إطار عمل حوكمة الشركات

Corporate governance is the framework by which business corporations are directed and controlled. It describes a set of relationships between a company’s management, its board, its shareholders and other stakeholders that provides the structure through which the objectives of the companies are set, and the means of attaining those objectives and monitoring performance are determined. The corporate governance structure specifies the distribution of rights and responsibilities among different participants such as the Board, Management, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. It influences how the objectives of the Bank are set and achieved, how risk is monitored and assessed, and how performance is optimized. The corporate governance structure of BBK is designed to enshrine the concepts of good governance as required by the Corporate Governance Code of the Kingdom of Bahrain issued by the Ministry of Industry and Commerce, the Central Bank of Bahrain (CBB) in their High-Level Controls (HC) Module, Basel II paper on ‘Enhancing Corporate Governance’ of 2006, Bahrain Commercial Company Law and other supporting references.

The guidelines provided herein are to support the principles stated in any other of the Bank’s prevailing governance documents and related policies. The Bank (BBK Group) also adheres to the Code of Best Practice on Consumer Credit and Charging (prepared jointly by the Bahrain Association of Banks and Central Bank of Bahrain).

Governance of Group Structure:

The Board the Bank which acts as a parent company shall:
(a) Have the overall responsibility for the group and exercise adequate oversight over subsidiaries and overseas branches while respecting the independent legal and governance responsibilities that might apply to subsidiary Boards;
(b) Establish, a group structure (including the legal entity and business structure) and a group corporate governance framework with clearly defined roles and responsibilities at both the Bank’s and the subsidiaries’ level as may be appropriate based on the complexity, risks and significance of the subsidiaries;
(c) Set adequate and comprehensive criteria for composing Boards at subsidiaries’ level;
(d) Have a clear strategy and group policy for establishing new structures and legal entities, and ensure that they are consistent with the policies and interests of the group;
(e) Have sufficient resources at group and subsidiaries levels to monitor risks and compliance at the level of the group and its subsidiaries;
(f) Pay special attention and due care to any significant subsidiary based on its risk profile or systemic importance or due to its size relative to the Bank;
(g) Assess and discuss material risks and issues that might affect the group and its subsidiaries and overseas branches;
(h) Establish effective group functions at the Bank, including but not limited to, Internal Audit, Compliance, Risk Management, Human Resources and Cyber Security and Financial Control to whom the relevant subsidiaries’ functions shall report;
(i) Maintain an effective relationship, through the subsidiary Board or direct contact, with the regulators of all subsidiaries and overseas branches; and
(j) ensure that:
i. The Group has appropriate policies and controls to identify and address potential intragroup conflicts of interest, such as those arising from intragroup transactions;
ii. The Group is governed and operating under clear group strategies, business policies and specific set of group policies on Risk Management, Internal Audit, Compliance and Financial Control;
iii. There are no barriers to exchanging information between the subsidiaries and the Bank and that there are robust systems in place to facilitate the exchange of information to enable the Bank to effectively supervise the Group and manage its risks; and
iv. Adequate authority is available to each subsidiary pursuant to local legislations.

Bank’s wholly owned subsidiaries have their own Boards of Directors with separate Board charters. However, as a Group these subsidiaries shall abide by the corporate governance principles set out in this framework as described under 3.3 below. For strategic decisions these subsidiaries will refer to the mother company’s Board of Directors with recommendations.

The guidelines provided herein are to support the principles stated in any other of the Bank’s prevailing governance documents and related policies. The Bank (BBK Group) also adheres to the Code of Best Practice on Consumer Credit and Charging (prepared jointly by the Bahrain Association of Banks and Central Bank of Bahrain).

Bank’s wholly owned subsidiaries have their own Boards of Directors with separate Board charters. However, as a Group these subsidiaries shall abide by the corporate governance principles set out in this framework. For strategic decisions these subsidiaries will refer to the mother company’s Board of Directors with recommendations.

High standards in corporate governance are fundamental in maintaining BBK’s leading position within the local and regional banking sector and the community. Continuous review and adherence to strong corporate governance practices help enhance compliance levels according to international standards and best practice.

BBK shall continue its endeavor to enhance shareholders value, protect their interests and defend their rights by practicing pursuit of excellence in corporate life. The Bank shall not only comply with all statutory requirements but also formulate and adhere to strong Corporate Governance practices.
BBK shall continuously strive to best serve the interests of its stakeholders including shareholders, customers, staff and public at large with particular emphasis on Environment and Social Governance (ESG) and sustainability reporting, which takes into consideration the UN Sustainable Development Goals into consideration.

