Dr. Joseph Torbey’s Speech
(Chairman – Association of Banks in Lebanon)
The Lebanese Banking Sector Corporate Governance Survey
In cooperation with the International Finance Corporation
Monday, 23 May 2005 – ABL Premises, Beirut
Ladies and Gentlemen,
It is my pleasure to launch today the Lebanese Banking Sector Corporate Governance Survey in the context of a cooperation mandate between the Association of Banks in Lebanon and the International Finance Corporation.
According to the OECD, Corporate Governance involves – I quote – "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 interest of the company and shareholders, and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently." – End of quote –
Corporate governance is therefore the manner in which the business and affairs of an individual institution are governed by its Board of Directors and senior management, taking into account internal and external interactions: the legal infrastructure, business ethics, shareholders and stakeholders (employees, customers, suppliers etc…) and the overall business environment.
You may be wondering why should we apply Corporate Governance principles to our banking sector and how could we apply it, and what are the potential benefits?
I believe that the implementation of such principles in our banking sector is an essential element of conducting business in a sound manner and promoting the growth and sustainable development of our sector. The existence of an efficient Corporate Governance within a company provides confidence and better market valuation by protecting property rights especially those of minority shareholders, and by creating accountability in order to protect investors' interests. Banks are, according to the Basel Committee on Banking Supervision, - and I quote – "A critical component of any economy. They provide financing for commercial enterprises, basic financial services to a broad segment of the population, and access to payments systems. In addition, some banks are expected to make credit and liquidity available in difficult market conditions. The importance of banks to national economies is emphasized by the fact that banking is universally a regulated industry and that banks have access to government safety nets. It is of crucial importance therefore that banks have strong corporate governance" – end of quote. This is particularly true when it comes to our banking sector, which is the cornerstone of our economy.
Our banking sector has enjoyed a good reputation during the last decades, despite the serious threats it faced. Applying Corporate Governance principles will give us an opportunity to reaffirm our engagement to excellence, and to identify areas of reform in order to be able to enhance our sector's performance for more transparency and responsibility, leading therefore to a stronger banking industry.
From a banking-sector perspective, the Basel Committee on Banking Supervision defines general guidelines of Corporate Governance. The implementation of a sound Corporate Governance system in banks covers accounting and auditing principles, treatment of minority shareholders, separation of ownership from management, risk management, fighting money laundering, assignment of senior management enjoying strong skills and knowledge, and many other issues.
In Lebanon, the banking industry has been able to avoid in the last 15 years many problems it faced, and build a sound banking environment, thanks to the monitoring implemented by the Banque du Liban and the Banking Control Commission, and due to the level of great awareness demonstrated by banks themselves. In fact, in our Lebanese banking sector, we started applying long ago, many of the Corporate Governance principles as part of our regulatory requirements, such as IAS, FATF recommendations, information systems security (circular 222), administration and processing of credit risk (circular 238). However, our legal framework needs to be completed on other issues, such as establishing a clear definition of the responsibilities of the Board of Directors and the segregation of Board functions from management functions.
In addition to the prime responsibility of the Board of Directors and senior management for good Corporate Governance in a bank, Basel Committee on Banking Supervision considers that banking industry Associations can play a role in that respect, through initiatives related to voluntary industry principles and agreement on, and publication of sound practices. It is in this spirit that we are here today to launch this cooperation with IFC in order to carry out this comprehensive survey. In fact, the Association of Banks in Lebanon, has already acted as a self-regulatory organization in the successful experience of 1996 when it signed with its members a due diligence Convention on fighting money laundering. This Convention served as a basis to the Anti-Money Laundering Law n° 318.
Finally, I expect this survey to be of great benefit, because it will give us the opportunity to identify our strengths and weaknesses, to learn more on all the issues that I mentioned above, and to work towards implementing best practices. I am very confident of the success of this project and the commitment of banks in that respect.
Thank you.
