AmendmentFintech

Bank Corporate Governance Directive No. 1014/2024

National Bank Of Ethiopia1014/2024

Summary

This directive establishes comprehensive corporate governance standards for banks in Ethiopia, aiming to ensure prudent management, safeguard financial system stability, and protect stakeholder interests. It details the roles and responsibilities of the board of directors, senior management, and various committees, and outlines requirements for their appointment, conduct, and oversight.

Who's affected

Banks operating in Ethiopia, including their boards of directors, senior management, employees, shareholders, and depositors.

Action required

Banks must review and ensure compliance with the corporate governance requirements outlined in this directive, including updating policies and procedures, and adhering to new appointment and conduct standards for directors and management.

Key points

Establishes comprehensive corporate governance standards for banks.
Defines roles and responsibilities for the board, senior management, and committees.
Mandates specific requirements for director appointment, qualifications, and conduct.

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Introduces stricter rules on conflicts of interest and related party transactions.
Emphasizes the importance of independent directors and board diversity.
Requires integration of sustainability factors into risk management.
Strengthens oversight functions through specialized committees (Audit, Risk Management, Nomination and Remuneration).
Outlines detailed disclosure requirements for banks.
Empowers the National Bank of Ethiopia to supervise and enforce corporate governance practices.
Repeals Bank Corporate Governance Directive No. SBB/71/2019 (1st Replacement).

Requirements

Banks must establish a corporate culture of responsible and ethical behavior.
Senior management must institute a whistleblower policy overseen by the board.
Banks must commit to integrating sustainability factors in risk management processes.

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Boards of directors must have at least nine members with diverse skills and experiences.
Board composition must include 1/3 nominated by non-influential shareholders, 1/3 by all shareholders, and 1/3 independent directors.
Boards must ensure gender diversity with at least two female directors.
A maximum of two bank employees may be elected to the board.
Directors must act in good faith, exercise independent judgment, and discharge responsibilities with care, skill, and diligence.
Directors must comply with laws, regulations, and bank policies.
Directors must avoid conflicts of interest and use their position and bank assets properly.
Directors must maintain confidentiality of bank and third-party information.
Banks must have a policy to manage conflicts of interest and maintain a register.
Directors must declare any conflicts of interest before board meetings.
Appointment of directors is subject to National Bank approval.
Directors cannot serve for more than six consecutive years, with a possibility of re-election after a lapse.
Banks must provide annual training to directors on relevant areas.
Banks must provide a formal induction program for new directors within three months.
Board meetings must be held at least once per quarter.
Board members must attend at least 75% of board meetings annually.
The board has ultimate responsibility for the bank's strategy, financial soundness, personnel, governance, and risk management.
Banks must establish an Audit Committee, Risk Management and Compliance Committee, and Nomination and Remuneration Committee.
The Audit Committee must comprise at least three directors, with at least one independent director.
The Risk Management and Compliance Committee must comprise at least three directors, with a preferably independent chairperson.
The Nomination and Remuneration Committee must comprise at least four directors.
Banks must have a company secretary accountable to the CEO.
The internal audit function must be independent and report to the audit committee and board.
Banks must follow a three-lines-of-defense model for risk management.
Banks must integrate sustainability into the risk management framework.
Senior management must manage the bank's activities consistent with board-approved policies.
Senior management must provide the board with necessary information.
Shareholder rights, including information, voting, and financial rights, must be facilitated.
Banks must disclose material information to the National Bank and publicly.
Banks must exhibit financial statements and governance reports at their places of business.

Rights and permissions

Shareholders have the right to secure methods of ownership registration.
Shareholders have the right to convey or transfer shares.
Shareholders have the right to share in the profits of the bank.

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Shareholders have the right to obtain material information on a timely and regular basis.
Shareholders have the right to vote in general shareholder meetings.
Shareholders have the right to elect members of the board of directors.
Shareholders have the right to appoint the external auditor.
Shareholders are protected from adverse actions by controlling shareholders.
Shareholders have effective means of redress against adverse actions.

Restrictions

Directors are prohibited from using their position, information, or assets for personal advantage.
Directors must avoid situations that may involve a conflict of interest.
No bank, director, or employee may carry out any transaction under conflict of interest that is contrary to policies or laws.

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A person may not serve as a director for more than six consecutive years, but may be re-elected after a lapse.
A maximum of one-third of the board members can be re-elected for one more term if continuity is desired.
Board members shall attend in person at least 75% of board meetings.
A sitting board member or employee cannot represent any other shareholder as a proxy in shareholders meetings.
A shareholder must be registered for at least two consecutive years to be considered for board nomination.
Representation by proxy in shareholders meetings is limited to 10% of total subscribed capital.

Penalties

Directors involved in transactions contravening sub-article 8.5 may be prohibited from new loans, renewals, or foreign currency transactions for three years.
Directors involved in transactions contravening sub-article 8.5 may be suspended or removed from the board for at least three years.
Directors involved in transactions contravening sub-article 8.5 may be prohibited from investing in new or existing shares in financial institutions for three years.

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Directors involved in transactions contravening sub-article 8.5 may be subjected to other administrative actions by the National Bank.
Chief executive officers or senior executive officers transacting in contravention of sub-article 8.5 may be suspended or removed.
Outgoing board members will not be paid remuneration for their final service year if they fail to submit a comprehensive exit report.

Objectives

To ensure prudent and effective corporate governance practices at banks.
To maintain the safety and soundness of the financial system.
To develop an accountability regime that allocates powers and responsibilities between the board and senior management.

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To lead to balanced risk-taking practices that consider stakeholder interests.
To ensure banks are soundly and prudently managed and directed.

Organizations

National Bank of Ethiopia
Commercial Code of Ethiopia
Public Enterprises Proclamation

Legal references

Article 13(1/a), Article 14(4/b-d and f), and Article 66(2) of the Banking Business Proclamation No. 592/2008
Banking Business Proclamation No. 1159/2019
Commercial Code of Ethiopia

Original sourcehttps://justice.gov.et/en/directives/bank-corporate-governance-directive-no-1014-2024/

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