makerere makerere university university makerere

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MAKERERE UNIVERSITY

CORPORATE GOVERNANCE AND PERFORMANCE OF

COMMERCIAL BANKS IN UGANDA

CASE STUDY: EQUITY BANK

PRESENTED BY

WESONGA KULUNDU WYCKLIPH

07/K/2857/EXT

BACHELOR OF COMMERCE (FINANCE OPTION)

A RESEARCH REPORT SUBMITED TO MAKERERE UNIVERSITY IN

PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF

BACHELOR OF COMMERCE DEGREE OF MAKERERE UNIVERSITY.

JUNE 2011

MAKERERE

MAKERERE

UNIVERSITY

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DECLARATION

I Wesonga Kulundu Wyckliph declare that this report is my original work

and has not been published and/or submitted for any other degree to

any university before.

STUDENT’S

NAME:……………………………………………………………………………

SIGNED:…………………………………………………………………………

DATE:……………………………………………………………………………

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APPROVAL

I certify that Wesonga Kulundu Wyckliph has carried out the study and

wrote this report under my supervision.

SUPERVISOR: MR. MUSIME GRACE

SIGNED………………………………….

DATE……………………………………..

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DEDICATION

I dedicate this work to my late grandmother, Mrs.Hellen Obwoko

Kulundu, to my father Mr. Daniel Wesonga Kulundu, to my mother Mrs.

Evelyn Nanzala,and to my brothers Vincent, Erick, Reuben and Wilson,

for without them acting as stimulus all through my education, I would

not have reached this far.

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ACKNOWLEDGEMENT

Foremost my gratitude and thanks go to the Almighty God for keeping

me alive and well throughout my studies.

I would also like to thank my supervisor Mr. Musime Grace for his

professional guidance all through this study. He did not only provide the

direction of carrying out this study but also provided criticisms,

corrections and mode of analysis. The integrity and quality of this work is

a result of his proper guidance.

I would like also to thank the management of Equity bank for all the

assistance and valuable information availed to me to make this study a

success.

Finally, I also extend my sincere thanks to my friends and colleagues,

especially Lalaka Julius, Agoloki Gedeon and Mogaga Tom for their Moral

and material support they provided to me when I was carrying out this

study. May God Almighty bless them abundantly.

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ABSTRACT

The study examined the relationship between corporate governance and

performance of the commercial banks in Uganda where Equity Bank was

used as a case study. The major focus was to find out whether the

commercial banks’ declining performance was as a result of poor

corporate governance practices.

In order to carry out this study successfully, three major objectives were

used which included;

To establish the level of corporate governance within the Equity

Bank.

To investigate the financial performance of Equity Bank.

To establish the relationship between corporate governance and

financial performance.

It was a combination of cross sectional and analytical research and

findings were presented according to the respective research objectives

posed for the study. The presentation of the findings was simplified by

illustrations using tables from questions administered.

The study found out that there was poor application of corporate

governance principles in the bank. As a result, the performance in terms

of profitability was found to be low.

The results reflected that there was a strong relationship between

corporate governance and performance of the bank. It was therefore

recommended that the bank should embrace the key corporate

governance principles such as accountability, transparency, disclosure

and trust in order to improve on the performance.

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LIST OF ABREVIATIONS

ACCA: Association of certified chartered accountants

BOU: Bank of Uganda

BPS: Bureau of product standards

CAMEL: Capital Adequacy, Asset quality, Management, Earnings, Liquidity

CMA: Capital market authority

FIS: Financial institution statute

GBL: Greenland bank LMT

IAS: International standards organizations network

ICB: International credit bank

IMF: International monetary fund

ROA: Return on assets

ROE: Return on equity

SPSS: Statistical package for social sciences

PSCGT: Private sector corporate governance trust

TBT: Technical barriers to trade

WTO: World trade organization

FASB: Financial accounting standards

ICGU: Institute of corporate governance of Uganda.

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TABLE OF CONTENTS

DECLARATION ............................................................................................................ii

APPROVAL ................................................................................................................. iii

DEDICATION ............................................................................................................... iv

ACKNOWLEDGEMENT ............................................................................................... v

ABSTRACT ................................................................................................................... vi

LIST OF ABREVIATIONS ....................................................................................... vii

TABLE OF CONTENTS ..........................................................................................viii

LIST OF TABLES AND CHARTS ................................................................................ xi

CHAPTER ONE .......................................................................................................... 1

1.1 Introduction and background of the study ................................................. 1

1.2 Problem statement ............................................................................................. 2

1.3 Purpose of the study .......................................................................................... 3

1.4 Research objectives ............................................................................................ 3

1.5 Research Questions ........................................................................................... 3

1.6 Scope of the study .............................................................................................. 4

1.6.1 Geographical scope ........................................................................................ 4

1.6.2 Subject scope ................................................................................................... 4

1.6.3 Time scope ........................................................................................................ 4

1.7 Significance of the study .................................................................................. 4

CHAPTER TWO ......................................................................................................... 5

LITERATURE REVIEW ............................................................................................. 5

2.0 Introduction ......................................................................................................... 5

2.1 Corporate Governance ...................................................................................... 5

2.1.1 The attributes of corporate governance .................................................... 6

2.2 TRANSPARENCY ................................................................................................. 7

2.2.1 Transparency in the bank. ........................................................................... 7

2.2.2 Transparency and corporate governance ................................................. 8

2.2.3 Dangers of transparency............................................................................... 8

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2.3 DISCLOSURE. ..................................................................................................... 8

2.3.1 Voluntary disclosure ..................................................................... 9

2.3.2 Dangers of voluntary disclosure .................................................... 9

2.3.4 Financial Disclosure ..................................................................... 9

2.3.5 Discipline and public Market Disclosure. .................................... 10

2.4 TRUST ........................................................................................... 10

2.4.1 Facets of Trust ........................................................................... 10

2.5 ACCOUNTABILITY ......................................................................... 12

2.6 Financial performance and Financial Institutions. ......................... 12

2.6.1 Capital adequacy: ....................................................................... 12

2.6.2 Asset quality: .............................................................................. 13

2.6.3 Earnings: ................................................................................... 13

2.6.4 Bank management: .................................................................... 14

2.6.5 Liquidity: .................................................................................... 15

2.7 RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND

FINANCIAL PERFORMANCE. ............................................................... 15

2.8 Conclusion .................................................................................... 18

CHAPTER THREE .............................................................................. 19

METHODOLOGY ................................................................................. 19

3.0 Introduction .................................................................................. 19

3.1 RESEARCH DESIGN...................................................................... 19

3.2 SAMPLING AND SAMPLING PROCEDURE ..................................... 19

3.2.1 Study population ........................................................................ 19

3.2.2 Sample size ................................................................................ 19

3.2.3 Sampling method ....................................................................... 19

3.3.1 Sources of data ........................................................................... 20

3.3.2 Primary sources ......................................................................... 20

3.3.3 Secondary sources ...................................................................... 20

3.4 DATA COLLECTION INSTRUMENTS .............................................. 20

3.4.1 Questionnaire ............................................................................. 20

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3.4.2 Interviews ................................................................................... 20