The adoption and implementation of Corporate Governance would be the direct responsibility of the Board of Directors, in line with the regulatory and statutory requirements in the Kingdom of Bahrain and other countries where BBK operates. Corporate Governance disclosures shall be made according to the CBB’s requirements as per its rulebook modules PD 1.3.8 and PD 6.1.1 and amendments thereto.

The standard Corporate Governance model interconnects the dynamic relation between the three main stakeholders namely Shareholders, the Board and the Management. The roles of shareholders, the Board and the Management are distinctly different but complimentary to the core objectives and functioning of the institution. Such model can be drawn as under. BBK’s CG model is based on Angelo-American model expanded to include a variety of stakeholders who have interest in the Bank and its success.

BBK’s Corporate Governance practices ensure a healthy relationship with all the stake holders while achieving core objectives of the institution.

3.1    Board of Directors:

The Bank’s Board of Directors is accountable to the Bank’s shareholders and other stakeholders, to ensure that the Bank is managed in a safe and sound manner. To fulfill their fiduciary duties, the Directors must be independent of the Management of the Bank; familiar with the Bank’s business and general financial and accounting principles; and actively engaged in directing and overseeing Management.

3.2    Management Team:

The Bank’s Executive Management team is accountable to the Board to manage the Bank in accordance with the policies and principles established by the Board and applicable legal and regulatory requirements.

3.3 Subsidiaries and Overseas Branches:

The Bank will ensure that, as a minimum, the same or equivalent corporate governance requirements would apply to its overseas branches and to subsidiaries.  The Corporate Governance framework for BBK covers all subsidiaries and overseas branches.  Subsidiaries would also adopt their own corporate governance policies and frameworks, being independent licensees. Some requirements, however, would be met by subsidiaries through BBK’s corporate governance status. Some of the functions of the subsidiaries such as audit, nomination & remuneration can be outsourced to the main Bank, if recommended by their Boards. The subsidiaries would periodically and on need based basis report to the Bank’s Board.

The purpose of this Framework is to outline the corporate governance structure for the Bank.

This Corporate Governance Framework document together with the Board Charter and the terms of reference of all Board Committees, Code of Conduct for Directors, Directors Remuneration and Compensation Policy, Key Persons Dealing Policy, Disclosures Policy and such other independent policies related to Corporate Governance will form the Corporate Governance Policy Manual and would be the reference document for the Board and the Management.

The individual policies/documents may change with market and regulatory requirements from time to time and will be suitably replaced.

The Bank will follow the corporate governance principles as issued by the Ministry of Industry and Commerce in the Corporate Governance Code and the CBB as per the High-Level Controls (HC) Module of the Rulebook.  The principles are as follows:

1. The Bank shall be headed by an effective, collegial and informed Board.
2. The approved persons must have full loyalty to the Bank.
3. The Board must have rigorous controls for financial audit and reporting, internal control, and compliance with law.
4. The Bank must have rigorous and transparent procedures for appointment, training and evaluation of the Board.
5. The Bank must remunerate approved persons fairly and responsibly.
6. The Board must establish a clear and efficient management structure.
7. The Bank must communicate with shareholders, encourage their participation, and respect their rights.
8. The Bank must disclose its corporate governance.

Building on the above, the Bank’s guiding principles of good corporate governance are:

5.1.1    The Board would consist of Directors representing varied/appropriate mix of applicable skills and experience and meeting ‘fit and proper’ requirements of the CBB. 

5.1.2    There will be separation and clear division in the roles and responsibilities of the Chairman and the Chief Executive. The Chairman of the Board will be an Independent Director.

5.1.3    Bank would have a nomination process designed to ensure that the appropriate balance and capability of the Board is maintained on the basis of periodic evaluation of the performance of the Board, its Committees and individual Directors.

5.1.4    Bank will have a fair representation on the Board by Directors, including adequate ‘independent’ Directors, to meet minimum regulatory requirements and to facilitate objectivity in decision making.

5.1.5    Bank will provide the Directors with access to training (particularly on induction) and professional advice on issues when required.

5.1.6    Bank will provide access to professional advice to the Board and Board Committees as and when necessary as per specific procedures approved by the Nomination, Remuneration and Corporate Governance Committee.

5.2.1    Active Board participation in strategy development, including the review and challenge of the strategy.

5.2.2    Creation of an adaptable organization that is able to respond quickly to changing market opportunities.

5.2.3    Appropriate dissemination of the strategic plan of Bank.

5.3.1    Promote openness with Management on issues for which the Board will ultimately be accountable.

5.3.2    Sponsor and actively promote adherence to the organization’s defined code of conduct.

5.3.3    Promote the use of incentive schemes that align the interests of the Board and Executive Management with those of the shareholders and other stakeholders.

