Corporate Governance Report
4. Risk & Credit Committee
Composition as at 31 December 2012:
Eissa M Al Suwaidi (Chairman), Mohamed S Al Hameli, Abdulla M Al Mutawa, Mohamed A Al Dhaheri
Secretary: Rami Raslan
Composition as at 31 December 2012:
Eissa M Al Suwaidi (Chairman), Mohamed S Al Hameli, Abdulla M Al Mutawa, Mohamed A 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 22 meetings in 2012, which was two fewer than in 2011. 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 2012, 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 2012 the Committee conducted risk strategy and policy meetings on a frequent basis (3 meetings were held focusing only on risk strategy and ‘policy issues’, and risk issues were considered on an ‘as required’ basis during other meetings), 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 2013 schedule contemplates an additional 8 focussessions on risk strategy and policy issues.
The Committee considers that it made positive progress during 2012 towards meeting its responsibilities.
Eissa Al Suwaidi
Chairman of the Board’s Risk & Credit Committee
During 2012, the Risk & Credit Committee comprised four non-executive Directors.
As a result of the delegation of certain powers of the Committee to the management, the Committee held 22 meetings in 2012, which was two fewer than in 2011. 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 2012, 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 and monitored the independence and effectiveness of risk management functions throughout 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;
- 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; and
- revised credit limits and country limits to ensure that risk exposure conforms to the risk appetite determined by the Board.
Throughout 2012 the Committee conducted risk strategy and policy meetings on a frequent basis (3 meetings were held focusing only on risk strategy and ‘policy issues’, and risk issues were considered on an ‘as required’ basis during other meetings), 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 2013 schedule contemplates an additional 8 focussessions on risk strategy and policy issues.
The Committee considers that it made positive progress during 2012 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 2012 |
Shareholding at 31 December 2012 |
Change in shareholding |
Abdulla Al Mutawa |
2,347,277 |
2,347,277 |
0 |
Ala’a Eraiqat |
2,389,655 1 |
3,116,845 2 |
727,190 |
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 |
2,835,147 |
2,735,147 |
- 1 Includes restricted units in the Bank’s LTIP scheme, of which (1) 689,655 vested on 31 December 2012 and (2) 1,200,000 shares will vest on 31 December 2013 subject to early vesting.
- Includes restricted units in the Bank’s LTIP scheme, of which (1) 689,655 vested on 31 December 2012 and (2) 600,000 shares will vest on 31 December 2013 subject to early vesting, and (3) 818,127 will vest on 31 December 2014 subject to early vesting.
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 evaluation process, performed in late 2011 and early 2012, was conducted in-house and was led by the Chairman, supported by the Board Secretary, utilising experience that was learned from previous evaluations and including questionnaires.
Material changes identified in the 2011 performance evaluation, which were implemented in 2012, included enhancing the Board’s:
In keeping with the Bank’s policy to retain an external consultant every three years to ensure objectivity in the performance evaluation process, Professor Andrew Chambers has been retained by the Bank to conduct the 2012 performance evaluation process. Professor Chambers has no other connection to the Bank that could impact on objectivity or the integrity of the process and findings. Any necessary changes identified by the 2012 performance evaluation will be implemented during 2013.
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 36 to the audited financial statements.
Conflicts of Interest
As at 31 December 2012, 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, or that where conflicts may arise, the Board is sufficiently aware and appropriate policies are in place to minimise the risks.
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 2012, 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 2012 year, the Board recommended an ordinary dividend of twenty percent (20%) of the Bank’s capital and a special dividend of five percent (5%) to reflect the Bank’s healthy position following the 2012 year. 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 2012, 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 from management that the Bank’s internal controls have been assessed to be effective and operating as designed, and that management has taken or is taking the necessary action to remedy any failings or weaknesses identified.
Audit Arrangements
The external auditors were initially appointed at the 2011 AGM, and at the 2012 Annual General Assembly PricewaterhouseCoopers (PWC) was re-appointed as the external auditor of the Bank on the recommendation of the Board of Directors. Bank policy restricts their tenure to no more than seven consecutive years. Bank policy also restricts the tenure of the individual audit partner within the firm to no more than five consecutive years, unless exceptionally approved by the Board Audit & Compliance Committee. The Bank’s external auditor is paid on a fixed annual fee basis, as approved by the shareholders at the annual general meeting. In 2012, fees paid to external auditors for audit work conducted during the 2012 year totalled AED 1,392,000 for the audit of UAE business and its subsidiaries. A further AED 63,089 was paid to PWC towards non-audit work.