3.5 DATA PROCESSING, ANALYSIS AND PRECENTATION................... 21

3.6 PROBLEMS ENCOUNTERED ......................................................... 21

CHAPTER FOUR ................................................................................. 22

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS ..... 22

4.0 Introduction .................................................................................. 22

4.1 Characteristics of the respondents ................................................. 22

4.3 FINDINGS ON CORPORATE GOVERNANCE................................... 25

4.4 FINDINGS ON PERFORMANCE...................................................... 29

4.5 FINDINGS ON THE RELATIONSHIP BETWEEN CORPORATE

GOVERNANCE AND PERFORMANCE .................................................. 32

CHAPTER FIVE .................................................................................. 37

DISCUSSIONS, CONCLUSSIONS AND RECOMMENDATIONS .............. 37

5.1 INTRODUCTION ............................................................................ 37

5.2 Summary of the major findings ...................................................... 37

5.2.1 Findings on corporate governance............................................... 37

5.2.2 Findings on financial performance. ............................................. 37

5.2.3. The relationship between corporate governance and performance

of the bank .......................................................................................... 38

5.3 Conclusion. ................................................................................... 38

5.4 Recommendations ......................................................................... 39

5.5 Areas for further study .................................................................. 40

QUESTIONNAIRE: ............................................................................... 41

LIST OF REFERENCES: ...................................................................... 49

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LIST OF TABLES AND CHARTS

PAGE

Table 4.2.1: Showing findings on gender of the respondents...........................23

Table 4.2.2: Showing findings on age group of respondents..............................24

Table 4.2.3: Showing finding on the occupation of the respondents...................25

Table 4.2.4: Showing findings on the level of education.....................................25 Table 4.3.1: Showing findings on whether the bank releases annual financial reports on time.....................................................................................................26

Table 4.3.2: Showing findings on whether the bank releases its future plans and prospects to the public………………………………………………………………...27

Table 4.3.4 Showing findings on whether the bank discloses its total capital base.....................................................................................................................27

Table 4.3.5 Findings on whether the bank discloses its accounting and presentation policies............................................................................................28

Table 4.3.6: Showing findings on whether the customers trust the information they recieve from the bank...................................................................................29

Table 4.3.7 Showing findings on whether the bank has good accountability system.................................................................................................................29

Table 4.4.1: Showing findings on whether the bank experiences high profit margins annually..................................................................................................29

Table 4.4.2: Showings findings on whether the bank experiences high customer turnover annually………………………………………………………………………30

Table 4.4.3: Showing findings on whether the bank has strong capital base…..................................................................................................................31

Table 4.4.4: Showing findings on whether the bank meets its daily liquidity obligations………………………………………………………………………………31

Table 4.5.1 Showing findings on whether the proper management system has assisted in good performance of the bank………………………………………….32

Table 4.5.2: Showing findings on whether the bank transparency contributes to good performance of the bank…………………………………………………….…33

Table 4.5.3: Showing findings on whether poor management policies have had a negative impact on bank’s performance…………………………………………….34

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Table 4.5.4: Showing findings on whether the customers’ trust and confidence with the bank increase its profit levels………………………………………………34

Table 4.5.5: Showing responses on whether bank’s accountability system affects the performance of the bank …………………………………………………………36

Table 4.6.1: Relationship between corporate governance performance............37

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CHAPTER ONE

1.1 Introduction and background of the study

Corporate government is a term that broadly refers to the rules,

processes or laws by which businesses are operated, regulated and

controlled. The term can also refer to internal factors defined by offices,

stakeholders or constitution of a corporation, as well as to external forces

such as consumer groups, clients and government regulations. Corporate

governance is about promoting corporate fairness, transparency and

accountability (Financial times, 1999).

In Uganda the factors responsible for poor corporate performance

especially in Banks emanate from lack of professionalism in the peoples

approaches evidenced by lack of transparency, accountability and poor

ethical conduct (Kibirango, 1999)

Performance is the accomplishment of a given task measured against

present known standards of accuracy, completeness, cost and speed. It

can also be referred to as the outcomes from a business entity. This is

normally in terms of profitability, growth of the firm, turnover and

development. But in most enterprises is normally measured in the terms

of profitability (Pandey,1995).Profit is the different between sales and

total costs incurred by a firm (Decoster,D.T and Shaffer,1976).The

analyst or investor may wish to look deeper into financial statement and

seek out margin growth rates or any declining debt.

Corporate governance aids in securing confidence not only for

stakeholders but also for other stakeholders such as customers,

suppliers, employees and government in ensuring that firms are

accountable for their actions (Vinten, 1998). According to Dallas

Business Journal published on January 26th 2010, Equity Bank’s

business model has attracted both local and international recognition.

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Because of its good leadership, the equity Bank has undergone a

dramatic transformation from a loss making micro-finance lender to a

fully fledged and publicity listed commercial Bank with operations in

Kenya, Uganda and Sudan (Dallas Business Journal, 26th Jan 2010). As

a result of good stewardship, equity bank posted a 53% profit before tax

in its third quarter results released on 26th Jan, 2010. The achievements

by the equity Bank are attributed to effective corporate governance

system (Stephen S. Colon and Gavin Boyd, 2000).

However in the recent times, Equity Bank has faced some performance

challenge. Equity Bank is a relatively young dynamic and fast growing

indigenous microfinance institution, its main challenges are

management of growth, institution capacity building and capital needs to

support outreach (Dallas business journal, 2010). Equity Bank had a net

loss after taxes of $ 776,000 and in 2009; the bank had a $ 3.7 million

net loss (Kate Mckee, June, 2010). Commercial banks are greatly

influenced by their management thus; “The ultimate causes of individual

bank failure stem from those very failed banks themselves” (Kane et al,

1996).

1.2 Problem statement

All commercial banks in the banking sector operate to achieve

profitability, liquidity and solvency. To achieve this, there must be an

efficient asset- liability management (Thomas et al, 1982). The poor

financial performance of the equity Bank experienced in 2010 can be

attributed to inefficiency in its management system (Kate Mckee, 2010).

Insufficient financial disclosure, lack of transparency resulting from

gross management and dubious accounting actions, and insufficient

qualitative disclosure of the bank’s management policies are detrimental

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to interests of banks’ stakeholders especially depositors (Dallas Business

journal,2010). As a result, the banks’ capital assets and earnings values

are affected and hence the performance is questionable. For instance,

high financial net loss of $3.7 Million registered by the bank in 2010 is

quite alarming (Kate McKee, 2010).

