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Corporate Governance Implementation: The BCR Case Study - Maximizing Efficiency and Market Value

This case study explores the benefits of implementing corporate governance in Banca Comerciala Romana (BCR), the largest commercial bank in Romania. It highlights the challenges faced, key lessons learned, and the positive impact on efficiency and market value.

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Corporate Governance Implementation: The BCR Case Study - Maximizing Efficiency and Market Value

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  1. The Benefits of Implementing Corporate Governance – From Theory to Practice – The Banca Comerciala Romana Case Study

  2. BCR in 2003 • Largest Commercial Bank in Romania • Spin-off from CB during Romania’s privatization program in ‘91 • Retail, corporate lending • 13,000 employees • State-owned (70%), with minority (30%) held by Investment Funds • Five local Investment funds, set up to handle mass privatization for employees • US$1 billion book value • Two failed privatization attempts in 2002

  3. Govt. Approached IFC for Investment • 12.5% + one share for US$111 • .88x book value • Negotiated pari passu and in tandem with EBRD • Tag-along / drag-along • Medium-term trade sale anticipated (no IPO) • Subsequent distribution of 8% to management, employees and retirees • Institution-building program to prepare for Privatization • Organizational structure, business development, HR • Corporate governance

  4. Governance Issues • Management and board indistinguishable • Board composed of senior managers, Govt. and SIF reps • Met more than 25 times annually • Risk management and internal controls systems weak • Small internal audit function • No risk management dept. • Host of other cg issues

  5. Corporate Governance Program • Philosophy – “Governance for the Interim” • Introduced Two-Tiered Board Structure • Management off the Supervisory Board • Redrafted Charter • Amendments to Banking Law • Audit & Compliance and Compensation Committees • IFC and EBRD-nominated directors • Active engagement at Shareholders Meeting • Two-Stage Training Program • IMD/IIF Seminar • In-house Program

  6. Initial Results • Rating Agency Upgrades • Board effectiveness (committees still nascent) • Professionalization of Shareholders Meetings • Implementation of IBP • Improvement of Risk Management and Internal Controls • IFC-sponsored Resident Advisor to Internal Controls Unit • Transparency sufficient to privatize

  7. Road to Full Privatization • 11 interested bidders initially • Seven bids submitted in mid-October • Two finalists: Erste Bank (Austria) and BCP (Portugal) bid for Gov’t and IFC/EBRD shares • Erste wins bidding: €3.75 billion for 61.88% • ~6x book value of €1 billion at June 2005 • IFC’s 12.5% stake worth €758 million

  8. Key Lesson: Real Commitment • Corporate Governance can fetch a premium in the market • Effect is greater for bank where internal controls are so key • Enormous effort needs to be expended at early stage: • Understanding respective roles, • Changing role of management, board & shareholders

  9. Thanks

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