1 CHAPTER I

2 THE PROBLEM AND ITS SETTING

4 Introduction

5 The existence of financial institutions is vital in the corporate world to

6 facilitate the flow of money in the economy. In a corporate setup, companies rely

7 on a network of investors through financial institutions to finance and help develop

8 the company to meet its long term and short term goals. Investors on the other

9 hand expect returns and shares in exchange of their invested capital. All of these

10 can be easily achieved by financial institutions, especially banks.

11 Banks are considered as the lifeblood of the modern economy. 1 They play

12 an essential role in the financing system and offer a diversified list of financial

13 services such as accepting deposits, loans, wealth management and currency

14 exchange. Primarily, banks are concerned with their client’s deposits and the

15 safekeeping of thereof and their monetary transactions.

16 Banks are for-profit service oriented institutions and, like any other for-profit

17 establishments, banks provide services in lieu of a fee being charged to their

18 customers. This is primarily because these banks exist to earn profit and to

19 maximize the wealth of their internal stakeholders. However, profit should only be

20 a part of the indicators that may determine the performance of a company.

21 Companies must be conscious enough and consider other factors that may affect

22 their performance such as their workforce, the community in which they operate in

23 and the people they serve. This holds true especially today when companies are
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24 under tremendous pressure to monitor and report on more than just their economic

25 performance to further sustain the organization as a whole.

26 There are different theories and methods of assessment that can be

27 employed. One of these methods is the Balanced Scorecard approach introduced

28 by accounting academic Dr. Robert Kaplan and business executive and theorist

29 Dr. David Norton in 1992 in a Harvard Business Review article. 2 In this approach,

30 measuring performance is integrated into four key areas; financial perspective,

31 customer satisfaction, internal business process and learning and growth. This

32 approach opened the idea that in order for an organization to be sustainable they

33 must not only focus on gaining profit but they must also take into consideration

34 their non – financial information, such as learning and growth, and customer

35 satisfaction.

36 According to Kaplan and Norton, customer satisfaction is directed to

37 external factors that, by applying such approach, it will help companies with their

38 customer satisfaction rates and customer loyalty thus increasing their company

39 value, and public trust. An increase in company public image is also apparent thus

40 giving them a leverage from their competition. An increase in market share can

41 become a direct result to such approach hence there will also be an increase in

42 profits.

43 Learning and growth is also an essential factor in the balanced scorecard

44 approach. It focuses on the employee trainings and corporate cultural attitudes

45 related to both individual and corporate self-improvements. People, in a

46 knowledge-worker organization are the main resource and in a fast innovating,

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47 technological world, it is necessary that knowledge workers should be in

48 continuous learning mode. It is emphasized in Kaplan and Norton’s approach that

49 learning is more than training as it includes tutors and mentors from the internal

50 process of the company.

51 Generally, with all these concepts, the development of the Balanced

52 Scorecard improved the long term sustainability of companies and their current

53 position which lead to prosperity in economic development where they operate.

54 This accounting conceptual framework is a norm to most companies, and the

55 Philippines is no exception.

56 It is also apparent that local private and public companies apply such

57 approach to measure their corporate governance. By measuring their corporate

58 governance, companies see further their leverage against their direct and indirect

59 competitors. Such approach is applied in the banking sector, especially that

60 financial institutions as of now are at a race to get the largest market share. This

61 is also prevalent in the Philippine Banking industry.

62 As of March 31, 2018, the number of universal and commercial banks have

63 grown to 43 in the Philippines. One of the most prominent is China Bank.

64 Established on August 16, 1920, and was founded by Dee C. Chua. As China bank

65 continued to grow, it has garnered many awards and one of its highest recognition

66 is to be in the Top 50 ASEAN Publicly Listed Companies, as one of the best in

67 corporate governance.3 In 2018, it has been considered to be in the top ten banks

68 in the Philippines according to the Bangko Sentral ng Pilipinas by total assets.4

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69 Being one of the top performing banks in the Philippines, it is indeed a great

70 challenge for the management of China Bank to sustain not only its financial

71 performance but also the trust of its stakeholders.