Therefore the researcher feels that there is a need to investigate the

corporate governance of the commercial banks in order to prevent their

performance decline.

1.3 Purpose of the study

The purpose of the study was to examine the relationship between

corporate governance and performance of Commercial Banks using

Equity Bank as a case study.

1.4 Research objectives

To establish the level of corporate governance within the Equity

Bank.

To investigate the financial performance of the Equity Bank.

To establish the relationship between corporate governance and

financial performance.

1.5 Research Questions

What is the level of corporate governance within the Equity Bank?

What is the Financial Performance of Equity Bank in Uganda?

What is the relationship between corporate governance and

financial performance?

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1.6 Scope of the study

1.6.1 Geographical scope

This study is going to be carried out in Kampala District at Equity Bank

head office.

1.6.2 Subject scope

The research will be limited to corporate governance as an independent

variable and performance of commercial banks as a dependent variable

using Equity Bank as case study.

1.6.3 Time scope

The study will cover a period between 2008 and 2010 of Equity Bank

operations.

1.7 Significance of the study

The findings are intended to equip the researcher on various

corporate governance levels within the commercial banks and their

impact on the banks’ performance.

The findings will also assist the companies especially the

Commercial Banks in instituting better corporate governance

principles.

The findings will also add on the volume of data already collected for future use

by other researchers, learners, policy makers, international bodies such as IMF

and World Bank, Commercial banks and other parties that may pick interest in the

matter.

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CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

Under this chapter related literature to study is reviewed mainly focusing

on the key corporate governance pillars-transparency, disclosure and

trust. Financial performance especially relating to commercial banks is

also reviewed based on the performance dimensions including capital

adequacy, asset quality, earnings and liquidity. The literature in this

chapter is divided into three key sections; first one is corporate

governance, second is financial performance, and the last is relationship

of corporate governance and financial performance.

2.1 Corporate Governance

Corporate governance refers to the manner in which the power of a

corporate is exercised in the stewardship of corporation's total portfolio of

assets and resources with the objectives of maintaining and increasing

shareholder value with satisfaction of other stakeholders in the context

of its corporate mission(PSCGT report,1999).The committee on the

financial aspects or corporate governance( the Cadbury committee)

defines corporate governance as the system by which companies are

directed and controlled.

Corporate governance is about building credibility, ensuring

transparency and accountability as well as maintaining an effective

channel of information disclosure that would foster good corporate

performance. It is also about how to build trust and sustain confidence

among the various interest groups that make up an organization. Indeed

the outcome of a survey by Mckinsey in collaboration with the World

Bank in June 2000 attested the strong link between corporate

governance and stakeholder confidence (Mark, 2000).

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2.1.1 The attributes of corporate governance

Corporate governance is important because it promotes good leadership

with the corporate sector. Corporate governance has the following

attributes; Leadership for accountability and transparency, leadership

for efficiency, leadership for probity (integrity) and leadership that

respects the rights of all stakeholders (ICGU report, 2000).Lack of sound

corporate governance has enabled bribery,crony,and corruption to

flourish and has suppressed sound and sustainable economic decisions.

Some key pillars (PSCGT report, 1999) on which good governance are

formed include:

An effective body responsible for governance separate and

independent of management to promote

tranparency,accountability,probity and integrity and timely

disclosure of information relating to all economic and other

activities of the corporation.

There must be an all-inclusive approach to governance that

recognizes and protects the rights of members and all

stakeholders-internal and external.

The institution must be governed and managed in accordance with

the mandate granted to it by its founders and society and take

seriously its wider responsibilities to enhance sustainability and

prosperity.

The institutional governance framework should provide an

enabling environment within which its human resource can

contribute and bring to bear their full creative powers towards

finding solutions to shared problems.

In corporate governance, the above four pillars can be summarized into

five basic tenets; Accountability, efficiency and effectiveness, integrity

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and fairness, responsibility and transparency. According to Kibirango

(2002),chairman of CMA of Uganda, concepts of Transparency,

Disclosure and Trust construe the principle of corporate citizenship,

which results from sound corporate governance (Kibirango,2002).

2.2 TRANSPARENCY

Transparency is integral to corporate governance. Higher transparency

reduces the information asymmetry between a firm's management and

financial stake holder’s (equity and bondholders), mitigating the agency

problem in corporate governance (Sandeep et al,2002).

Financial statements are transparent if they make apparent the

underlying economics of the business and it transactions. Thus

transparency involves not only concepts related to reliability (i.e.

representational, faithfulness and neutrality), but also understandability.

To be transparent, financial statements must accurately represent the

underlying economics in an unbiased manner (FASB report, 1984).

2.2.1 Transparency in the bank.

The concept of Bank transparency refers to the quality and quantity of

public information on a bank’s risk profile and the timing of its

disclosure, including the bank’s past and current decisions and actions

as well as its plans for the future. The transparency of the banking sector

as whole also includes public information on bank regulations and on

safety net operations of the Central Bank (Enoch et al.17997 and

Rosengren, 1998)

Weak transparency makes banks’ assets risks opaque. Mayes (1997,

1998) and Mayes and Vesala (1998) regard transparency as an

instrument for improving both domestic and international banking

supervision.

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2.2.2 Transparency and corporate governance

Corporate transparency is defined as the widespread availability of

relevant and reliable information about the periodic performance,

financial position, investment opportunities, governance value and risk of

publicly traded firms, (Vinten, 1998)

A corporation can be viewed as a nexus of contracts designed to

minimize contracting costs Parties contracting with firms desire

information both about the firm’s ability to satisfy the terms of contracts

and the firm’s ultimate compliance with its contractual obligations, (Peter

et al, 2003).Financial accounting information supplies a key quantitative

representation of individual corporations that supports a wide range of

contractual relationships. Financial accounting information also

enhances the information to the environment more generally by

disciplining the un-audited disclosure of managers and supplying into

the information processing activities of outsiders.

2.2.3 Dangers of transparency

While we focus on beneficial effects, there are also potential adverse

consequences of public information. For example, the early release of

public information can destroy risk sharing opportunities (Hirshleifer,

1971; Marshall,1974). Signaling of private information can result in over

investment or other misallocations of capital (Spence, 1973). Information

release can complicate contract negotiation and impose agency costs if

parties cannot commit to renegotiation contracts (Laffont and Tirole,

1990; Demski and Frimor, 1999). Public release of proprietary

information can distort investment behavior (Darrough, 1993).

2.3 DISCLOSURE.

Given the corporate scandals (U.S Based; Enron; WorldCom... (Heidi and

M Arleen, (2003) and Uganda based; Greenland Bank LTD,

ICB…(Japheth,2001)), restoring public trust is at the top of the agenda of

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today’s business leaders. Greater information provision (disclosure) on

the company’s capital and central structures –can be an important

means to achieve this goal. High quality and relevant information is

crucial for exercise of governance powers. Full Disclosure seeks to avoid

financial statements fraud (Beasley, 1996; Beasley et al, 2000).

