Corporate Governance Manual

Corporate Governance Manual 1.

Introduction 1.1

Overview Corporate Governance is defined as the process and structure used to direct and manage the business and affairs of the institution towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value, whilst taking into account the interests of other stakeholders. The OECD principles define corporate governance as involving “a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring. The presence of an effective corporate governance system, within an individual company or group and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy”. From a banking industry perspective, corporate governance involves the manner in which the business and affairs of a bank are governed by its board and senior management, including how they: 1. 2. 3. 4.

set the bank’s strategy and objectives; determine the bank’s risk tolerance/appetite; operate the bank’s business on a day-to-day basis; protect the interests of depositors, meet shareholder obligations, and take into account the interests of other recognized stakeholders; and 5. align corporate activities and behavior with the expectation that the bank will operate in a safe and sound manner, with integrity and in compliance with applicable laws and regulations.

1.2

1.3

Objectives a.

The primary objective of the “Corporate Governance Manual” is to ensure adoption of effective and best practices of Corporate Governance principles and practices by Warba Bank in line with best practice and the CBK issued corporate governance instructions in June 2012.

b.

The manual set out broad principles and minimum standards and serves as a foundation for the establishment of sound corporate governance in Warba Bank.

c.

Through adoption of sound Corporate Governance standards and practices would ensure that in Warba Bank risk taking activities and business prudence are appropriately balanced so as to maximize shareholder’s return. In addition, Warba Bank believes that such initiatives would protect the interests of all stakeholders. Further, Warba Bank acknowledges that strong Corporate Governance would safeguard against all kinds of mismanagement and fraudulent activities and enhances corporate accountability and transparency. Scope The manual is formulated based on the fundamental concepts of responsibility, accountability and transparency and is applicable to both Board of Directors and the Executive Management. The main pillars/ principles on which corporate governance in Kuwait are based on the legislative and regulatory frameworks and international best practice, i.e. • CBK Corporate Governance Instructions issued in June 2012 Page 2 of 5

Corporate Governance Manual • • • • • •

Kuwait Companies Law CBK ‘Instructions Manual for Islamic Banks Supervision’ Commercial Companies Act No. (15) of the year 1960 Laws organizing Kuwait Stock Exchange (KSE) Basel Committee on Banking Supervision recommendations on sound principles on corporate governance in banks CMA instructions, resolutions.

The manual should be read together with Warba Bank’s Articles of Association, Memorandum of Association, approved Charters, relevant regulations, instructions or circulars relating to the Islamic Banks or Corporate Governance that Central Bank of Kuwait (CBK) may issue from time to time. 2.

Corporate Governance in WARBA Bank

Corporate Governance refers to the method by which WARBA is directed, administered or controlled. The major highlights of Corporate Governance Policy (as adopted based on international, regional standards and Central Bank of Kuwait framework) in WARBA are as follows: •

Corporate Governance should be transparent to all stakeholders to ensure that effective oversight and accountability of the Board of Directors and senior/ executive management;

•

Board of Directors at all times will strive to consider and safeguard the interests of all stakeholders;

•

The establishment of committees should be clearly disclosed and their responsibilities subject to oversight and periodic reporting.

•

WARBA ensures that Charter for each committee is developed and made available to stakeholders and public;

•

The functions and responsibilities of senior management must be clearly defined and disclosed. The Managing Director/ Chief Executive Officer reports to the Board of Directors and is responsible for implementing the policies and directives of the Board;

•

The Bank ensures that strong systems of internal controls and risk management are in place. The Chief Risk Officer (CRO) has direct access to the Chairman of the Board Risk Committee and presets reports directly to the Board Risk Committee;

•

An Internal Audit function is implemented that is independent of executive management and has access to all information within the Bank. The Internal Audit function reports to the Board Audit Committee and the Board of Directors (as and when required).

•

WARBA has engaged External Auditor(s) with highest professional qualifications and standards. Unfettered access to the Board Audit Committee and the Internal Audit function ensures total transparency in the Bank. The Board Audit Committee sets appropriate standards to ensure that the external audit process is carried out on Dual Audit basis which fulfills the objective of appointing two external auditors;

•

WARBA adopted a practice of reporting all relevant financial results and solvency condition, as promulgated by the regulators in Kuwait. Further, International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) are also adopted;

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Corporate Governance Manual

3.

•

WARBA utilizes technology to greater extent to enhance the transparency of operations, accountability and data integrity and availability;

•

Further, Bank will publish its Corporate Governance statements, Annual Reports, information regarding Board of Directors, and other pertinent data as appropriate;

•

Annual report of WARBA will include relevant information and disclosures based on the Corporate Governance rules and standards.

Core Principles Governing Corporate Governance

Principle 1: WARBA establish a comprehensive governance policy framework thereby its policies and practices would comply with the rules of laws, regulations and instructions issued by various regulatory bodies in relation to protecting shareholders rights and equitable treatment of shareholders. Principle 2: WARBA have in place an appropriate mechanism for ensuring enhanced role of Stakeholders and thereby fulfills its Corporate Social Responsibility. Principle 3: WARBA have in place a well-defined disclosure system that promotes transparency Principle 4: WARBA have in place an appropriate mechanism for obtaining rulings from Sharì’ah Supervisory Board (SSB), applying Fatwā and monitoring Sharì’ah Compliance in all aspects of their services, products, operations and activities. Principle 5: WARBA ensure that the reporting of its financial and non-financial information meets the requirements of internationally recognized accounting standards which are in compliance with Sharì’ah rules and principles and are applicable to the Islamic Banks as recognized by the authorities. Principle 6: WARBA exercise care and diligence in all its operations, including the way it structures and offers its products and provides financing (if any) with particular regard to the Sharì’ah Compliance, and to the thoroughness of Compliance and Risk Management. Principle 7: WARBA ensure that it has in place, the necessary systems and procedures, and that its employees have the necessary knowledge and skills, to comply with these principles and other standards. Principle 8: WARBA recognize the conflicts of interest between the Bank and its Shareholders that may arise and either avoids them, or discloses and manages such conflicts within the Board of Directors. 4.

BOARD AND BOARD COMMITTEES 4.1

Board of Directors – Charter (refer to the approved charter for the Board of Directors)

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Corporate Governance Manual 4.2

Board Credit & Investment Committee – Charter (refer to the approved charter for the Board Credit & Investment Committee)

4.3

Board Audit Committee – Charter (refer to the approved charter for the Board Audit Committee)

4.4

Board Risk Committee – Charter (refer to the approved charter for the Board Risk Committee)

4.5

Board Nomination & Remuneration Committee – Charter (refer to the approved charter for the Board Nomination & Remuneration Committee)

4.6

Board Governance Committee – Charter (refer to the approved charter for the Board Governance Committee)

5.

SHARIA SUPERVISORY BOARD (SSB) – REGULATION OF DUTIES (refer to the approved SSB regulation of duties of the Fatwa & Sharia Supervisory Board – Arabic version)

6.

MANAGEMENT COMMITTEES CHARTERS 6.1

Asset & Liability (ALCO) Committee – Charter (refer to the approved charter for the Asset & Liability (ALCO) Committee)

6.2

Credit & Investment Committee – Charter (refer to the approved charter for the Credit & Investment Committee)

6.3

Management Committee – Charter (refer to the approved charter for the Management Committee)

6.4

Provisioning Committee – Charter (refer to the approved charter for the Management Committee)

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