What are the benefits/advantages by implementing Good Governance in banking institutions?
What are the benefits/advantages by implementing Good Governance in banking institutions?
Answer: Good governance not only boosts the reputation of the FIs but also has several benefits to its progress. Employees, stakeholders, shareholders, and other concerned groups can rest assured that the FIs are in good hands at the highest level when good governance is considered.
Below are some of the benefits that arise from good governance.
Efficient Processes
Good governance ensures consistency and repeatability in a FI. The overall productivity and efficiency of the bank are boosted.
Reducing the cost of capital
In today‘s competitive and volatile environment, implementation of good governance practices can be a tool to the reduction in cost of capital of the company. A stable and reliable organization capable of mitigating potential risks will be able to borrow funds at a lower rate than those with weak CG.
Improving top-level decision-making
There is a strong and noticeable link between an organization‘s governance and rapid decision-making associated with improved performance. Good governance assures rapid access to information and the good communication among stakeholders that leads to better results. Good governance also enables rapid and accurate prioritizing of actions.
Assuring internal controls
By implementing good CG, the board may be certain that an adequate and effective control process is in effect, with the level of assurance associated with each important component of governance. Moreover, the board or a board committee is better positioned to take action when the controls signal non-compliance.
Good Reputation
The overall output of good governance is the right products and services. This leads to good business performance and possible domination of the market.
Clarity/Simplicity
To continue, all banks have issues that arise at some point. But a bank with acceptable governance practices can easily tackle these problems. There will be a reduction in the market‘s impact, and very often, the risk will get contained internally.
Financial Sustainability
Good governance significantly reduces the threat of safety, legal, performance, and warranty issues that can affect the organization. This is why the corporate body can reduce unnecessary expenses and spend more on progressive needs.
Higher staff retention
An increase in staff retention and motivation can be expected, especially from senior staff, when the company has a well-defined and communicated vision and direction. A focus on the company‘s core business will also make it easier to enter the market and attract the interest of shareholders.
Focus on compliance
Good corporate governance will rest on policies requiring the company to stay compliant with local laws and regulations; it will synchronize risk management and compliance to ensure the company has proper control mechanisms, meets its objectives, and operates efficiently in terms of people, processes, technology, and information.
Share Value
A company with good CG remains strong, profitable and sustainable, that increases the confidence of the shareholders which has a positive impact on the share price.
Effective Response to External Environment
Finally, the modern business world operates in an environment of constant change. The process of understanding these changes does not happen due to chances. It takes leadership, commitment, and resources from the governing body.