Corporate Governance Report
4. Risk & Credit Committee
Composition as at 31 December 2011:
Eissa Al Suwaidi (Chairman), Mohamed Al Hameli, Abdulla Al Mutawa, Mohammed Al Dhaheri
Secretary: Rami Raslan
Composition as at 31 December 2011:
Eissa Al Suwaidi (Chairman), Mohamed Al Hameli, Abdulla Al Mutawa, Mohammed Al Dhaheri
Secretary: Rami Raslan
Statement from the Chairman of the Risk & Credit Committee
As a result of the delegation of certain powers of the Committee to the management, the Committee held 20 meetings in 2011, which was six meetings fewer than in 2010. The Board’s aim in making such delegations was to enable the Committee to focus its attention on risk (including risk strategy and policy) issues, whilst retaining authority over credit and lending decisions above certain thresholds. The Committee oversaw management’s administration of the Bank’s credit portfolio, including management’s responses to trends in credit risk, credit concentration and asset quality, and received and reviewed reports from senior management (and appropriate management committees and credit units) regarding compliance with applicable credit risk-related policies, procedures and tolerances.
Over the course of 2011, the Committee considered a wide range of matters, from credit commitments to risk policies, strategies and new products, with increasing emphasis on risk strategy and policy issues. The Committee:
Throughout 2011 the Committee conducted risk strategy and policy meetings on a frequent basis (three meetings were held focusing only on risk strategy and ‘policy issues’), with the objective of discussing and reviewing strategies, policies, frameworks, models and procedures that lead to the identification, measurement, reporting and mitigation of material risks. The Committee considers that it made positive progress during 2011 towards meeting its responsibilities.
Eissa Al Suwaidi
Chairman of the Board’s Risk & Credit Committee
During 2011, the Risk & Credit Committee (the Committee) comprised four non-executive Directors.
As a result of the delegation of certain powers of the Committee to the management, the Committee held 20 meetings in 2011, which was six meetings fewer than in 2010. The Board’s aim in making such delegations was to enable the Committee to focus its attention on risk (including risk strategy and policy) issues, whilst retaining authority over credit and lending decisions above certain thresholds. The Committee oversaw management’s administration of the Bank’s credit portfolio, including management’s responses to trends in credit risk, credit concentration and asset quality, and received and reviewed reports from senior management (and appropriate management committees and credit units) regarding compliance with applicable credit risk-related policies, procedures and tolerances.
Over the course of 2011, the Committee considered a wide range of matters, from credit commitments to risk policies, strategies and new products, with increasing emphasis on risk strategy and policy issues. The Committee:
- examined the actual risks and the control deficiencies in the Bank
- assisted the Board to define the risk appetite of the Bank
- exercised oversight of management’s responsibilities, and reviewed the risk profile of the Bank to ensure that risk exposure conforms to the risk appetite determined by the Board
- monitored the effectiveness of risk management functions throughout the Bank
- ensured the adequacy of infrastructure, resources and systems to maintain a satisfactory level of risk management discipline
- monitored the independence of risk management functions throughout the Bank
- reviewed issues raised by Internal Audit which might impact the risk management framework
- ensured the existence of a pervasive risk-awareness culture throughout the Bank
- considered the Bank’s key risks, including concentration and sectoral credit exposures
- revised credit limits and country limits to ensure that risk exposure conforms to the risk appetite determined by the Board
Throughout 2011 the Committee conducted risk strategy and policy meetings on a frequent basis (three meetings were held focusing only on risk strategy and ‘policy issues’), with the objective of discussing and reviewing strategies, policies, frameworks, models and procedures that lead to the identification, measurement, reporting and mitigation of material risks. The Committee considers that it made positive progress during 2011 towards meeting its responsibilities.