2.3.1 Voluntary disclosure

Information disclosure to capital markets is based on and evolves around

accounting based financial information. However, evidence indicates that

the usefulness of financial information has been deteriorating during the

past 20 years (Lev, 1989; Lev and Zrowin,1998). Managers can improve

their communication with investors by developing disclosure strategies

(Healy and Palepu, 1993). Financial reporting is a potentially useful

mechanism for mangers to communicate with outside investors. Healy

and Palepu suggest two potential mechanisms available for managers for

improving their credibility of their financial reporting: Voluntary

Disclosure and signaling with finance polices. According to Shelly and

Taylor, publisher of, Full Disclosure and International Study of Corporate

Disclosure (Kelly, 1999), “It is the voluntary disclosure of qualitative

information that creates share price premium and therefore should be

seen as a fundamental component of corporate disclosure.”

2.3.2 Dangers of voluntary disclosure

The most common arguments against voluntary disclosure from a

managerial perspective are fear of giving away sensitive information to

competitors and procurement of extra costs for collecting and disclosing

the information (Eccles and Marina,(1995);Healy and Palepu,(1993))

2.3.4 Financial Disclosure

Banks must provide a description of their internal rating systems and

the amount of credit exposure in each rating category. Banks must also

report historical results regarding actual losses (Lopez,2001).For market

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risk, banks provide a general qualitative disclosure of their management

policies, the statistical methods used in their model validation and

stress-testing procedures.

Banks must also disclose various elements of their operational risk

exposures. Operational risk is commonly defined as the risk of monetary

losses resulting from inadequate or failed processes, people, and systems

or from external events.

2.3.5 Discipline and public Market Disclosure.

In order for markets discipline of banking institutions to be effective,

banks must be sufficiently transparent; that is banks must provide a

sufficient amount of accurate and timely information regarding their

conditions and operations to the public. Improved public disclosures of

such information lead to increased transparency and should lead directly

to more effective market discipline (Paul,2001).

In Uganda, most commercial banks reports are presented annually and

are not freely available to the public. However, the Bank of Uganda has

instructed commercial banks operating in the country to provide a

detailed breakdown of the loan portfolios in a move to enforce disclosure

regarding the banking business-lending (BOU report, 2004).

2.4 TRUST

Trust involves taking risk and making oneself vulnerable to another with

confidence that the other will act in ways that are not detrimental to the

trusting party (Wayne and Megan,2002).

2.4.1 Facets of Trust

There are at least five facets of trust which include:

Benevolence: perhaps the most common facet of trust is a sense of

benevolence-confidence that one’s well being or something one care

about will be protected and not harmed by the trusted party (Baier,

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1986).

Trust is the assurance that others will not exploit one’s vulnerability or

take advantage even when the opportunity is available (Cumming and

Bromily, 1996). Benevolence is an important element of trust

relationships because a mutual attitude of goodwill is so important in

interpersonal relationships.

Reliability: at its most basic level trust has to do with predictability that

is consistency of behavior and knowing what to expect from others

(Butter and Cantrell, 1984; Hosmer,1995). Reliability combines a sense

of predictability with benevolence. Reliability implies there is a sense of

confidence that individual needs will be met in positive way.

Competence: Good intentions are not always enough when a person is

dependent on another but some level of skill is involved in fulfilling an

expectation. An individual who means well may nonetheless be trusted

(Baier, 1986; Butter and Cantrell, 1984; Mishra, 1986).

Competence is the ability to perform as expected and according to

standards appropriate to task at hand. Many organizational tasks rely on

competence. Depositors are dependent on the competence of these bank

staff. Lack of competence is not a breach of trust because the person is

expected to make some mistakes (Solomon and Flores, 2001). In such a

case failure should not be confused with betrayal because the person did

not purport to have the requisite skill.

Honesty: Honesty is the person’s character, integrity and authenticity. A

correspondence between a person’s statement and deeds demonstrates

integrity. Moreover acceptance of responsibility for one’s actions and not

distorting the truth in order to shift blame to another exemplifies

authenticity (Tschnnen-Moran.1998). Honesty is assumed when we think

of what is entailed in trust (Wayne and Megan 2002).

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Openness: openness is the extend to which relevant information is

shared. It is a process by which individuals make themselves vulnerable

to others. the information shared may be strictly about organizational

matters or it is a giving of oneself (Butter and Cntrell,1984;

Mishra,1986). Such openness signals reciprocal trust a confidence that

neither the information nor the individual will be exploited and recipients

can fell the same confidence in return.

2.5 ACCOUNTABILITY

Where there is inadequate accountability resources will be used

inefficiently and ineffectively. Thus inadequate accountability can result

in devastating consequences for millions of people and compromising the

operations of an organization (Kluver, 2001). Accountability forms the

basis of the trust in organizations. Therefore when accountability

relationships are undermined then our trust in organizations is

damaged.

2.6 Financial performance and Financial Institutions.

Financial soundness is a situation where depositors’ funds are safe in a

stable banking system. The financial soundness of a financial institution

may be strong or unsatisfactory varying from one bank to another (BOU

report, 2002). External factors such deregulation, lack of information

among bank customers, homogeneity of the bank business, do cause

bank failure. Some useful measures of financial performance are coined

into what is referred to as CAMEL. The acronym “CAMEL” refers to five

components of a bank’s conditions that are assessed: Capital adequacy,

Asset quality, Management, Earnings and Liquidity (Jose, 1999).

2.6.1 Capital adequacy:

Capital adequacy determines how well financial institutions can cope

with shocks to their balance sheets. The bank monitors the adequacy of

its capital using ratios established by The Bank for International

13

Settlements. The capital adequacy in commercial banks is measured in

relation to the relative risk weights assigned to the different category of

assets held both on and off the balance sheet items (BOU report, 2002).

2.6.2 Asset quality:

The solvency of financial institutions typically is at risk when their assets

become impaired. It is therefore important for commercial banks to

monitor indicators of quality of their assets in terms of overexposure to

specific risk trends in non-performing loans, and the health and

profitability of bank borrowers especially the corporate sector.

2.6.3 Earnings:

The continued viability of a bank depends on its ability to earn an

adequate return on its assets and capital. Good earnings and

performance enables a bank to fund its expansion, remain competitive in

the market and increase its capital (BOU report, 2002). The evaluation of

earnings performance relies heavily upon comparisons of key profitability

measure (such as return on assets and return on equity) to industry

benchmark and peer group norms (Federal Reserve Bank, 2002).

According to Kagalwala and Ram, (2003), many banks throughout the

world have disappeared due to weakness in broad parameter of risk

management functions. Banks that must survive need;

Higher return on Assets (ROA). This is a net after tax profit

divided by total assets. It is a critical indicator of profitability.

