Corruption and Bank Performance: Evidence from the ASEAN Region

Bank performance can be defined as the efficacy and efficiency of a bank's operations, as demonstrated by metrics like earnings, managerial effectiveness, and efficiency measurements. This study aims to fill the current gap in the literature regarding how corruption affects bank performance in the ASEAN area. Corruption is one of the major determinants of bank performance and affects banks' profitability. This study looks at the relationship between corruption and bank performance in six countries from the ASEAN region. The study employ two regression models: ordinary least squares and the fixed and random effect model, on our data spanning ten years. Capital Adequacy Ratio (CAR), which measures a bank's capital against its risk-weighted assets, is crucial for financial stability and can help mitigate the risks associated with corruption, such as fraud and asset misappropriation. This study performed static panel data analysis to evaluate the hypothesis. We employed random effect, fixed effect, and OLS models. The results show that corruption has a slight negative impact on bank performance, along with bank-level variables such as CAR and bank size. BNKSZE, LQDY and CAR are variables with unique values for each bank. Regarding bank-level variables, we observe that bank size positively affects bank performance. These results showcase the importance of controlling corruption for a stable banking system and a healthy economy. Therefore, future research that examines bank internal risk indicators using a more comprehensive dataset will be a valuable addition to the ongoing discourse. Furthermore, by including a wider variety of financial factors such as NPLs and bank stability, future research could explore the intricate links among governance quality, bank financial performance, and bank risk-taking.