Eissa Al Suwaidi
Chairman of the Board’s Risk & Credit Committee
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Directors’ Interests in the Bank’s Shares |
|||
Name |
Shareholding at 1 January 2011 |
Shareholding at 31 December 2011 |
Change in shareholding |
Abdulla Al Mutawa |
2,347,277 |
2,347,277 |
0 |
Ala’a Eraiqat |
689,6551 |
2,389,6552 |
1,700,000 |
Eissa Al Suwaidi |
0 |
0 |
0 |
Jean–Paul Villain |
6,012 |
6,012 |
0 |
Khalid Deemas Al Suwaidi |
0 |
0 |
0 |
Mohammed Ali Al Dhaheri |
0 |
0 |
0 |
Mohamed Al Fahim |
0 |
0 |
0 |
Mohd Sultan Al Hameli |
0 |
0 |
0 |
Mohamed Darwish Al Khouri |
837,325 |
837,325 |
0 |
Salem Mohd Al Ameri |
0 |
0 |
0 |
Sheikh Sultan Al Dhahiri |
100,000 |
100,000 |
0 |
- 1 Includes restricted units in the Bank’s LTIP scheme of which 689,655 will vest on 31 December 2012.
- 2 Includes restricted units in the Bank’s LTIP scheme, of which (1) 689,655 will vest on 31 December 2012 and (2) 1,200,000 will vest on 31 December 2013.
Performance Evaluations
An effective Board is crucial to the success of the Bank. To assess the performance of the Board, the Board undergoes a rigorous performance evaluation annually.
The 2011 performance evaluation process was led by the Chairman, supported by the Board Secretary, utilising experience that was learned from previous evaluations. Since the Bank’s policy is to retain an external consultant every three years to ensure objectivity in the performance evaluation process, in 2011 the performance evaluation was conducted in-house. Any necessary changes identified by the 2011 performance evaluation will be implemented during 2012. Material changes identified in the 2010 performance evaluation, which were implemented in 2011, included enhancing the Board’s:
Related Party Transactions
For further details about the Bank’s related party transactions, please see http://www.adcb.com/about/corpgovernance/overview.asp and Note 34 to the audited financial statements.
Conflicts of Interest
As at 31 December 2011, as a result of written declarations submitted by each of the Board members, the Board was satisfied that the other commitments of the Directors do not conflict with their duties.
DIRECTORS’ REMUNERATION AND INTERESTS IN THE BANK’S SHARES
Remuneration Policy
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
Other Benefits
As at 31 December 2011, the Bank’s Directors were not eligible for any bonus, long-term or other incentive schemes. Directors do not receive any pension benefits from the Bank.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
DIVIDEND POLICY
The Bank has not adopted a formal dividend policy. For the 2011 year, the Board recommended a dividend of 20 percent of the Bank’s capital. Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
INTERNAL CONTROLS
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
In 2011, the Board of Directors, through the Board Audit & Compliance Committee, conducted a review of the effectiveness of the Bank’s system of internal control covering all material controls, including financial, operational and compliance controls, and risk management systems. The Board Audit & Compliance Committee has received confirmation that management has taken or is taking the necessary action to remedy any failings or weaknesses identified.
During 2011, continued emphasis was given to embedding an enhanced culture of compliance through the development of compliance systems and policy infrastructure, and continued focus on regulatory risk management. The group compliance function was strengthened by way of organisation structure and staff skill sets. This has led to an overall improved compliance discipline, particularly in the areas of anti-money laundering, counter-terrorist financing and sanctions compliance procedures. Regulatory reporting and engagement increased considerably over the period.
Audit Arrangements
At the 2011 Annual General assembly PricewaterhouseCoopers was appointed as the external auditor of the Bank on the recommendation of the Board of Directors. The Bank’s external auditor is paid on a fixed annual fee basis, as approved by the shareholders at the annual general meeting. In 2011, fees paid to external auditors for audit work conducted during the 2011 year totalled AED 1,140,000 for the audit of UAE business and its subsidiaries. In addition PWC was paid AED 491,496 towards non audit work comprising business feasibility studies, advisory, accounting and tax-related services. All non audit work must be pre-approved by the Board Audit & Compliance committee.