Companies which use their assets efficiently will tend to shoe a

ratio higher than the industry norm. ROA=Net income/Total

Assets.

Better return on Net after worth/equity. (ROE). It is the bottom

line measure for the shareholders measuring the profits earned for

each dollar invested in the firm’s stock. ROE=Net

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income/shareholder’s Equity.

Sound capital base i.e. The capital Adequacy Ratio (CAR).

Adoption of corporate governance ensuring transparency to

shareholders that is equity holders, regulators and the public.

2.6.4 Bank management:

Sound management is key to bank performance. Poor management of

Banks is often the primary source of commercial bank’s performance

failure. According to Federal Financial Institutions Examination Council

Report published in May 2004, elements of poor bank management

include;

Bank managers engaging in excessive luxurious expenditures like high

salaries, expensive buildings or offices, lavish furnishing and expensive

cars,…, without taking into account the earning capacity of the banks.

Other managers engage in outright fraud thus eroding the bank’s

profitability, liquidity and solvency.

Managers lending to unprofitable enterprises that leads to non-

performing loans and asset liability mismatch.

Managers engaging in connected or insider lending to themselves,

owners/shareholders, their immediate beneficiaries or lending to

connected borrowers at no or less than their lending interest and

other lending terms which are contrary to the bank’s lending

policies and banking laws.

Managers collecting asymmetric information on evaluating

credit/loan applicants which lead to adverse selection or just

intentionally convincing for a bribe.

Diversifying in ungazetted activities like trading or acquiring loans

and other practices contrary to banking laws.

15

Delayed actions by government can also cause bank performance failure.

If a bad outcome is not followed by an appropriate punitive action, the

managers may expect that their moral hazard behavior and hidden

adverse attributes will not be punished (Masaiko, Aoki, 1996)

2.6.5 Liquidity:

Initially solvent financial institutions may be driven towards closure by

poor management of short term liquidity. Liquidity is the degree to which

debt obligations coming due in next 12 months can be paid in cash or

asset that will be turned into cash (William,2000). The matching and

controlled mismatching of the maturities and interest rates of assets and

liabilities is fundamental to the management of the bank. It is unusual

for banks ever to be completely matched since business transacted is

often of uncertain term ant of different types. An unmatched position

potentially enhances profitability and also increases the risk of losses

(The Ugandan Banker, June 2001).

2.7 RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE.

Transparency, Disclosure and Trust, which constitute the integral part of

corporate governance, can provide pressure for improved financial

performance. Financial performance, present and prospective is a

benchmark for investment.

The Mckinsey Quarterly surveys suggest that institutional investors will

pay as much as much as 28% more the shares of well governed

companies in emerging markets (Mark.2000).

According to the corporate governance survey 2002, carried out by

the Kuala Lumpur stock exchange and accounting firm Price Water

House Coopers (PWC), the majority of investors in Malaysia are prepared

to pay 20% premium for companies with superior corporate governance

16

practices.

Coombes and Watson (2000) also estimated that institutional investors

are willing to pay as high as a 28% premium for shares of strong

governance firms in emerging markets. Investors would be willing to pay

up to an 18% premium on a strong governance structure for a US or

British company and a 22% and 20% premium for strong governance

firms in Italy and Indonesia, respectively.

In their review of corporate governance, Felton et al. (1996) highlight

that investors with low turnovers in their portfolios pursue a value

instead of a growth asset management philosophy and evaluate strong

corporate governance highly.

Newell and Wilson (2002) found that firms with a positive governance

structure had higher price-to-book ratios, which is an indication of a

premium being paid for shares. They also found that firms that moved

from a poor to a good corporate governance structure had between a 10%

and 12% increase in their market valuation.

Vinten (1998) stated that, corporate governance is needed not only to

protect the interests of the stockholders but also other stakeholders.

Corporate governance is mandated to ensure the interests of public-

sector and private-sector organizations are represented. In addition,

corporate governance aids in securing confidence not only for

stockholders but also for other stakeholders such as customers,

suppliers, employees and the government in ensuring that firms are

accountable for their actions. The dominant form of corporate

governance for these firms is the board of directors.

According to the report prepared by Ronald F. Premuroso and Som

Bhattacharya in November 28th 2007 about the relationship between

corporate governance and financial performance, they found out that

17

firms' corporate governance ratings are significantly and positively

related to their decisions to voluntarily form technology committees.

Specifically, firm performance ratios such as return on assets, return on

equity, and net profit margin appear to be associated with firms'

decisions to form board-level technology committees (Ronald and Som,

2007).

Corporate governance theories and principles have led to effective

management and performance of banks. However previous researchers

have looked at the theories leaving gaps for further studies. For instance;

Jensen and Meckling, (1976), considered the firm as a nexus of

contracts associating the firm and the entire group of resource

contributors. Their limited objective of explaining the capital structure

led to construct more simplified model taking into consideration only two

agency relationships. The first linked the manager to the shareholders

and the second linked the firm to the financial creditors. This initial

modeling that gave priority placement to the analysis of the relationship

between the managers and the shareholders, where the shareholders

play the role of the “principles”, and the managers that of “agents”,

dominates normative research and reflection today.

According to Shleifer et Vishny, (1997), the corporate governance

mechanisms constitute a means of forcing the managers to “maximize”

the shareholders’ value. This perspective has particularly dominated the

studies relating to the board of directors, the annual shareholders’

meetings, the remuneration systems for managers, the legal and

accounting regulations and takeovers as well.

Fama (1980) asserted that the system of governance is comprised of

“internal” mechanisms implemented intentionally by the stakeholders or

by the legislator and “external” mechanisms resulting from the

spontaneous functioning of the markets. The “internal” mechanisms

18

such as the voting rights attributed to the shareholders, the board of

directors, the remuneration systems, and the audits decided by the

managers….or “external” mechanisms, such as the market of managers

and takeovers, are all mechanisms which have been highly contested,

including in United States.

Fayol (1814) mentioned the 14 principles of administration in which he

believed that authority was the right to command to get the work done.

According to him, while some authority should be given to the

subordinates to make decisions, all major policy decisions should be

made at the top management level. Whether the shareholders have rights

to make crucial decisions governing the corporate is a phenomenon that

has dominated the studies today.

2.8 Conclusion

The above sections of literature have uncovered that corporate

governance comprises attributes such as financial transparency,

disclosure and trust among others. This review also revealed that

financial transparency and disclosure enhance trust between the

stakeholders and organizations like commercial banks. Financial

performance is also reviewed and capital adequacy. Earnings and

liquidity shown as the key dimensions of measuring performance of

commercial banks.

19

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This section presents how the study was designed and carried out. It

discusses the research design, the sampling procedure, data collection

methods, instruments and how data was analyzed.