5.4.1    Ensure that the organization complies with relevant laws and regulations as well as with accounting, human resource and other internal policies.

5.4.2    Understand organizational risks and be informed routinely about how they are managed and be assured that this is effective.

5.4.3    Apply a rigorous process for evaluating and monitoring the performance of the Chief Executive (“CE”) and Executive Management.

5.5.1    Uphold rigorous standards for individual members’ preparedness, participation and conduct.

5.5.2    Protect the organization and its stakeholders from potential damage due to conflicts of interest.

5.5.3    Manage stakeholder expectations regarding the safeguarding of their interests, in part by ensuring that communication is thorough, timely and transparent.

The Board is responsible for ensuring that the Bank has a robust Risk Management Framework. The Bank has in place a comprehensive Risk Management Strategy, a strong Risk Appetite Framework and a detailed Policy Manual which are approved by the Board.  These provide an environment of strong risk & credit governance and a robust credit management framework.

Compliance with regulatory requirements and AML is an ongoing process. The Bank is conscious of its responsibilities in observing all regulatory provisions and best international practices in its functioning. The Bank has established an independent group compliance function in keeping with Basel and CBB guidelines. The Compliance and AML Department at BBK consists of four primary sections, including; (a) Financial Crime; (b) Fraud; (c) Regulatory Compliance and Advisory, part of which is the Data Privacy team; and (d) Compliance Assurance.

The Internal Audit Department is an essential part of the overall corporate governance at the Bank, established by the Board of Directors to independently examine and evaluate the activities of the BBK Group. The Internal Audit function is headed by the Group Chief Internal Auditor, who reports directly to the Board Audit & Compliance Committee on functional matters, and with day-to-day administrative reporting to the Group Chief Executive. Guided by all applicable regulatory and other directives, Internal Audit assignments are conducted across all functions in the Group towards the accomplishment of its objectives – reviewing the reliability, adequacy and effectiveness of the respective governance, risk management, and internal control systems.

As part of its ESG framework the Bank has adopted anti-corruption policy.

The Board will form the necessary Board and Management Committees to assist the Board in providing effective oversight over the Bank’s operations. The Board would review the structure periodically and modify it if deemed necessary.  Additional committees may be formed from time to time and/ or the existing Committees could be assigned additional responsibilities. The structure, is as under:

The role of the Head of Group Corporate Secretariat is to assist the Board and its Committees in the maintenance of the relationship between Executive Management and the Board, and between the Board and shareholders and vice versa. His role extends to be the Corporate Governance Officer of the Bank.

The financial control function would be independent of the business lines. The Audit and Compliance & AML functions would be independent and report to the Audit and Compliance Committee of the Board. The Risk Management would be independent and report to the Risk Committee of the Board.

The Group Chief Executive is responsible for the day-to-day management, operations and administration of the Bank.  The Chief Executive shall have the following duties:

• Implement, manage and administer corporate business strategy with the aim of executing the business plans and budgets of the Bank;
• Manage the overall human resources and skills/competencies pool to ensure the effective and efficient running of the Bank;
• Represent BBK with customers, suppliers, governments, financial institutions, the media, the community and the public;
• Formulate and recommend strategic objectives and plan of action for continuously enhancing shareholders’ value to Board of Directors;
• Ensure adherence to policies and procedures, applicable regulations and laws, and monitoring exceptions and serious deviations,;
• Manage the Assets and Liabilities of the Bank in accordance to Board policy and regulatory requirements;

Manage the risk portfolio of the Bank.

The Board delegates (without abdicating) some of its responsibilities to different Board Committees. The present established Board Committees are given below. The terms of references have been separately established for each Committee.

The Board reserves the right to form temporary Committees and discontinue them, from time to time as it sees it necessary.

Management Committees are chaired by the Chief Executive and, other Committee members are heads of the relevant divisions appointed by the Committee Chairman. Specific terms of references have been established for each Committee formed.

The Group Chief Executive reserves the right to form temporary Committees and discontinue them, from time to time and as necessary. The Group CE shall submit a list of all management committees during the year to the Nomination, Remuneration and Governance Committee on an annual basis. Some of the main Management Committees are:

The Board Committees, Management Committees and other specific Management personnel will execute activities/transactions on behalf of the Bank in accordance with the delegated authority limits. As a principle, policies covering operational issues, internal control, risk management, human resources, IT, compliance and such other functions in the Bank would be approved by the Board.  The approval of relative Procedure is delegated to the Chief Executive.