In addition to the above the Bank paid M/S Borkar and Mazumdar, an audit firm based in India, a sum of AED 28,496 for the audit of the Indian branches and Deloitte Haskins & Sells a sum of AED 155,935 towards tax consultancy and tax audit.
Internal Audits, Regulation and Supervision
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
MANAGEMENT COMMITTEES
The Bank’s Management Executive Committee (MEC) meets weekly and reports to the Board. In 2011 the MEC aligned its agenda with the Board’s agenda and introduced fortnightly meetings dedicated to strategy discussions.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
MANAGEMENT REMUNERATION AND INCENTIVES
Guiding Principles
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
Incentive Plans and Awards – LTIP
In aggregate, LTIP awards issued in 2011 (for the 2010 year) totalled AED 64,197,000.
For further details about the Bank’s LTIP scheme, please see http://www.adcb.com/about/corpgovernance/overview.asp.
Salaries, Emoluments and Cash Bonuses of Key Management
During 2011, the Bank awarded staff cash bonuses (and LTIP) to reward their strong performance during the 2010 year and to serve as a retention tool.
Staff received cash bonuses worth AED 19,550,000 in aggregate. Of this, nil was allocated to key management. These bonuses were subject to claw-back and retention provisions.
Key management received salaries and other emoluments (excluding LTIP and cash bonuses) worth
AED 21,052,612 in aggregate.
For these purposes, key management staff means the CEO and his direct reports.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
Variable Pay
During 2011, the Bank worked with external consultants to review its variable pay practices. This review aimed to ensure that the Bank’s variable pay practices remained competitive and in line with international best practices. As a result of this review, effective 1 January 2012, the Bank adopted different variable pay plans for different functions of the Bank to ensure alignment to the market and to the relevant group’s performance. In addition, the Bank adopted an over-arching Bank-wide deferred compensation framework.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
STRATEGY SETTING
The Board of Directors is responsible for determining the Bank’s strategic direction. In 2011, having achieved its three-year strategy, the Board and senior management agreed strategic priorities for 2012-2016. The Bank is currently in the process of finalising its detailed strategic plan for 2012-2016. The Bank also invested its strategic development, including engaging external consultants to assist in developing a detailed five-year strategy.
Please see further details in the ‘ADCB at a Glance’ section of this report at http://www.adcb.com/about/corpgovernance/overview.asp.
GOVERNANCE AT ADCB
Please see http://www.adcb.com/about/corpgovernance/overview.asp for an overview of the Bank’s governance structure and policies and practices, including the Bank’s corporate governance code, code of conduct, disclosure standards, communication with shareholders, and investor relations.
External Recognition
The Bank’s ongoing achievements in corporate governance resulted in the Bank receiving the following honours in 2011:
Articles of Association
The Bank’s articles of association are available on the Bank’s website at www.adcb.com/about us/corporate governance. In 2011, the Bank’s shareholders approved certain changes to the Bank’s articles of association, which, at the time of drafting this report, are subject to approval by regulatory authorities.
Islamic Banking
The Sharia’ah Supervisory Board is composed of:
Dr Hussain Hamid Hassan, Chairman
Shaikh Abdul Hakeem Zoeir, Member
Dr Muhammed Qaseem, Member
In 2011, the Sharia’ah Supervisory Board met three times to review business progress and to ratify Sharia’ah-related issues submitted for its review during the quarter.
The Bank’s Islamic business is a separate business unit comprising the Islamic banking department and Abu Dhabi Commercial Islamic Finance PSC, a wholly owned subsidiary of the Bank.
An internal audit team regularly audits the Islamic Business; in 2011, the Bank carried out a Sharia’ah Audit to check the operational aspects of the product implementation and execution of documents.
The Islamic Business participated in corporate governance forums in 2011 which assessed Islamic banks and financial institutions in the MENA region, and conducted an internal assessment of its internal practices against international benchmarks and identified initiatives for further consideration and implementation in 2012.
Please see further details in the ‘ADCB at a Glance’ section of this report at http://www.adcb.com/about/corpgovernance/overview.asp and http://www.adcb.com/islamicbanking/home/index.asp.