3.1 RESEARCH DESIGN

The research study used a descriptive research design. The purpose of

the research was to describe the relationship between corporate

governance and performance of Equity Bank.

3.2 SAMPLING AND SAMPLING PROCEDURE

3.2.1 Study population

The target study population consisted of all Equity Bank staff members

and customers.

3.2.2 Sample size

The sample size was 40 respondents, comprising of management of

Equity Bank and employees.

3.2.3 Sampling method

The researcher used purposive sampling method since the research was

a case study approach on a particular company. The researcher

administered the questionnaire only to the staff members of the bank

and respondents with knowledge and demonstrable experience and

expertise in the area of corporate governance and those concerned with

the organizational performance.

20

3.3 DATA COLLECTION

3.3.1 Sources of data

Data was collected mainly from two sources, which were primary source

and secondary source.

3.3.2 Primary sources

Primary data was collected from respondents through filling of

questionnaires, through formal interviews with managers, heads of

departments and customers.

3.3.3 Secondary sources

Secondary data was mainly collected from management reports and

publications of the Equity Bank. The purpose of collecting the secondary

data was to collaborate and strengthen the primary data.

3.4 DATA COLLECTION INSTRUMENTS

3.4.1 Questionnaire

Primary data was collected using self-administered structured

questionnaires; both open ended and closed questions were used.

Responses were sought using questionnaires.

3.4.2 Interviews

The researcher also used face to face interviews guided by interview

guide.

21

3.5 DATA PROCESSING, ANALYSIS AND PRECENTATION

The data collected was scrutinized to eliminate any errors. Editing of

data was also done to check the completed responses for the purpose of

detecting and eliminating errors. Analysis of data was done using

computer program SPSS. The data was presented by the use of frequency

distribution tables.

3.6 PROBLEMS ENCOUNTERED

Disclosure of some of the relevant information like earnings was

not easy since Equity Bank found it a way of exposing secret

commercial information to the competitors. This led to a delay in

accessing information (the bank annual reports) since the

researcher had to explain the actual purpose and confidentiality of

the research report.

Funds were not enough since the researcher required to travel to

Equity Bank headquarter, typing and printing of research work in

various drafts and copies.

Time allocated to complete the research report was limited.

Therefore researcher was put on stress to ensure that he

completed the study within the allocated time.

22

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter provides study findings, data analysis and interpretation of data on

the information collected on the Corporate governance and Performance of

Equity Bank. In this study all the responses from the study area were analyzed

and are here by presented using qualitative and quantitative approaches.

Findings are presented following the set up of the objectives of the study and in

form of tables.

4.1 Characteristics of the respondents

This section shows the general information of the respondents. All sampled

respondents were employees and customers of Equity Bank. They were asked to

fill the questionnaires sample. The characteristics of the respondents include

Age, gender, Occupation, and education level.

Table 4.2.1: Showing findings on gender of the respondents

Gender

Frequency Valid Percent Cumulative Percent

Male 28 70 70

Female 12 30 100.0

Total 40 100.0

Source: Primary Data

Findings from table 4.2.1 reveal that majority of the respondents- 70% were

Male, whereas 30% were Female. This shows that most of the respondents who

participated in the study about Corporate governance and performance of the

23

Bank were males and this is because the researcher through random sampng

happened to get more males than females. This could also imply that women

are declined to keep their funds with the equity bank institution.

Table 4.2.2: Showing findings on age group of respondents

Age

Frequency Valid Percent Cumulative Percent

Under 20 - 1 2.5

21-30 33 82.5 82.5

41-50 5 12.5 95

Above 50 2 5 100

Total 40 100.0

Source: Primary Data.

Findings from table4.2.2 shows that majority of the respondents who contributed

to the study were in the age bracket of (21 – 30) totaling to 82.5% of the

respondents. This could imply that this is the most economically active age group

that can follow the activities of the banks especially on issue regarding

transparency and disclosure. Those below 20 years were few with only 2.5%,

those with between 41-50 years were 12.5% whereas 2% had 50 years and

above. Those below 20 years could still be at school and even unemployed and

therefore may not require the services of the bank.

24

Table 4.2.3: Showing finding on the occupation of the respondents

Occupation Frequency Valid percent Comulative percent

Student 15 37.5 37.5

Bussiness person 20 50 87.5

Civil servants 5 12.5 100

House wife - - -

Engineer - - -

Total 40 100


Table 4.2.3 reveals that 37.5% were students, 50% were Business people, and

12.5% were civil severnts. This shows that majority of the employees in Equity

Bank were business people implying that they are much aware of the various

corporate governance systems being exercised by equity bank since, they are

not only the employees to the bank but also investors who carry out most of their

transactions with the bank.

Table 4.2.4: Showing findings on the level of education:

Education level Frequency Valid Percent Cumulative Percent

Secondary level - - -

Post secondary 2 5 5

University level 12 30 35

Professional level 20 50 85

Post graduate 6 15 100

Total 40 100


25

A big response from respondents indicated that 50% were of proffessional level

followed by 30% who were of university level. The study found out that most of

the repondents who are on the proffessional level are eployees in the bank

followed by those of the university level who were found to be customers to the

bank.

4.3 FINDINGS ON CORPORATE GOVERNANCE

To assess the various corporate governance variables, questionnaires were used

and findings were analysed as follows;

Table 4.3.1: Showing findings on whether the bank releases annual

financial reports on time.

Responses Frequency Percent

Strongly agree 6 15

Agree 4 10

Strongly disagree 10 25

Disagree 9 22.5

Not sure 11 27.5

Total 40 100.0

Source: primary data.

Results indicate that 10% of the respondents agreed that bank releases the

annual financial results timely, 15% strongly agreed, 25% srtongly disagreed,

while 22.5% disagreed whereas 27.5% of the respontents were not sure. This

gave a net postive response of 12.5%. This is an indication that the majority of

the respontents do not get the financial performance reports of the equity bank

on time which could otherwise help them to gauge the bank’s prosperity.

26

Table 4.3.2: Showing findings on whether the bank releases its future plans and prospects to the public


The above results show that a total of 80% percent of the respondents did not

agree that Equity Bank releases its future plans and prospects. 17.5% agreed

whereas 2.5% were not sure. This indicates that the bank is not transparent

enough as regarding to its future plans and prospect

Table 4.3.4 Showing findings on whether the bank discloses its total capital base



Strongly agree 5 12.5

Agree 2 5


Disagree 30 75

Not sure 1 2.5

Total 40 100.0


Strongly agree 2 5

Agree 5 12.5


Disagree 15 37.5

Not sure 8 20

Total 40 100.0

27

From the above analysis, only 17.5% of the total number of respontents agreed

that bank discloses its total capital base. 52.5% disagreed whereas 20% was not

sure. This shows how weak the disclosure system is in the bank.

Table 4.3.5 Findings on whether the bank discloses its accounting and presentation policies.