In addition to the above the Bank paid M/S Borkar and Mazumdar, an audit firm based in India, a sum of AED 28,842 for the audit of the Indian branches.
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 meets weekly and reports to the Board. In 2012 the MEC met 50 times to consider day-to-day management matters.
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.
In 2012 the Bank completed a review of its variable pay practices, which it had commenced in 2011, and implemented several key changes to its previous bonus scheme and LTIP. A Bank-wide variable pay framework was introduced which consists of tailored variable pay plans and a deferred compensation scheme. Staff whose variable pay awards are of sufficient size to qualify for the deferred compensation scheme will have part of their awards automatically deferred into cash and share-based awards. These awards will vest over periods up to three years.
The Bank engaged McLagan (part of the global Aon Hewitt group) as its external consultants to ensure that these changes were competitive and in line with the market, international best practice and the Bank’s long-term strategy. McLagan was selected for their fit-for-purpose specialisation and experience and independence, following a robust tender process. The consultants’ work included performing benchmarking analysis, understanding business drivers and strategic initiatives, and Board-level and key management recommendations and discussions. The Bank also participates in McLagan salary surveys for benchmarking purposes. Before implementing the new variable pay framework, the Board appointed Deloitte to conduct an independent review to, among other things, benchmark the framework against evolving international best practices.
Variable Pay (VP)
For performance in 2011, the following VP awards were made to employees in 2012:
Of this, AED 43,500,000 was allocated to key management in cash and deferred compensation.
The VP is subject to various thresholds, caps, claw-back rules, malus clauses and deferral and retention provisions.
For these purposes, key management means the CEO and his direct reports.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
Fixed pay of key management
Key management received salaries and other allowances (excluding cash and deferred variable pay awards, as detailed above) worth AED 21,821,500 in aggregate. For these purposes, key management means the CEO and his direct reports.
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 2012, the Board of Directors and the management team agreed the strategic objectives for 2012-2016. In order to deliver against these objectives, management has developed a detailed set of strategic plans that operate across the Bank’s businesses.
The Bank’s strategy is designed to deliver growth to the franchise whilst ensuring attractive and sustainable returns to shareholders. Internally, strategy is tracked through a performance scorecard that focuses on key success metrics, including return on equity.
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 ‘Best Bank Corporate Governance Award’ from Hawkamah, the Center for Corporate Governance for Banks within MENA region in 2012. The Hawkamah award was judged by an independent international jury panel and involved a rigorous presentation and interview process.
Articles of Association
The Bank’s articles of association are available on the Bank’s website at www.adcb.com/about us/corporategovernance. In 2012, 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 2012, the Sharia’ah Supervisory Board met twice to review business progress, to ratify Sharia’ah decisions taken in the interim and to ratify Sharia’ah related issues submitted for its review during the period.
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.
In 2012 the internal audit team audited the Islamic Business; as well, the Bank carried out a Sharia’ah Audit to check the operational aspects of the product implementation and execution of documents.
The Islamic Business continued its efforts to assess its governance practices against international benchmarks applicable to Islamic banks and financial institutions in the MENA region.
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 evaluation process, performed in late 2011 and early 2012, was conducted in-house and was led by the Chairman, supported by the Board Secretary, utilising experience that was learned from previous evaluations and including questionnaires.
Material changes identified in the 2011 performance evaluation, which were implemented in 2012, included enhancing the Board’s:
- monitoring of the Bank’s strategy through more frequent updates and greater transparency in the implementation of strategy;
- monitoring of the Bank’s risk governance through more frequent updates, greater transparency, and further opportunities to discuss and debate risk strategy;
- review of the Bank’s succession planning process to ensure transparency and satisfactory alignment with Bank strategy;
- effectiveness through the appointment of a new Adviser to the Board of Directors;
- ability to identify and avoid conflicts of interest through improved guidelines and enhanced monitoring processes; and
- effectiveness in core business areas of the Bank through a series of in-house presentations as well as workshops on the credit analysis process.
In keeping with the Bank’s policy to retain an external consultant every three years to ensure objectivity in the performance evaluation process, Professor Andrew Chambers has been retained by the Bank to conduct the 2012 performance evaluation process. Professor Chambers has no other connection to the Bank that could impact on objectivity or the integrity of the process and findings. Any necessary changes identified by the 2012 performance evaluation will be implemented during 2013.
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 36 to the audited financial statements.
Conflicts of Interest
As at 31 December 2012, 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, or that where conflicts may arise, the Board is sufficiently aware and appropriate policies are in place to minimise the risks.