Further details about ADCB’s corporate governance can be found at http://www.adcb.com/about/overview/overview.asp.
An effective Board is crucial to the success of the Bank. To assess the performance of the Board, the Board undergoes a rigorous performance evaluation annually.
The 2011 performance evaluation process was led by the Chairman, supported by the Board Secretary, utilising experience that was learned from previous evaluations. Since the Bank’s policy is to retain an external consultant every three years to ensure objectivity in the performance evaluation process, in 2011 the performance evaluation was conducted in-house. Any necessary changes identified by the 2011 performance evaluation will be implemented during 2012. Material changes identified in the 2010 performance evaluation, which were implemented in 2011, included enhancing the Board’s:
- monitoring of the Bank’s strategy through more frequent updates and greater transparency in the implementation of strategy;
- re-alignment of management and Board strategy meetings, refinements to management and Board workshops;
- monitoring of the Bank’s risk governance through more frequent updates, greater transparency, and further opportunities to discuss and debate risk strategy;
- involvement in the recruitment and selection process for new Board members through modifications to the Bank’s articles and policies;
- effectiveness in core business areas of the Bank through a series of in-house presentations as well as workshops on the credit analysis process
Related Party Transactions
For further details about the Bank’s related party transactions, please see http://www.adcb.com/about/corpgovernance/overview.asp and Note 34 to the audited financial statements.
Conflicts of Interest
As at 31 December 2011, as a result of written declarations submitted by each of the Board members, the Board was satisfied that the other commitments of the Directors do not conflict with their duties.
DIRECTORS’ REMUNERATION AND INTERESTS IN THE BANK’S SHARES
Remuneration Policy
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
Other Benefits
As at 31 December 2011, the Bank’s Directors were not eligible for any bonus, long-term or other incentive schemes. Directors do not receive any pension benefits from the Bank.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
DIVIDEND POLICY
The Bank has not adopted a formal dividend policy. For the 2011 year, the Board recommended a dividend of 20 percent of the Bank’s capital. Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
INTERNAL CONTROLS
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
In 2011, the Board of Directors, through the Board Audit & Compliance Committee, conducted a review of the effectiveness of the Bank’s system of internal control covering all material controls, including financial, operational and compliance controls, and risk management systems. The Board Audit & Compliance Committee has received confirmation that management has taken or is taking the necessary action to remedy any failings or weaknesses identified.
During 2011, continued emphasis was given to embedding an enhanced culture of compliance through the development of compliance systems and policy infrastructure, and continued focus on regulatory risk management. The group compliance function was strengthened by way of organisation structure and staff skill sets. This has led to an overall improved compliance discipline, particularly in the areas of anti-money laundering, counter-terrorist financing and sanctions compliance procedures. Regulatory reporting and engagement increased considerably over the period.
Audit Arrangements
At the 2011 Annual General assembly PricewaterhouseCoopers was appointed as the external auditor of the Bank on the recommendation of the Board of Directors. The Bank’s external auditor is paid on a fixed annual fee basis, as approved by the shareholders at the annual general meeting. In 2011, fees paid to external auditors for audit work conducted during the 2011 year totalled AED 1,140,000 for the audit of UAE business and its subsidiaries. In addition PWC was paid AED 491,496 towards non audit work comprising business feasibility studies, advisory, accounting and tax-related services. All non audit work must be pre-approved by the Board Audit & Compliance committee.
In addition to the above the Bank paid M/S Borkar and Mazumdar, an audit firm based in India, a sum of AED 28,496 for the audit of the Indian branches and Deloitte Haskins & Sells a sum of AED 155,935 towards tax consultancy and tax audit.
Internal Audits, Regulation and Supervision
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
MANAGEMENT COMMITTEES
The Bank’s Management Executive Committee (MEC) meets weekly and reports to the Board. In 2011 the MEC aligned its agenda with the Board’s agenda and introduced fortnightly meetings dedicated to strategy discussions.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
MANAGEMENT REMUNERATION AND INCENTIVES
Guiding Principles
Please see details at http://www.adcb.com/about/corpgovernance/overview.asp.