Results in the table indicate a net positive response of 18.75%. This implies that

most of the customers to the bank are not aware of the bank’s accounting

presentation policies which could otherwise help to promote their loyalty with the

bank.



Agree 10 25

Strongly disagree 7 17.5

Disagree 8 20

Not sure 10 25

Total 40 100.0


28

Table 4.3.6: Showing findings on whether the customers trust the information they recieve from the bank


Strongly agree 6 15

Agree 27 67.5


Disagree 2 5

Not sure 2 5

Total 40 100.0

Source: Primary data.

The table above shows that 67.5% agreed that the customers trust the

information they receive from the bank whereas 7.5% of the respondents

strongly disagreed. This implies that the performance of the bank is highly

contributed by the trust the customers have with it.

Table 4.3.7 Showing findings on whether the bank has good accountability system



Agree 28 70

Not sure 2 5


Disagree 2 5

Total 40 100.0


From the above table, the majority of the respontents-70% agreed that managers

in Equity Bank are accountable to their work. Those who disagreed were 7.5%

whereas 2.5% of the respontents was not sure. This implies that there is good

29

managegerial accountability in the bank which has helped to promote its good

performance in terms of profitability.

4.4 FINDINGS ON PERFORMANCE

Table 4.4.1: Showing findings on whether the Bank experiences high profit margins annually


Strongly agree 4 10

Agree 14 35

Not sure - -


Disagree 16 40

Total 40 100.0


Results indicate that 45% of the respondents agreed that the bank experiences

high profitabity mergin, whereas a total of 55% disagreed and non of the

respontents was not sure. This shows that bank experiences low profit margin

which could be due to low customer turnover to the bank.

30

Table 4.4.2: Showings findings on whether the Bank experiences high customer turnover annually



Agree 12 30

Not sure - -


Disagree 20 50

Total 40 100.0

Source: Primary Data

Results indicate that 42.5% of the respondents agreed that the bank realises

high customer turn over whereas a total of 57.5% disagreed. Non of respontents

interviewed was not sure. This could imply that the Bank experiences low

customer turnover in a year and this results to its low profitability.

Table 4.4.3: Showing findings on whether the bank has strong capital base



Agree 16 40

Not sure - -


Disagree 17 42.5

Total 40 100.0


31

Results indicate that 52.5% of the respondents agreed that the Bank has strong

capital base, 5% strongly disagreed whereas 42.5% disagreed. The above

results could imply that the bank experiences relatively strong capital base which

could be attributed to good management system that enables the bank to attain

its financial objecives.

Table 4.4.4: Showing findings on whether the bank meets its daily liquidity obligations


Strongly agree 4 10

Agree 10 25

Not sure 12 30


Disagree 10 25

Total 40 100.0


Results indicate that a total of 35% of the respondents agreed that the bank

attains its liquidity obligations, also a total of 35% disagreed while 30% of the

respontents were not sure. Lack of attainment of the bank of its liquidity

obligations could be attributed to the inconsistencies in management system

which include poor tranparency and disclosure system that tend to scare off

some customers and other investores.

32

4.5 FINDINGS ON THE RELATIONSHIP BETWEEN CORPORATE

GOVERNANCE AND PERFORMANCE

Table 4.5.1 Showing findings on whether the proper management system has assisted in good performance of the bank


Strongly agree 30 75

Agree 8 20

Not sure - -

Strongly disagree - -

Disagree 2 5

Total 40 100.0

Source: primary data

Results indicate that 75% strongly agreed that the management of the bank has

aided its performance whereas 20% of the respondents agreed. The total

respondents who disagreed was only 5%. This implies that whenever the bank

puts proper management system in place, it realises high performance levels in

terms of profitability.

33

Table 4.5.2: Showing findings on whether the bank transparency contributes to good performance of the bank



Agree 14 35

Not sure 3 7.5


Disagree 8 20

Total 40 100.0


Results indicate that a total of 62.5% respondents agreed that the tranparency of

the bank management boosts its performance in terms of profitability. Those who

did not agree were 30% whereas 7.5% were not sure. This could mean that

transparency of the bank has had a positive effect on the bank’s performance in


Table 4.5.3: Showing findings on whether poor management policies have had a negative impact on bank’s performance



Agree 6 15

Not sure - -


Disagree 7 17.5

Total 40 100.0


34

Results indicate that 62.5% of the respondents stronlgy agreed that poor

management has had negative effects on the bank performance while 15%

agreed. A total of 23% of the respndents disagreed. This implies that whenever

there is inefficiecy in the management system, there occurs a deterioration in

bank’s profit margin. This means that for the bank to make high returns its

management must be effective.

Table 4.5.4: Showing findings on whether the customers’ trust and confidence with the bank increase its profit levels



Agree 9 22.5

Not sure - -


Disagree 8 20

Total 40 100.0


Results indicate that 52.5% of the respondents strongly agreed that the trust and

confidence the customers have with the bank increases its performance in terms

of profitability. 22.5% of the respondents agreed, 5% strongly disagreed

whereas 20% of the respondents disagreed. This implies that the performance

of the bank highly depends on the level of trust and confidence the customers

have with the bank.

35

Table 4.5.5: Showing responses on whether bank’s accountability system affects the performance of the bank


Strongly agree 10 25

Agree 25 62.5

Not sure - -

Strongly disagree - -

Disagree 5 12.5

Total 40 100.0


Results indicate that 87.5% of the respondents agreed that the accountability

system has an effect to the performance of the bank whereas only 12.5% of the

respondents disagreed . This implies that the quality of accounting system in a

corporate helps a lot in determining its returns. When the bank has a good

accounting personnel and ensures that each worker is accountable to the task he

performs, there will result high returns. Poor accountability in the bank results to

its poor profitability.

36

Table 4.6: Findings on the Relationship between corporate governance performance

Corporate governance

performance

Corporate governance

Performance

Correlation Coefficient

Sig. (2-tailed)

N

Correlation Coefficient

Sig. (2-tailed)

N

1.000

.

40

.549**

.000

40

.549*

.000

40

1.000

.

40

** Correlation is significant at 0.01 level (2 tailed)


In table 4.6.1,a correlation was observed for the corporate governance and

performance of Commercial Banks.Pearson correlation coefficient of .549 was

observed. This indicated that corporate governance positively affects

performance of Equity Bank where the correlation is significant at 0.01 level.

There is therefore significant postive relationship between corporate governance

and performance of the bank in that a good corporate governance system leads

to a better bank performance and when the corporate governance is poor, also

poor bank performance will be realised.

37

CHAPTER FIVE

DISCUSSIONS, CONCLUSSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

This chapter presents a summary of the findings and draws conclusions and

recommendations that are meant to help Equity Bank on its way to improving its

corporate governance as well its performance.

