it still continues to massively influence on the conception of corporate governance in scholar debates. “The modern Corporation and Private Property” is a book that explores the evolution of big business through a legal and economic lens that argues those who legally have ownership over companies have been separated from their control in the current modern world. In 1967, a second edition was released where it takes into consideration the corporate governance, corporate law and institutional economics.
Berle and Means argued the structure of the corporate law in the US in the 1930s thus separating the ownership and control in order to specify the different duties and roles of the corporate activities. They also researched the consequences of ownership and control being separate as shareholders increase in number and businesses grow, shareholdings that directors have will be a proportionally smaller capital stake. Therefore directors' income will be derived from return on labour but not forming part of capital investment.
Since the late 1970's, corporate governance has been the subject of significant debate in the U.S and around the globe. Broad efforts were done to reform corporate governance in driving the needs and desires of shareholders to exercise their rights of corporate ownership and to raise the value of their shares in order to increase wealth too. Corporate directors' duties have been greatly expanded over the three pas decades beyond their traditional legal responsibility of duty to the corporation and its shareholders. Different crisis such as the East Asian Financial Crisis in 1997 and the Enron and Worldcom made severe scandal and economic recessions in the different countries due to lack of good corporate governance mechanisms and severe bankruptcies (or criminal malfeasance) of Enron and Worldcom.
A modern corporate governance movement, arguably, commenced with the Cadbury and Greenbury reports in the UK in the 1990s, which were put together the Combined Code in December 1998. In 1999, the Turnbull Report provided directors of private and public firms with additional guidance on how to tackle internal control. In 1999, the OECD Principles of Corporate Governance were also published.
2.3 Corporate Governance in Africa and in Mauritius:
Corporate Governance in Mauritius is an ideal way for a developing country to encourage FDI and development. This study will outline the different outcomes and possible reasons that encourage a good growth of the developing countries.
Creating Business in Africa:
WASHINGTON, D.C., September 26, 2007 – Doing business has become easier in some parts of Africa, the fifth in an annual series issued by the World Bank and IFC. In 2006/07, 49 reforms were implemented in 24 African countries. In the regional rankings on the pace of reform, however Africa fell from third to fifth place, mostly overtaken by South Asia and by the Middle East and North Africa.
Ghana and Kenya which are both ranked among the top 10 reformers worldwide, and made the most significant advance in the aggregate ease of doing business amongst countries in Africa. Mauritius tops the rankings in Africa, with six reforms, in doing business and places 27th in the global rankings. Burkina Faso and Mozambique continued in advancing to become more business-friendly.
The five main and best reformers in Africa in 2007 are the Ghana, Kenya, Mauritius, Burkina Faso and Mozambique and showed better respond to corporate laws and governance more than any other African countries.
Ghana, a top 10 reformer, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, cutting delays from six to one month. Better and Greater efficiency at the company registry and the environment agency reducing to 42 days to start-up a business. Changes in the port authority's operations speed up imports. New civil procedure rules and mandatory arbitration and mediation reduced in the time contracts to be enforced.
Kenya, the region's other top 10 reformer, released an ambitious licensing reform program. So far the program has eradicated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land-valuers. And the country's private credit bureau now collects a wider range of data.
Mauritius, already the region's most business-friendly country, made it even easier to do business, in part by simplifying taxes. A three-year program is harmonizing the tax system and ultimately will create a single corporate tax rate with few tax credits or tax holidays. Other reforms reduced the property registration fee to 5 percent of the property value and simplified construction permitting. A central database now links the company registry with tax, social security, and local authorities—shortening business start-up to just one week. A new risk management system accelerated customs clearance for low-risk importers. And a new law will help creditors recover their debt faster in bankruptcy cases.
Burkina Faso introduced specialized commercial chambers in the general courts and lowered the cost of enforcing a judgment by cutting the related registration tax from 4 to 2 percent of the judgment amount. The cost of property registration was reduced to 12.2 percent of the property value. And a one-stop shop for company registration cut the time for business start-up to 18 days.
Mozambique replaced legislation dating from 1888 with a new commercial code that introduces stricter corporate governance rules and strengthens the rights of minority shareholders. The new commercial code also modernizes the business registration process, cutting provisional registration and making notaries optional. Start-up time for new firms fell by almost three months. Specialized judges for commercial cases should improve court efficiency.
Corporate Governance in Mauritius:
The Republic of Mauritius produced its code of conduct of corporate governance for Banks and was established in September 2001 where transparency and accountability are the appropriate procedures in order to embrace a good corporate structure for better security and insolvency. The code of conduct of corporate governance for companies followed in June 2005 where a greater and better demand for transparency and accountability as it favors a unitary board structure with a balanced proportion of executives, non-executives and independent directors. It demands that company boards have at least two independent directors.
In 2002, the World Bank produced its assessment of Corporate Governance in Mauritius by benchmarking our practices against OECD principles, and made a number of recommendations. With the unfettered expansion of global trade and investments, spurred by advances in technology, countries have sought to raise their competitiveness by adopting higher standards of responsible corporate behavior, closer to international best practice. As business spreads globally, we may be witnessing the first steps towards a global convergence in business conduct and practices. An increasing number of countries are developing codes of good governance that combine internationally accepted principles with their specific needs and characteristics.
On the 26th May 2003, Hon. Sushil K.C. Khushiram, Minister of Economic Development, Financial Services and Corporate Affairs in Mauritius present the country's Draft Code of Corporate Governance.
His speech was presented as the different implications upon the Mauritian Code of CG to be in line to international laws and regulations and also bringing development to the country.
“Mauritius must stay with the global trends to develop appropriate and meaningful standards of business conduct in international business.