Incentive Plans and Awards – LTIP
In aggregate, LTIP awards issued in 2011 (for the 2010 year) totalled AED 64,197,000.
For further details about the Bank’s LTIP scheme, please see http://www.adcb.com/about/corpgovernance/overview.asp.
Salaries, Emoluments and Cash Bonuses of Key Management
During 2011, the Bank awarded staff cash bonuses (and LTIP) to reward their strong performance during the 2010 year and to serve as a retention tool.
Staff received cash bonuses worth AED 19,550,000 in aggregate. Of this, nil was allocated to key management. These bonuses were subject to claw-back and retention provisions.
Key management received salaries and other emoluments (excluding LTIP and cash bonuses) worth
AED 21,052,612 in aggregate.
For these purposes, key management staff means the CEO and his direct reports.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
Variable Pay
During 2011, the Bank worked with external consultants to review its variable pay practices. This review aimed to ensure that the Bank’s variable pay practices remained competitive and in line with international best practices. As a result of this review, effective 1 January 2012, the Bank adopted different variable pay plans for different functions of the Bank to ensure alignment to the market and to the relevant group’s performance. In addition, the Bank adopted an over-arching Bank-wide deferred compensation framework.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
STRATEGY SETTING
The Board of Directors is responsible for determining the Bank’s strategic direction. In 2011, having achieved its three-year strategy, the Board and senior management agreed strategic priorities for 2012-2016. The Bank is currently in the process of finalising its detailed strategic plan for 2012-2016. The Bank also invested its strategic development, including engaging external consultants to assist in developing a detailed five-year strategy.
Please see further details in the ‘ADCB at a Glance’ section of this report at http://www.adcb.com/about/corpgovernance/overview.asp.
GOVERNANCE AT ADCB
Please see http://www.adcb.com/about/corpgovernance/overview.asp for an overview of the Bank’s governance structure and policies and practices, including the Bank’s corporate governance code, code of conduct, disclosure standards, communication with shareholders, and investor relations.
External Recognition
The Bank’s ongoing achievements in corporate governance resulted in the Bank receiving the following honours in 2011:
- World Finance Magazine’s award for ‘Best Corporate Governance’ in the UAE for the second year in a row; and
- The Allied Compliance Consultants 3rd Annual International GRC & Financial Crimes Conference and Exhibition as the ‘Financial Institution of the Year’, in recognition of the Bank’s excellent initiatives in corporate governance, protecting stakeholders’ interests and raising investor trust and confidence
Articles of Association
The Bank’s articles of association are available on the Bank’s website at www.adcb.com/about us/corporate governance. In 2011, the Bank’s shareholders approved certain changes to the Bank’s articles of association, which, at the time of drafting this report, are subject to approval by regulatory authorities.
Islamic Banking
The Sharia’ah Supervisory Board is composed of:
Dr Hussain Hamid Hassan, Chairman
Shaikh Abdul Hakeem Zoeir, Member
Dr Muhammed Qaseem, Member
In 2011, the Sharia’ah Supervisory Board met three times to review business progress and to ratify Sharia’ah-related issues submitted for its review during the quarter.
The Bank’s Islamic business is a separate business unit comprising the Islamic banking department and Abu Dhabi Commercial Islamic Finance PSC, a wholly owned subsidiary of the Bank.
An internal audit team regularly audits the Islamic Business; in 2011, the Bank carried out a Sharia’ah Audit to check the operational aspects of the product implementation and execution of documents.
The Islamic Business participated in corporate governance forums in 2011 which assessed Islamic banks and financial institutions in the MENA region, and conducted an internal assessment of its internal practices against international benchmarks and identified initiatives for further consideration and implementation in 2012.
Please see further details in the ‘ADCB at a Glance’ section of this report at http://www.adcb.com/about/corpgovernance/overview.asp and http://www.adcb.com/islamicbanking/home/index.asp.
Further details about ADCB’s corporate governance can be found at http://www.adcb.com/about/overview/overview.asp.