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EBRD/OECD urge key steps to bolster banking governance in Eurasia
A joint Task Force organised by the EBRD and the OECD called on Eurasian (*) banks to take key steps to strengthen their corporate governance and so help promote better governance throughout the economies of the whole region.
In a Policy Brief presented to a conference taking place on April 30 at the London headquarters of the EBRD, the Task Force noted that good banking corporate governance was essential to the sound functioning of the sector.
Given the influence that this sector wields, Eurasian banks were expected to become role models for other companies in implementing better corporate governance.
In its recommendations, the Task Force said it was important that banks had a sufficient number of genuinely independent directors on their supervisory boards. Banks’ audit committee members should be appropriately qualified.
Supervisory boards should ensure that a “compliance-oriented culture” prevails in banks, via relevant awareness raising programmes. Bank boards should establish procedures for reporting unethical or unlawful behaviour and assure employees who use such mechanisms that they will be protected.
The Task Force noted that confusing lines of responsibility created management challenges and recommended that these lines be well defined, making clear the distinction between the responsibilities of the supervisory and management board as well as the shareholders.
The role of internal and external auditors needed to be strengthened, the Policy brief said, noting also that remuneration for bank board members should be appropriate. “An extraordinarily low level of remuneration of board members is no more desirable than an extraordinarily high level,” it said.
In calling for improved transparency and disclosure of information, the Policy Brief said it was particularly important to focus on ownership structure. “An opaque ownership structure poses a significant risk on the depositors, other stakeholders and minority shareholders.”
In addition to calling on for professionalism and a sufficient measure of independence in the boards of state-owned or state-controlled banks, the Task Force also said it was in the interests of banks to assess properly the governance structures of their corporate clients.
Finally the Policy Brief recommended that banking supervisors in Eurasia, together with securities regulators and stock exchanges, should develop and publicise voluntary national codes of corporate governance for banks in the form of a template that banks could use as a base for the dev elopement of their own individual codes.
To foster the recent success in economic development, especially the growth of the banking sector, in the region, further strengthening of the corporate governance principles and establishing an irreversible trend is of high priority, said Mr Kovzanadze, Chairman of the Task Force and Chairman of the Budget and Finance Committee of the Georgian parliament. “Sound corporate governance practices are a cornerstone for attracting investments” Emmanuel Maurice, General Counsel of the EBRD, pointed out.
The EBRD’s co-financing of the initiative is sponsored by the ETC Multi-donor Fund (Contributors to the multi-donor fund are Canada, Finland, Ireland, Japan, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, Taipei China and the UK)
* The Policy Brief covered the banking sector in Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Mongolia, Tajikistan, Ukraine and Uzbekistan
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