The Effect of Corporate Governance Practices on the Financial Stability of Selected Credit Unions in the North West Region of Cameroon

Abstract

This study addresses the persistent challenge of low compliance with COBAC prudential norms among credit unions in the North West Region of Cameroon, which undermines their financial stability and resilience; despite ongoing reforms, inadequate governance practices, credit management, and risk mitigation strategies continue to hinder the sector’s ability to withstand economic shocks and achieve sustainable growth. The objective of this study is to examine how corporate governance practices (board and supervisory committee activities, credit committee operations and risk management practices) affect financial stability. Employing a cross-sectional descriptive design, secondary data from 40 credit unions collected in 2024 were analyzed using the robust multiple regression technique to address issues of normality and multicollinearity. Findings reveal that activities of the Board and Supervisory Committee significantly improve financial stability at 5% level, supporting agency theory’s emphasis on oversight. Credit committee effectiveness equally positively affects financial stability and the findings are significant at 5% level, highlighting the importance of sound credit management aligned with resource dependency theory. Furthermore, robust risk management practices are strongly associated with increased financial resilience with findings significant at 1% level, confirming the relevance of risk management theory. Control variables such as staffing levels and branch networks further contribute to stability. Based on these findings, recommendations include; strengthening governance structures through capacity building, enhancing credit appraisal procedures and adopting comprehensive risk mitigation strategies, including staff training and expanding operational capacity. Overall, the study emphasizes the importance of integrated governance, credit and risk management practices to improve compliance, safeguard financial stability and promote sustainable growth of credit unions in Cameroon’s credit union sector.

Keywords:       Board and Supervisory Committee Activities, Credit Committee Activities, Corporate Governance Practices, Credit unions, Financial stability, Risk management