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Corporate governance, board responsibilities and financial performance : the National Bank of Australia

journal contribution
posted on 2008-01-01, 00:00 authored by Ameeta JainAmeeta Jain, Dianne Thomson
This paper examines board responsibilities and accountability by management and Board of Directors in relation to the National Australia Bank's (NABs) performance. The NAB, an international financial service provider within the top thirty most profitable banks in the world, is compared with the Australian major banks. The evidence suggests that NABs poor performance was consistent with a lack of accountability, poor corporate governance and board dysfunction associated with fraudulent currency trading and the subsequent AUD360 million foreign currency losses. The NAB's performance is investigated by utilising accounting-based measures of profitability and cost efficiency as proxies for performance. Following the foreign currency trading losses in 2004 the NAB under-performed the other major Australian banks in terms of profits, cost to income ratio and growth in assets. In terms of profitability and cost efficiency NAB had the lowest ROE and ROA with a 19.7% fall in net profit and the highest cost to income ratio of 5 7.4% of any of the five largest banks. This case study provides an Australian example of poor corporate governance and suggests that financial institutions and regulators can learn from the NAB's experience. Failure to have top-down accountability can have significant impact on over-all performance, profitability and reputation. In particular, it suggests that management and Boards need to review their risk management procedures and regulators need to be more pro-active in their prudential oversight of financial institutions.

History

Journal

Corporate ownership & control

Volume

6

Issue

2

Season

Winter

Pagination

99 - 113

Publisher

Virtus Interpress

Location

Sumy, Ukraine

ISSN

1727-9232

eISSN

1810-3057

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

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