CODE OF CORPORATE GOVERNANCE
I. Statement of CrediTbank SAL Approach to Corporate Governance
CREDITBANK SAL (the Bank) believes in and is committed to good corporate governance, to provide a basis for its future development and corporate performance, to support trust in its activities as a recipient of depositors' funds and shareholders' capital, and to enable it to contribute to the successful development of the Lebanese banking system. Accordingly, the Board of the Bank has formally resolved to adopt a Corporate Governance Code (the Code) which conforms to the requirements and recommendations of the Lebanese Central Bank and Banking Control Commission in particular the principal circular n°106 dated 26/07/2006, as well as international best practice.
The guiding principles of the Bank's Code are the following:
- Responsibility - the clear division and delegation of authority.
- Accountability in the relationships between the Bank's management and the Board, and between the Board and the shareholders and other stakeholders.
- Transparency and disclosure to enable stakeholders to assess the Bank's financial performance and condition.
- Fairness in the treatment of all stakeholders.
This first edition of the Bank's Code is dated July 2009. In line with the Bank's continued development, this Code has been reviewed on 28/12/2010, and will be amended as required from time to time to meet the changing needs and expectations of the Bank and the market place.
ii. Commitment to Corporate Governance
1. The Bank has compiled this Code of Corporate Governance, which has been formally approved by the Bank's Board. It is available to the public on request, and is published on the Bank's website. Any changes to the Code will be similarly published.
2. The Bank has formed a Corporate Governance Secretariat headed by the Board’s Secretary to draft and update the present Code.
3. The Board has formed a Corporate Governance Committee to direct the enforcement of the Code.
4. The Bank will submit significant changes in the Code to discussion and voting at the Board and will notify said changes to the Annual General Meeting.
5. The Bank on an annual basis assesses its compliance with the Code. This comprises details of how the provisions of the Code have been implemented and, where relevant, where and why the Bank has adopted procedures that are different from those recommended by the Code.
6. The Annual General Meeting shall discuss the Bank's corporate governance structure and procedures as contained in the annual report.
iii. The Functioning of the Board of Directors
A. General principles
1. The Board of Directors has overall responsibility for the operations and the financial soundness of the Bank, and ensures that the interests of shareholders, depositors, creditors, employees, and other stakeholders, including the regulators and supervisors, are met.
The Board ensures that the Bank is managed prudently and within the framework of laws and regulations and the Bank's own policies.
2. Although shareholders have the right to appoint Directors, the Bank publicly affirms that the obligations of each Director are owed to the Bank as a whole, and not to a particular shareholder alone.
3. With regard to the respective roles of the Board and management, the Board approves the Bank's strategic goals, as well as oversees the management of the Bank. The day-to-day operation of the Bank is the responsibility of senior executive management. As the Board's function is to oversee senior management and hold it accountable, it is considered essential that the Board as a whole and the Directors individually, if non-executive, do not involve themselves in day-to-day activities.
4. The Board ensures and certifies that the Bank's internal control systems are effective, and that the Bank's activities comply with the policies and procedures approved by the Board and as required by law or regulation. As a critical part of these internal controls, the Board ensures that all dimensions of the Bank's risk are measured and controlled.
5. To enable the respective roles of the Board and senior management to be clearly understood, the function, roles, and responsibilities of the Board have been set out in a Terms of Reference, which is published on the Company's website.
B. The Chairman and General Manager
1. The Chairman is elected from among the Directors of the Bank; In order to ensure a more effective follow up of the Bank’s day-to-day activities, and until the Lebanese law allows the separation between the functions of Chairman and General Manager, the Board – upon the request of its Chairman – shall appoint a General Manager who works under the responsibility of the Chairman.
C. The role of the Chairman of the Board
1. The Chairman promotes a constructive relationship between the Board and the Bank's management, and between the executive Directors and the non-executive Directors.
2. The Chairman promotes a culture in the boardroom that encourages alternative views on the issues under consideration, and consequent discussion and voting on individual questions.
3. The responsibilities of the Chairman are listed in article 46 of the Bank’s articles of association.
4. It is the responsibility of the Chairman to ensure that Directors have adequate and timely information prior to their meetings.
5. It is the responsibility of the Chairman to ensure that the Bank's shareholders receive adequate and timely information.
6. The Chairman ensures a high standard of corporate governance by the Bank.
D. Composition of the Board and criteria of remuneration
1. The Board is composed of executive, non-executive and independent Directors, and are elected by the General Assembly of shareholders in a way to provide the optimal mix of skills and experience.