The procedures / processes relating to the functioning of the Board or Board Directors would be part of the Board Charter or approved either by the Board or by the appropriate Board Committee.

The application of the authority limits to different functionaries will be based on principles of delegation and will form part of the relevant Policy and Procedure.

The Bank’s risk appetite is set annually by the Board of Directors with the goal of aligning risk-taking with statutory requirements, strategic business objectives and capital planning. The Board of Directors has a key role in the implementation of the Bank’s risk appetite by steering utilization of different forms of financing, the Bank’s geographical operating areas and markets, funding and liquidity management, amongst other risk management requirements. The Board of Directors also monitors BBK’s adherence to the Risk Appetite Statement and makes necessary modifications to capture changes in the Bank’s strategic priorities, operating environment, and risk profile.

The vision documents annual and three-year strategy, along with the Bank’s internal policies, mandated framework, rules and guidelines which create the overall framework for the Bank’s risk-taking. The Risk Appetite Statement complements these key documents by outlining the main considerations in the Bank’s risk-taking, risk mitigation and risk avoidance.

The purpose of the Risk Appetite Statement is to state clearly the general principles for the Bank’s risk-taking, to raise risk awareness across the organisation, and to guide the staff accordingly. The Risk Appetite Statement is implemented through the Bank’s risk policies and procedures, monitoring metrics, limit system, Key Performance / Risk Indicators (KPIs / KRIs) and internal controls. The Risk Appetite Statement is thus embedded in the Bank’s core processes and impacts affects the operations of the Bank in a holistic way.

BBK is subject to banking supervision and prudential regulations. The Bank’s risk management systems and policies / procedures are reviewed and refined on an ongoing basis in order to comply strictly with regulations in all jurisdictions it operates in; as well as with what the Bank identifies as the relevant market standards, recommendations and best practices. This principle also applies to the Bank’s risk appetite framework.

The basic objectives of the Risk Appetite Statement are the following:

• To provide a clear articulation of the Bank’s risk-taking, risk mitigation and risk avoidance, and to define the risk-taking at the aggregate level. The Risk Appetite Statement creates a foundation for effective communication of risk among internal and external stakeholders;
• To increase understanding of BBK’s material risk exposures and raise risk awareness across the organisation; and
• To positively impact the defined risk culture of the Bank.

The Bank’s risk-taking is primarily in its core activity of lending. BBK primarily finances its activities through retail, corporate deposits, issuing bonds on the international capital markets, market borrowings and through equity. The funding base is diversified across currencies, maturities and geographic areas. BBK’s operating model is supported by the ability to obtain funding at a favorable cost, which enables lending, on attractive terms, to its clients. BBK’s funding advantage builds on its sound financial profile and strong shareholder support.

To support its lending and funding operations, the Bank maintains a portfolio of liquid assets. The primary objective of the liquid portfolio is to ensure that the Bank is able to operate and continue its core activities, even during stressed market conditions. The composition and maturity profile of the liquidity portfolio are aligned with this objective, in addition to a liquidity buffer through holding High-Quality Liquid Assets (HQLA).

The Risk Appetite Statement sets the tolerance for risk-taking in BBK’s operations within the Bank’s Risk capacity. Risk limits and risk profile assessment are other key elements in the implementation of the Bank’s risk appetite framework.

Risk capacity is limited by the financial and non-financial resources that the Bank has at its disposal. The risk appetite is set to a level within the risk capacity to ensure that the Bank’s risk exposure remains sustainable.

Financial resources mainly consist of the Bank’s paid-in capital and retained earnings, together with customer deposits, funds raised through bonds, borrowings from Central Bank and other Financial Institutions. Non-financial resources are the skills and competences of the employees, IT systems, internal procedures and control systems. The Bank’s risk-bearing capacity builds on a careful customer selection process, individual credit mandate reviews and a thorough credit-granting process. Therefore, financial resources and robust governance contribute both to maintaining the Bank’s competitive position and its strong capital and liquidity position.

Risk limits are used to allocate the aggregate risk-taking mandate to business lines and portfolios. The main risk limits are established in the Bank’s risk management policies and approved by the Board of Directors. The limit system sets boundaries for the accepted level of credit, market, liquidity, earnings, capital and operational risk within the established risk appetite. The actual position through the risk limits are reviewed at various levels (Board Risk Committee, Risk Management Committee ‘RMC’, Asset Liability Management Committee ‘ALMC’, Country Risk Committee ‘CRC’, Senior Management, etc.) depending on the nature of limits and as specified in the relevant Risk Policies. The Board and Senior Management have overall responsibility for determining the Risk Appetite of the Bank, which will be measured and monitored by the Business verticals in their operational activities.