Corporate governance also gained greater prominence recently following the series of corporate scandals and failures in the US and Europe. It is not surprising that these scandals emerged in an economic downturn and the persistence of weak global growth trends does not augur well for poorly governed companies worldwide.”
Hon. Sushil K.C. Khushiram, Minister of Economic Development, Financial Services and Corporate Affairs in Mauritius
Mauritius too has not been spared from corporate malpractice, and the restoration of public confidence in our business practices should be accompanied by a fundamental reassessment of our corporate governance regime. Our corporate landscape is characterized by a concentrated ownership structure dominated by a handful of families exercising control through pyramids and complex crossholdings. These business groups represent sizeable potential for unlocking shareholder value. They have a low equity base, and are highly geared with a debt overhang that produces underinvestment. Besides the issue of value depletion, the exercise of private benefits of control has raised serious concerns regarding the protection of shareholder rights within the controlling groups. The spectacle of festering family squabbles and internal succession dramas is an unfortunate but recurring feature of our corporate reality, and the self-destructive consequences are too painful to ignore.
Foreign and domestic investors must be convinced the country offers a corporate environment that protects their rights, secures their investments and conforms to recognized standards of responsible business conduct. Moreover, corporate governance should aim at enhancing accountability, transparency, and fairness to all stakeholders. Stakeholders include shareholders, creditors, suppliers, customers, employees, and other parties with whom the company engages in business.
While corporate governance may be easy to understand, it is hard to achieve. To improve corporate governance, financial and non-financial disclosure must be of higher quality, and management should bear more independent oversight by a strengthening of the role and independence of both directors and external auditors.
The level of financial and other disclosure has already been significantly enhanced under the Listing Rules and the Companies Act 2001, which requires adherence to International Accounting and Auditing Standards. As you are aware, the accounting and auditing framework is being reviewed and an Institute of Professional Accountants and a Financial Reporting Council will soon be set up to oversee accounting and auditing practices.
Prior Studies and Findings on Corporate Governance:
This study will illustrate the different meanings and findings on the uses of Corporate Governance in the banking sector and in a country's economy. This will show the positive and negative feedbacks of using Corporate Governance and also determine the meaning of good and bad governance.
Positive feedbacks on Corporate Governance in Mauritius:
Mauritius has been stunning in successfully achieving a rapid growth and a substantial diversification of a formerly mono-agricultural economy. The real output growth over the past two decades has averaged just below 6 percent per year, leading to a stunning rise in per capita income, a remarkable improvement in social indicators.
In a research made in the context of FSAP [Financial Sector Assessment Program] in association with the IMF and the World Bank, Mauritius was assessed from October 21–31, 2002 and December 3–17, 2002.
Mauritius succeeded showing its strengths and weaknesses upon the continuous change in the economic world and also managed to show that corporate governance could be a helpful tool in forging a stable and democratic political system, backed by powerful financial institutions and the rule of law. A safe and good economic management and a far-sighted development strategy have given the country the possibility to diversify its export and local productive bases from a sugar-based economy into one based on four main and strong pillars of development: sugar, textiles, tourism, and financial services.
Mauritius has a large and well-developed domestic financial system and a growing offshore sector. Mauritius also belongs to a restrictive group of developing countries where domestic bank assets represent approximately 100 percent of GDP, and contractual savings exceed 40 percent of GDP. The rising offshore sector is also large relative to GDP, but weakly integrated with the domestic economy. The basic financial sector infrastructure, i.e. payment, trading of securities and settlement systems, is modern and efficient. Having access to financial services has become pretty easy, with more than one bank account and widespread banking branches and ATMs. Compared to most developing countries, new and small firms do not face major constraints in accessing financial services and credit.
After a well analyzed assessment of the Mauritian financial sector, it was declared that on the overall the Mauritian financial sector was in good health, and the short-term stability risks were modest. The main risks faced by the domestic financial system were linked to the structure of the underlying economy.
“As wealth and economic activity are concentrated in a few sectors and in a number of large, diversified family-controlled conglomerates, credit concentration in the banking sector is high. A severe or prolonged downturn in economic activity in key sectors where bank exposure is significant could potentially threaten bank solvency, though stress tests indicate the system is resilient to all but very large shocks. A further risk arises from the short maturity profile of domestic public debt, which exposes the government to roll-over risk. Finally, there are some reputational risks associated with potential money laundering in the offshore sector, though recent measures to strengthen the AML regime should help to mitigate this vulnerability.”
It was found that in order to mitigate the potential risks faced by the banking system in Mauritius; the best strategy was to use a multifaceted approach. This could be denoted as:
Continue the strengthening of banking supervision and encouraging banks to reinforce their internal controls;
Foster the development of alternatives to bank lending to reduce portfolio concentrations and increase competition;
Encourage sound international risk diversification;
Strengthening provisioning levels so as to enhance the resilience of the system to a downturn in economic activity; and
The reduction of the government's implicit contingent liability in the banking system.
The assessment of standards and codes revealed a positive result of a high level of compliance with global accepted norms and best practices. The authorities made a substantial progress and are upgrading the key financial sector legislation and regulations. The implementation of the assessments' recommendations should help further strengthen the supervisory and regulatory framework and enhance the resilience of the financial system.
Negative feedbacks on Corporate Governance in Mauritius:
Faced with limited growth opportunities in the domestic market, the two dominant banks have expanded in the region. While the regional market offers welcome opportunities for growth and diversification, it has also exposed the banks to riskier, less developed markets. Thus, expansion needs to be accompanied by enhanced risk management tools and effective information exchange between domestic and foreign regulators.
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