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 2012, 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 2012 year, the Board recommended an ordinary dividend of twenty percent (20%) of the Bank’s capital and a special dividend of five percent (5%) to reflect the Bank’s healthy position following the 2012 year. 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 2012, 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 from management that the Bank’s internal controls have been assessed to be effective and operating as designed, and that management has taken or is taking the necessary action to remedy any failings or weaknesses identified.
Audit Arrangements
The external auditors were initially appointed at the 2011 AGM, and at the 2012 Annual General Assembly PricewaterhouseCoopers (PWC) was re-appointed as the external auditor of the Bank on the recommendation of the Board of Directors. Bank policy restricts their tenure to no more than seven consecutive years. Bank policy also restricts the tenure of the individual audit partner within the firm to no more than five consecutive years, unless exceptionally approved by the Board Audit & Compliance Committee. The Bank’s external auditor is paid on a fixed annual fee basis, as approved by the shareholders at the annual general meeting. In 2012, fees paid to external auditors for audit work conducted during the 2012 year totalled AED 1,392,000 for the audit of UAE business and its subsidiaries. A further AED 63,089 was paid to PWC towards non-audit work.
In addition to the above the Bank paid M/S Borkar and Mazumdar, an audit firm based in India, a sum of AED 28,842 for the audit of the Indian branches.
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 meets weekly and reports to the Board. In 2012 the MEC met 50 times to consider day-to-day management matters.
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.
In 2012 the Bank completed a review of its variable pay practices, which it had commenced in 2011, and implemented several key changes to its previous bonus scheme and LTIP. A Bank-wide variable pay framework was introduced which consists of tailored variable pay plans and a deferred compensation scheme. Staff whose variable pay awards are of sufficient size to qualify for the deferred compensation scheme will have part of their awards automatically deferred into cash and share-based awards. These awards will vest over periods up to three years.
The Bank engaged McLagan (part of the global Aon Hewitt group) as its external consultants to ensure that these changes were competitive and in line with the market, international best practice and the Bank’s long-term strategy. McLagan was selected for their fit-for-purpose specialisation and experience and independence, following a robust tender process. The consultants’ work included performing benchmarking analysis, understanding business drivers and strategic initiatives, and Board-level and key management recommendations and discussions. The Bank also participates in McLagan salary surveys for benchmarking purposes. Before implementing the new variable pay framework, the Board appointed Deloitte to conduct an independent review to, among other things, benchmark the framework against evolving international best practices.
Variable Pay (VP)
For performance in 2011, the following VP awards were made to employees in 2012:
- variable compensation plan awards of AED 176,413,442
- of which cash variable pay awards were AED 137,730,793
Of this, AED 43,500,000 was allocated to key management in cash and deferred compensation.
The VP is subject to various thresholds, caps, claw-back rules, malus clauses and deferral and retention provisions.
For these purposes, key management means the CEO and his direct reports.
Please see further details at http://www.adcb.com/about/corpgovernance/overview.asp.
Fixed pay of key management
Key management received salaries and other allowances (excluding cash and deferred variable pay awards, as detailed above) worth AED 21,821,500 in aggregate. For these purposes, key management means the CEO and his direct reports.
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 2012, the Board of Directors and the management team agreed the strategic objectives for 2012-2016. In order to deliver against these objectives, management has developed a detailed set of strategic plans that operate across the Bank’s businesses.
The Bank’s strategy is designed to deliver growth to the franchise whilst ensuring attractive and sustainable returns to shareholders. Internally, strategy is tracked through a performance scorecard that focuses on key success metrics, including return on equity.
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 ‘Best Bank Corporate Governance Award’ from Hawkamah, the Center for Corporate Governance for Banks within MENA region in 2012. The Hawkamah award was judged by an independent international jury panel and involved a rigorous presentation and interview process.
Articles of Association
The Bank’s articles of association are available on the Bank’s website at www.adcb.com/about us/corporategovernance. In 2012, 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 2012, the Sharia’ah Supervisory Board met twice to review business progress, to ratify Sharia’ah decisions taken in the interim and to ratify Sharia’ah related issues submitted for its review during the period.
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.
In 2012 the internal audit team audited the Islamic Business; as well, the Bank carried out a Sharia’ah Audit to check the operational aspects of the product implementation and execution of documents.
The Islamic Business continued its efforts to assess its governance practices against international benchmarks applicable to Islamic banks and financial institutions in the MENA region.
Further details about ADCB’s corporate governance can be found at http://www.adcb.com/about/overview/overview.asp.