Risk profile assessment aims to ascertain that the Bank’s risk profile is within Risk limits and consequently within the Risk Appetite and Risk Capacity. Risk profile assessment is a point-in-time evaluation of the level and types of the Bank’s risk exposures. The assessment includes an evaluation of the Bank’s material risks, such as, credit, market, liquidity, earnings, capital and operational risk.

Credit Risk

BBK is exposed to risk primarily in its core activity of lending to individuals, corporations, small/medium enterprises, governments, public sector entities, financial institutions, etc. Lending exposes the Bank to credit and concentration risks and to variations in the business cycle. Each lending is thoroughly analysed from several perspectives (for example: default risk, financial risks, customer due diligence, legal risk, currency risks, etc.) to ensure that financing decisions have sound foundations. The overall target of the credit risk management is to maintain high portfolio quality with appropriate risk diversification in order to avoid excessive risk concentrations. Account grade rating, industry concentration limits, risk pricing, etc. are set and monitored.

Market Risk and Treasury

Funding, asset and liability management and management of the portfolio of liquid assets are an integral part of the Bank’s business operations.

The funding base of BBK is diversified across currencies, maturities and geographic areas. The Bank effectively manages the risk exposures arising mainly through maturity mismatches between assets (loans and treasury investments) and liabilities (deposits, borrowings and equity). The Bank maintains a robust liquidity portfolio to ensure that the Bank is able to operate and continue its core activities, even during stressed market conditions.

BBK manages its interest rate risk by financing/investing in a combination of fixed or floating-rate assets, and this allows the Bank to generate stable earnings and to preserve its capital base in the long term. BBK’s liquidity portfolio is invested in high quality assets and in doing so, BBK takes limited credit risk (credit default and spread risk).

BBK mitigates its currency risk and most of interest rate risk arising from funding and lending operations by hedging with derivatives. The use of derivatives exposes BBK to counterparty credit risk, liquidity risk, currency basis risk and operational risks. BBK uses netting and collateral agreements to manage its risk towards derivatives counterparties.

Triggers/policy limits are set as per the Bank’s internal risk policies and procedures. This includes FX Net Open Position and VAR, Market Risk VAR, Interest Rate Risk (Gap, Stop Loss & VAR), Earnings at Risk, Economic Value of Equity, amongst others.

Earnings

Banking involves well-judged risk-taking, where all transactions should provide a reasonable margin to compensate for the risk taken. BBK offers financing on competitive market terms and aims for stable earnings, enabling the formation of capital reserves, organic growth, and reasonable return on capital in the long term.

Lending operations, the primary source of credit risk, should provide appropriate return for the level of risk assumed.

Treasury operations, through cost-effective funding and prudent asset and liability management, should contribute to the Bank’s overall returns in line with the defined business objectives and the core objective of safeguarding the Bank’s liquidity.

Earning targets are set and monitored at global, division and business unit level.

Capital

An adequate capital management framework, with an Internal Capital Adequacy Assessment Process (ICAAP), is an essential part of BBK’s operations. BBK is committed to maintaining a strong risk-based capital position.

The Bank complements risk-based capital adequacy measures with a volume-based leverage ratio measure. It protects the Bank from risks that relate to excessive growth of the balance sheet.

BBK aims to maintain a strong capital position in relation to the aggregate risk exposure at all times. The Bank uses risk-based approaches to assess the capital needs, including stress testing, and the Bank holds robust capital buffers on top of the minimum capital requirement.

The growth of the Bank’s balance sheet should be stable in the long run, while some variation is accepted in the medium term to account for natural changes in the business cycles.

Liquidity

The Bank maintains a robust liquidity portfolio. The primary objective of the liquidity portfolio is to ensure that the Bank is able to operate and continue its core activities without disruption, even during stressed market conditions. BBK maintains a liquidity portfolio where a large majority of the assets are of high quality to support the Bank’s operations and liquidity position. Having a strong liquidity position enables the Bank to carry out our core activities under severely stressed market conditions without access to new funding.

BBK diversifies funding in terms of currencies, maturities, instruments and investor types in order to avoid excessive reliance on individual markets and funding sources.

Liquidity parameters are set to maintain minimum levels as per regulatory guidelines.

Implementation and Review

The primary responsibility for the correct implementation of the Risk Appetite Statement remains with the Risk Management Division.

This Risk Appetite Statement is reviewed at least annually.