EBRD’s Role In Promoting Corporate Governance

1. EBRD’s Role In Promoting Corporate Governance 17 May - Tbilisi, Georgia Irakli Managadze, Senior Policy Advisor

2. Banking Systems at the Beginning of Transition • Key banks largely state owned • Proliferation of banks, with many new small banks most of them created to serve their shareholders’ other interests • High margins, limited lending to the real economy • No experience of credit assessment • Lack of confidence in banks, limited ability to attract deposits

3. Continued • Inadequate legal and regulatory framework • Frequent government interference, including directed lending • Low asset quality • Limited banking system capitalisation • No “Fit and Proper” Criteria • Very Weak Corporate Governance • No Anti-Money Regulation

4. Much Has Been Achieved • Changes to the Central Bank and Commercial Banking Laws and Regulations Strengthening the Regulatory Authorities • Implementation of IAS • New Asset Classification and Loan Loss Provisioning Regulations • Internal Control/Conflict of Interest Regulation • Fit and Proper Regulation • AML/CFT Laws and Regulations

5. Much Has Been Achieved • Substantial progress in reform and restructuring process • Average capitalisation has improved • Macroeconomic environment has stabilised • Banking Assets growing • Number of Banks decreasing

6. Key challenges remain • Bankruptcy laws and judicial systems are still often ineffective • Privatisation of State Owned Banks remains on the agenda • Further Sector Consolidation/Too Many Banks • Enforcement of Regulations • Strengthening Corporate Governance

7. EBRD Objectives in the Financial Sector • Promote and support increase in the quality and quantity of financial intermediation • Build strong institutions • Promote products that increase capacity to provide financing to the real economy, with a particular focus on SME’s • Work to improve regulatory environment and corporate behaviour

8. How to Get There • Identify and work closely with banks whose management and shareholders share EBRD’s objectives and values • Engage in policy dialogue to promote business environment with effective regulatory framework & supervision • Support Institution Building through provision of TC funding/Technical Advisors (credit, treasury, operational) • Promote Corporate Governance

9. What Is Corporate Governance? • Conduct and ethics • Application of regulations / laws and their transparency • Disclosure of facts / information • › judicial process • › financial information • › ownership • Compliance with regulations / laws • Institutionalised decision-making

10. Why Practice Good Corporate Governance? • It creates value • Improves reputation • Protects against those who do not practice it • Allows corporation to grow • Gives peace of mind

11. Who is affected by Corporate Governance SHAREHOLDERS JUDICIARY/ REGULATORS STAFF GOOD CORPORATE GOVERNANCE & PROFESSIONAL STANDARDS Creates Value LOCAL & INTERNATIONAL AUDIENCE CUSTOMERS & SUPPLIERS

12. EBRD’s Commitment • Applies high standards • Requires commitment to achieve high corporate governance • Prepared to work with stakeholders • Shares knowledge and experience

13. Corporate Governance in Banks • Transparency of ownership including beneficial ownership • Know your customer disclosure • Financial disclosure • Transparency of decision-making process • Related party lending

14. EBRD’s Experience • Based on real-life situations • Increases quality of decision-making • Improve corporate culture and teamwork • Results in ownership of decisions • Adds value • Quality of Board is crucial