Corporate Governance for Banks in Southeast Europe: Policy - IFC

Implications
The crisis in SEE was not a crisis of governance. The crisis came from outside. Helping SEE weather its impact
were the absence of easy credit, the nature of the banking business, the limited use of financial instruments,
and foreign ownership. However, the lesser severity of the crisis in SEE, compared with certain more
developed markets, should not lead to complacency; improved corporate governance remains an important
objective for the growth and development of the financial sector and the real economy.
The Need for Tailored Responses
“In our small countries it is very difficult to
implement sophisticated and technologically
demanding best practice. In the area
of corporate governance we face the
issue of high costs, very complicated
management structures, a shortage of
human resources….We need to look for a
specific solution for small countries such
as ours. We need to create a less costly and
less complicated regulatory framework.”
Ljubiša Krgovic, Montenegro
“It is very important that we bring changes
that are in line with the stage of development
of the market. It is good for these banks and
these markets to start learning the examples
of the more developed countries. The problem
is how to adjust those rules that are, in terms
of the legal environment, rather different.”
Belgrade Conference 2009
Since SEE markets are dominated by subsidiaries of
foreign banks, the focus of attention needs to be
on the governance of cross-border groups. This is
a complex issue, involving group law, supervisory
concerns, crisis resolution, and burden sharing, to
name a few. For locally owned banks, there is a need
to focus on the basics of good governance, the breadand-butter
topics of boards, related-party transactions,
related lending, and protection of stakeholders.
Tailored responses are needed. In SEE it may be
difficult, and in certain cases even counterproductive,
to implement sophisticated and technologically
demanding best practice. On the other hand,
postponing the implementation of sophisticated
and technologically demanding best practices could
potentially deepen the gap between SEE and more
advanced banking countries. The best approach may
be a gradual but determined implementation of best
practice.
Regarding regulation, it is important that it be in line
with the corresponding stage of development of the
market. In the area of corporate governance, SEE
regulators face the challenges of high costs, limited
capacity, complicated oversight structures, and the
need to integrate with international practice. SEE
regulators need a less costly and less complicated
regulatory framework. Future efforts to improve governance should help SEE banks come into line with
international practice while, at the same time, not slavishly mimicking the practices of other financial markets
for the sake of compliance.
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Policy Brief
Corporate Governance for Banks in Southeast Europe