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Study Case 3 – Financial Sector Assessment Programs’ Treatment of State-Owned Financial Institution Reform

– This article is provided for Educational Purposes only –

In a stratified sample of 29 joint International Monetary Fund–World Bank Financial Sector Assessment Program (FSAP) reports, the Independent Evaluation Group found that 76 percent substantially discussed state-owned financial institutions and 66 percent made recommendations. Two-thirds focused on commercial banks, 24 percent on development banks, and 28 percent on nonbank financial institutions.

Upstream policy and institutional recommendations focus on sectoral regulatory frameworks (41 percent), governance (38 percent), and ownership (17 percent). Downstream enterprise-level reform recommendations focus on firm-level ownership (51 percent), financial management (17 percent), corporate governance, and business and operational management (17 percent). Examples include the following:

  • The Botswana FSAP identifies challenges to state-owned financial institutions in delivering financial services to the poor and rural population. It recommends giving full supervisory authority to the Bank of Botswana for statutory banks and licensing these institutions as a prelude to their privatization.
  • The Russian Federation FSAP recommends a new legal and regulatory framework to increase board effectiveness, the gradual privatization of banks, and the revisiting of state hybrid and development finance institutions.

Source: Independent Evaluation Group Financial Sector Assessment Program review.