During the past twenty-five years the focus was on attention to the application principles of corporate governance in banks as a result of the rapid developments in financial markets and the globalization of financial flows and technological progress, which led to the pressures of an increasingly competitive between banks and non-bank, also led to a rapid growth in the financial markets, peperocc and a wide variety of financial instruments to banks, which increased the importance of risk measurement and management and control, which requires continuous innovation to business and ways of managing risk and change the laws and surveillance systems so as to maintain the integrity and strength of the banking system. Since banks differ from other institutions because the collapse of banks affect a wider circle of stakeholders resulting in a weak financial system itself which lead to adverse effects on the economy as a whole, placing a special responsibility to the members of the Board of Directors.
The Bank for International Settlements has been defined the governance in banks as the methods & approaches used to manage banks through the board of directors, voteherd and senior management which determine how to put the bank’s objectives, operation and protect the interests of shareholders and stakeholders with a commitment to act in accordance with existing laws and regulations and to achieve the protection of the interests of depositors.
Principles of corporate governance in banks:
Basel Committee issued a report on strengthening governance in banks in 1999 and then issued a modified version of it in 2005 In February 2006, the updated version included the following: –
The first principle: – members of the Board of Directors Must be qualified to fill positions and they have fully aware of the governance and the ability, origaniz to manage in the bank, and the members are fully account for the bank’s performance and integrity of its financial position and strategy formulation in the bank and the policy of risk and avoid conflicts of interest and move away themselves from the decision-making When there is a conflict of interest makes them unable to perform their duties to the Bank, and to do the restructuring of the Board which includes the number of members, encourages greater efficiency, duties and powers include the selection and control and the appointment of executives to ensure the availability of talent capable of managing the bank, The Board of Directors responsible for establish committees to assist them, including the executive committee and internal review to take corrective decisions in time and to identify weaknesses in control and non-compliance with policies, laws and regulations. In addition to the Risk Management Committee sets out the principles for senior management on the management of credit risk, market – liquidity, afrihand operational, reputation and other risks, also the pay commission committee that sets the pay systems and principles of the appointment of executive management and the Bank officials, in line with the objectives and the Bank’s strategy.
The second principle: – Members of the BOD have to approve and monitor the strategic objectives of the Bank and the values and standards of work with the interests of stakeholders and that these values are valid in the bank, and should ensure that the executive management implements strategic policies of the Bank and prevent the activities and relationships and attitudes that undermine governance specially conflicts of interest such as lending to the staff or managers or shareholders who have control or majority.
The third principle: – The BOD must establish clear lines of responsibility and accountability in the bank to themselves and to senior management and develop a management structure encourages accountability and responsibly.
The fourth principle: – BOD Should ensure of the existence of the principles and concepts of executive management in line with the Board’s policy and officials owned the skills necessary to manage the Bank’s business and that is the Bank’s activities in accordance, highdean with policies and regulations established by the Board of Directors and in accordance with an effective system of internal control.
The fifth principle: – The independence of auditors and the functions of internal control shall be approved by BOD as essential to the governance of banks in order to achieve a number of control functions to test and confirm the information obtained from the senior management for operations and performance of the bank, senior management must recognize the importance of audit functions and the effective of internal and external control for the safety of the bank on the long-term
Principle VI: – BOD Should ensure that the policies of remuneration commensurate with the culture, objectives and strategy of the bank in the long term and linked to incentives of senior management and executives to the bank’s long-term objectives.
Principle VII: – Transparency is necessary for effective and sound governance, according to the Basel Committee Guide on transparency in the banks, it is difficult for shareholders and stakeholders and other market participants to observe correctly and efficiently the performance of the Bank’s management in light of lack of transparency, and this happens if there is no sufficient information to shareholders and stakeholders about the ownership structure of the bank and its objectives, timely & adequate market disclosure will achieve market discipline, and be disclosed in a timely and accurate through the Bank’s website and in annual and periodic reports, and be tailored to the size and complexity of the ownership structure and size of the Bank’s exposure to risk, or what If the bank registered in the stock market, and in the information that must be disclosure of information relating to the financial statements, exposure to risks, issues related to internal audit and governance in the bank, including the structure and qualifications of board members, managers, committees and the structure of incentives and wage policies for staff and managers.
Eighth Principle: – Members of BOD and senior management Should understand the structure of the Bank operations and the regulatory environment in which it operates which can be exposed the bank to legal risk indirectly when doing services on behalf of its clients who use the services and activities offered by the Bank for the exercise of illegal activities, putting the bank reputation at risk.
In conclusion, the application of corporate governance in banks leads to positive results: increase in funding opportunities and lower cost of investment and financial market stability, and reduce corruption.