2. Non-Independent (Executive and Non-executive) Board Members are elected as the Bank’s Shareholders’ representatives based on their representation rights, as well as their integrity, credibility and business sense qualifications.
3. To foster an independent element within the Board, it is the Bank's intention to appoint at all time at least two fully independent Directors to the Board, and that the Board should have at least one non-executive Director. An 'independent' Director is one whose directorship constitutes his only connection to the Bank (except for the shares of guarantee required by law), and whose judgment is therefore unlikely to be influenced by external considerations. An "independent" Director includes one who has not been employed by the Bank for the preceding three years, is not an immediate family member of a director or a member of the Board, is not receiving payment or compensation from the Bank (other than as a Director), is not a Director or shareholder of a sister-company, subsidiary or any other company with which the Bank does business.
4. The Board Directors shall have the following qualifications:
• Broad enough experience – know how so as to allow him to perform his supervisory mission within the Bank.
• General understanding of banking activities allowing him to assess risks relating thereto.
• Be able to distinguish between the Bank’s interests and the Directors’ and/or the shareholders’ personal ones in all decision makings.
• High ethical standards.
• Interpersonal skills allowing them to perform within a team and be daring enough to objectively and positively challenge the management in such a way as to serve the Bank’s interests.
• Members of the Board of the Bank are not allowed to be board members of more than six other companies.
5. As banking becomes more complex it is increasingly useful for senior members of the Bank's management team to attend the meetings of the Board of the Bank so that Board discussions can receive the benefit of their insight and experience in increasingly technical issues. Accordingly, the Board meetings may include members of senior management when deemed necessary.
6. Directors serve for a period of three years and are then required to be resubmitted for reelection;
7. The remuneration of Directors shall remain the sole authority of the General Assembly and cannot be delegated to the Board.
8. The criteria to set the remuneration of the Board Members are as follows:
• Remuneration of Non-Independent (Executive and Non-executive) Board Members is determined on the basis of the yearly frequency of Board meetings. Remuneration takes into consideration that a Board Member dedicates an average of two working days for each meeting.
• Remuneration of Independent Non-executive Board Members takes into account further considerations such as but not limited to reputability, seniority, financial experience and perceived added value.
• Remuneration of the Chairman of the Board reflects a higher level of responsibilities and a successful track record in leading the Bank. Moreover remuneration is linked to the Bank’s performance and financial results.
• Remuneration of the Vice-Chairman of the Board reflects a level of responsibilities and additional time expected to fulfill the position.
E. Board practices
1. The Bank's Board meetings take place on a regular basis at least eight times a year. In order to ensure that a full range of topics is considered, it is the Bank's practice to schedule a specific category of topics to be discussed at each meeting.
2. The Bank's policy is that the Board should include a strong, challenging, and Independent element in order that it can exercise objective judgment. Through the participation of the independent Directors and non-executive Directors and the conduct of the meetings of the Board, guided by the Chairman, the Board maintains a level of checks and balances to balance the influence of all parties including management and significant shareholders, and ensures that decisions are taken in the Company's interests.
3. The Bank provides adequate information to Directors sufficiently in advance of meetings to enable them to reach informed decisions.
4. The Bank believes that the role of Board Secretary is an important one. In addition to the arrangement of Board meetings and the taking of meeting minutes, the responsibilities include ensuring that Board procedures are followed, and that information is conveyed between the Directors, the members of the Board Committees, and the management.
5. A permanent written record of Board discussions, motions, and Directors' votes is kept by the Board Secretary.
6. Each new Director of the Company is appointed with a formal appointment letter, in which he is advised about his rights, responsibilities, and duties.
7. The Bank believes that it is a key responsibility of Directors to ensure they be kept informed of developments within the Bank. Accordingly, the Bank provides Directors with appropriate orientation and briefings on joining the Board and throughout their tenure, as they and the Board request.
8. The categories of transactions that require Board approval (including loans larger than a set amount, or transactions with related parties) have been clearly defined in writing in the Bank’s Articles of Association and internal policies and procedures.
9. The committees of the Board have access to management within the limits of their respective role.
10. The Board has drawn up an organization chart, showing lines of reporting and authority. The portion of the chart showing the more senior levels has been made public and is published in the Bank’s website.
F. Board activities: appointments and criteria of remuneration
1. The Board's policy is to appoint a General Manager with integrity, technical competence, and experience in banking.
2. The Board is required to approve the appointment of other senior executives including the Chief Financial Officer, the heads of other divisions of the Bank and the head of Internal Audit. The Board ensures that they all have the requisite skills.