5.2 Summary of the major findings

5.2.1 Findings on corporate governance

It was found out that the bank experiences low levels of corporate governance

systems. For example the findings showed a net positive response of only 12.5%

regarding the bank tranparency on its annual financial report release. The

findings also indicated that the bank’s disclosure level is low as proved by a

positive response of only 17.5% in relation with its total capital base disclosure.

On whether the bank trust the information they get from the bank, only a net

positive response of 36.25% was realised.

5.2.2 Findings on financial performance.

The findings showed that the performance of the bank was not good and this

caused the profit margin of the bank to decline. This is shown by a net positive

response of 45% which indicated that profitability magin of the bank was not

high. The study also found that the bank does not attain its annual financial

obligations as surported by a net positive response of only 35%. It was also

38

found out that the bank’s annual customer turnover was not pleasing as only

42.5% of the respondents were found to be in favour.

5.2.3. The relationship between corporate governance and

performance of the bank

It was established that there is a positive relationship between corporate

governance and performance of the bank. It is expected that if corporate

governance practices improve,the bank will register high returns in terms of

profitability. For instance, the study found the correlation coefficient of .549 as

shown in table 5.6.1 above.

The study also found out that whenever good corporate principles such as

transparency, disclosure and trust are practiced, the firm tends to register high

performance levels in terms of profitability.

5.3 Conclusion.

According to the first objective, corporate governance practices were found to be

effective in some instances.For example, the accounability level in the bank was

found to be high as indicated by a positive reponse of 70%. The level of trust the

customers have with bank was also found to high by 62.5%. However, the bank

needs to strenghthen other key corporate governance principles such as

transpareny and disclosure which were found to be too low.

According to the Second objective, the financial performance of bank was found

to be unsatsfying. For instance, it was established that the bank registers low

profit levels annually and that the bank does not attain its daily liquidity

obligations. If the inefficiency in the bank management persistst, then the strong

39

capital base of the bank will be destabilised. This calls for the corporate

governance principles to be emphasised in bank for its survival.

In the third objective, the relationship between corporate governance and

performance was found to be strong. For example, the study found out that

whenever the bank practices corporate governance principles such as

transparency, disclosure and trust, there is always a high financial returns

experienced.

5.4 Recommendations

Commercial banks have got to establish mechanisms to enforce proper

governance practices such as disclosure and transparency.This will

automatically build a bond of trust with customers who in turn are likely to

turn into shareholders when the respective commercial banks are listed on

both local capital market like Uganda Stock Exchange(USE) or on

International Capital Market like the New York Exchange (NYE).

Commercial banks operating in Uganda like any form of business

organization in today’s dynamic landscape should focus on proper

governance practices not only to boost and enhance their financial

performance,but as path to gaining a better public image,thus recognised

by the society in which they operates. This will also help to boost their

operations and survival.

40

5.5 Areas for further study

Due to resource and time contraints, some issues could not be studied and

constitute areas for further research. The following areas are therefore

recommended for further studies;

Corporate governance and performance of listed financial institutions.

Corporate governance and performance of small scale business

enterprises in Uganda.

Accountability and financial performance in the financial institutions in

Uganda

41

Date:………………..

Dear Sir/Madam,

The researcher is a Makerere University Student carrying out a study

about the relationship between Corporate Governance and Performance

of commercial banks in Uganda using Equity Bank as a case study. The

purpose of this research is purely academic and aimed at fulfilling one of

the conditions for the award of Bachelor of Commerce degree of Makerere

University.

I humbly request you to spare a few minutes to answer the following

questions. You responses will be treated with utmost confidentiality.

GENERAL INFORMATION

Please tick (√) in the appropriate box or write in the line space provided.

1. Please indicate the age group you belong

Under 20 years

21-30 years 31-40 years 41-50 years Above 50 years

2. Gender : Male Female

3. Education Background

Secondary

level

Post

secondary

University

level

Professional level Post Graduate

Other (Please specify)

………………………………………………………………………………………………

………

4. Occupation

MAKERERE

MAKERERE

UNIVERSITY

QUESTIONNAIRE:

42

Student Business person Civil servant House wife engineer

5. Other (Please specify)

…………………………………………………………………………………

……………………

Section B

Corporate governance Tick (√) only one option that suits your level of agreement or

disagreement.

5. The bank releases its annual financial performance reports timely

Strongly agree Agree Not sure Disagree Strongly disagree

6. The bank releases its future plans and prospects to the public


7. The bank has good accountability system


9. The bank discloses its total capital base


10. The bank discloses its main competitors to the public


43

11. The workers in bank are reliable


12. The managers in bank are competent in doing their work.


13. The managers in the bank are accountable to their work


14. The banking services and products are made known to the public.


15. The bank makes its financial statements and reports known to its

customers


16. The bank informs its customers incase of interest rate fluctuations


17. The bank makes its profits and losses known to its customers


44

Section C.

Performance in terms of profitability.

18. The bank experiences high profitability margin


19. The bank experiences high customer turn over in a year


20. The bank is the leading financial service provider in the District.


21. The bank provides a variety of financial services and products to

its customers


22. The bank experiences stable Net after worth/equity


23. The bank experiences higher Returns on Assets (ROA) in a year.


45

24. The bank has a strong capital base


25. The bank meets its daily liquidity obligations


26. The bank experiences high earnings in a year.


27. The bank has good management system


28. The bank experiences high asset quality


Section D.

The relationship between Corporate Governance and Performance in


29. Proper management system has assisted in good performance of

the Bank


46

30. The bank transparency has attracted many customers which has

led to increase bank profitability


31. Poor management systems have had a negative impact on the

performance of the bank


32. The earnings per year of the bank decline due to inefficiency in

management system


33. The profitability margin of the bank goes high due to good

management policies


34. Good management system increases the number of shares sold by

the bank


35. The efficiency in the bank disclosure system has boosted the

customer morale with bank


47

36. The customers’ trust and confidence with bank have contributed to

its high profitability.


37. The bank has good accountability personnel which help to boost its

performance.


38. The bank has competent workers who help to uplift its profit

margin


39. The profit margin of the bank depends on the accountability of the

staff personnel


40. Lack of honest of some workers has had a negative effect on the

bank’s performance


**Thank you for your kindheartedness in filling this questionnaire**

48

Interview Guide

Corporate Governance and performance of the equity bank.

1. Position of the respondent

2. Does equity Bank follow the corporate Governance principles like

Transparency and Bank Disclosure?

3. What are the reasons for you answer in question 2 above?

----------------------------------------------------------------------------------

----------------------------------------------------------------------------------

----------------

4. How do you determine your banks financial performance?

----------------------------------------------------------------------------------

----------------------------------------------------------------------------------

----------------

5. What is the relationship between corporate governance and

performance of the bank in terms of profitability?

----------------------------------------------------------------------------------

----------------------------------------------------------------------------------

----------------------------------------------------------------------------------

------------------------

49

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