72 Therefore, this study was conducted using the Balanced Scorecard as a

73 measurement tool in order to assess its corporate governance.

74 Statement of the Problem

75 This study is aimed to assess the corporate governance of China Bank

76 using the Balanced Scorecard as a measurement tool.

77 Specifically, the study sought to answer the following questions:

78 1. What are the programs, projects and activities undertaken by China Bank

79 relative to:

80 a. Financial perspective

81 b. Customer perspective

82 c. Internal business process

83 d. Learning and growth?

84 2. What are the current corporate governance status of the aforementioned

85 variables as assessed using the Balanced Scorecard?

86 3. What is the level of effectiveness of China Bank corporate governance as

87 perceived by the clients?

88 4. What strategies may be crafted to further enhance the existing corporate

89 governance of China Bank?

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91 Scope and Delimitation

92 This study focused mainly on assessing the corporate governance of China

93 Bank using the Balanced Scorecard. The study covered the programs, projects

94 and activities undertaken by the organization relative to financial perspective,

95 customer satisfaction, internal business process and learning and growth. This

96 study also sought to answer the current status of the above mentioned variables

97 by the use of the Balanced Scorecard and its level of effectiveness as perceived

98 by the clients.

99 The study was conducted in the China Bank Legazpi branch located at F.

100 Imperial St., Legazpi City. The respondents were the personnel (Branch Manager,

101 Branch Operations Manager and one teller) from China Bank.

102 It did not include other banking institutions nor alternative sources or types

103 thereof. This study was delimited through years 2016 to 2017 of China Bank’s

104 operations.

105 Significance of the Study

106 This study had a significant purpose which is, to assess the application of

107 the Balanced Scorecard on the corporate governance of China Bank.

108 Specifically, this study is beneficial to the following:

109 Management of China Bank. The output of this undertaking will provide

110 the China Bank with an understanding on how the management will perform well

111 and sustain their operation through the use of the Balanced Scorecard approach.
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112 Also, the findings of this study will serve as an additional input of information for

113 the organization in evaluating and improving their practices and policies.

114 Banking Sector. This study will help the banking sector consider the impact

115 of their actions to their stakeholders and the community where they are situated

116 while generating profit.

117 Government Agencies. The Balanced Scorecard is the main management

118 tool that has been used by successful organizations in various fields. This study

119 will help and inspire the government agencies such as the Bangko Sentral ng

120 Pilipinas, Bureau of Internal Revenue and the Local Government Unit to adapt this

121 management tool in their performance measurement system.

122 Employees. This study will be beneficial to the employees for it will serve

123 as a guide to know the direction of the company. Furthermore, employees will be

124 greatly motivated and encouraged to do better in executing their duties.

125 Clients. The information yielded from the study will align the practices and

126 policies of the bank to the client’s needs thus improving the services that the bank

127 offers to its clients.

128 Accountancy Students. This study may provide supplemental information

129 to broaden their knowledge in the theory of sustainable performance using the

130 Balanced Scorecard. Thus, it can also be useful in presenting recent and applied

131 related topic discussions.

132 Present and Future Researchers. This endeavor will encourage the

133 researchers to study more about variables other than profit in maintain
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134 sustainability of an organization. It will serve as a supplemental reference to other

135 related studies.

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162 Notes

1 Zkjadoon. (2016, May 10). Importance of Banks in Detail – Role of

Commercial Banks. Sourced from www.businessstudynotes.com, accessed on
July 14, 2018.

2 Balanced Scorecard (2016). Sourced from www.investopedia.com,

accessed on November 15, 2018.

3 China Bank – Corporate Governance (2018). Sourced from

www.chinabank.ph, accessed on February 21, 2019.

4Ranking as to Total Assets – Universal and Commercial Bank Group.

Sourced from www.bsp.gov.ph, accessed on July 14, 2018.