3. Criteria to set the remuneration of the Senior Executive Management are the following:
- Market value.
- Peers’ benchmark.
- Scale of internal remuneration.
- Experience and Seniority.
- Performance assessment.
4. The Board appoints the members of the Bank’s committees, modifies their composition and sets their role and functions in compliance with the requirements and recommendations of the Lebanese Central Bank and Banking Control Commission.
5. The Bank's policy is that remuneration should be sufficient to attract and retain qualified individuals and should be in line with the Bank's peers in the market.
It is also the Bank's policy that compensation should be, in part, linked to the performance of the Bank, and that such incentive remuneration schemes should focus on long-term value enhancement and financial stability and safety and soundness, and not on short-term performance of the Bank's share price. Compensation linked to performance requires executives to meet their pre-set performance targets, and poor performance is not rewarded. If in the future the Bank operates a share option scheme for its employees, details of it will be provided in the annual report.
6. The Board, through the Board Committee on Remuneration, makes sure that an adequate Remuneration Policy and relevant Remuneration and Performance Systems are established and reviews the appropriate implementation thereof.
G. Board activities: self-assessment and management performance appraisal
1. The Board assesses its own performance, and also plans to assess the contribution to the Board discussion of Directors (section 3.3.5 below).
2. The Board evaluates the performance of the Deputy and Assistant General Managers.
3. The Board also supervises the performance appraisal of the other senior management of the Bank in light of the accomplishment of their duties.
4. The Board sets the principles of accountability of the senior management and makes sure that a clear division of authorities is made amongst the various senior managers and departments of the bank.
H. Board activities: planning, controls, ethics, and conflict of interest policy
1. The Board establishes the Bank’s business objectives, and accordingly draws up a business strategy for achieving them. Through a formal planning process, involving an input from the Bank's various departments, management draws up business plans that are consistent with these strategies. The Board is required to approve the objectives, the strategy, and the business plans, and the Board ensures that performance against plan is reviewed and that corrective action is taken as needed. The Bank's budgeting process is part of the short term planning and performance measurement.
2. The Bank's planning process includes a plan for the development of the Bank's capital position with guidelines for setting the amount of dividends paid to shareholders.
3. The Board ensures that the Bank maintains a high degree of integrity in its operations. A Code of Ethics has been established and is required to be assented to by all employees and Directors.
4. The Bank as part of its lending and credit approval process assesses the quality of corporate governance in its borrowers, and includes the strength or weakness of their corporate governance practice in the borrower's risk assessment.
iv. Conflict of Interest:
Members of the Board are expected to avoid any conflict of interests from occurring, meaning that it is of the Directors responsibility to refrain form taking any action or position or interest that conflict with an interest of the Bank, or gives the appearance of a conflict.
A Board member who has a material personal interest in a matter that relates to the affairs of the Bank must give the Board of Directors notice of such interest. Such notice should be provided in writing to the Chairman and Board secretary, who are to ensure that the notice is brought to the attention of the other Board Members.
When a potential conflict of interest arises, the director concerned will take no part in discussions nor exercise any influence over other Directors of the Board.
Banking services may be provided to directors under terms and conditions that would normally apply to the public. The granting of banking facilities to a director is subject to the prior approval of the General Assembly according to Lebanese applicable laws and regulations.
Moreover, any deal concluded between the Bank and the directors is subject to the prior approval of the General Assembly whether this deal is transacted directly or indirectly.
The Board submits to the Annual General Assembly an annual report listing the transactions concluded with the directors.
The Bank’s external auditors shall also establish a special report in this regard, and the Annual General Assembly shall approve such reports.
v. The Board Committees
1. The Board is ultimately responsible for the conduct of the Bank's affairs. However, for added efficiency, Board Committees may be set up with declared role and responsibilities. The Board Committees should regularly report to the full Board.
2. The Board of Directors has established the four following Committees: Audit Committee, Risk Management Committee, Remuneration Committee and AML/CFT Committee.
3. There is a formal and transparent process for appointments to the Board Committees. Such appointments are made in compliance with the relevant applicable regulations and made public on the bank’s website.
4. The function, roles, and responsibilities of each Board Committee are set out in Terms of Reference of the Board of Directors and are published on the bank’s website.
5. Each Board Committee has direct access to appropriate members of the Bank's management, in accordance with the provisions of its respective function.
6. A permanent written record of Board Committee discussions, motions, and Directors' votes is kept by the committee secretary.
7. The Bank expects to set up more Board Committees over time. It may also decide to combine the functions of several committees if appropriate or if administratively more convenient.
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