Corporate Governance

Prepared by:- George Samuel

July, 26th ,2016

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Contents

1. Concept of Governance.................................................................................................................................................................... 3

2. Bank Board of Directors ................................................................................................................................................................... 3

2.1 General Provisions ......................................................................................................................................................................... 3

2.2 Formation of the Board ................................................................................................................................................................... 5

2.3 Board’s Responsibilities and Obligations ........................................................................................................................................ 8

2.4 Communication Channels and Professional Development............................................................................................................. 11

2.5 Assessment of efficiency of bank board of directors’ performance ................................................................................................ 11

2.6 Board’s Committees ....................................................................................................................................................................... 11

3. Relationship among members of the bank board and top management and clear definition of powers and functions .................. 15

4. Optimal use of findings of work by internal and external auditors and functions of bank internal control ..…................................. 17

5. Disclosure and Transparency .......................................................................................................................................................... 20

6. Relationship between the bank board of directors and shareholders .............................................................................................. 21

7. Tight control over complex structures/ transactions within framework of governance applications ………………….…..…………. 22

8. Definitions ........................................................................................................................................................................................ 23

Our Reference: CBE/BOD decree Dated July 5th 2011

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1. Concept of Governance

1.1 Governance is a set of relations between the bank management, its board of directors, shareholders and other stakeholders, including clear-

cut definition of their respective powers and responsibility. It relates to the technique the board and top management of the bank would adopt to

direct and exercise its affairs and day-to-day activities, which has an impact on the following:

1.1.1 Developing strategies and defining objectives

1.1.2 Defining acceptable risk tolerance level for the bank

1.1.3 Performing the bank business and day-to-day activities

1.1.4 Striking a balance between commitment to responsibility before shareholders, protection of interests of depositors, and taking into

consideration other stakeholders

1.1.5 Ensuring that the bank activities are performed in a safe and sound manner and within the framework of compliance with rules and controls

in force.

1.1.6 Adopting efficient policies of disclosure and transparency

2. Bank Board of Directors

2.1 General Provisions

2.1.1 A bank must be run by an efficient board of directors to be responsible mainly for determining and working on realization of the 3 strategic

objectives of the bank, supervising the functioning of the top management, and ensuring efficiency of internal control systems and risk

management at the bank in a manner that maintains the bank reputation unblemished and its stability in the long run, in addition to the tasks and

obligations of members of the board of directors as set forth under Item (2.3) of these instructions.

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1.1.2 The most important responsibility of the board of directors lies in determining the optimal method for enforcement of governance in

accordance with the volume and sophistication of the bank activities. Within the framework of supporting the governance system, the board of

directors must first lay the foundations for the corporate culture in the bank, including development of code of ethics for staff and top

management (which is considered a guidance tool for both in the process of performance of their day-to-day tasks), considering the interests of

shareholders and depositors. It must also take necessary steps to promote the objectives and proper professional conduct to be followed up in

the bank.

2.1.3 The board of directors shall approve professional standards and values that reflect the bank policies to be followed by all the bank staff, top

management and board members, while enhancing individual and collective responsibility within the following framework:

The practices and actions of the board of directors must set an example for all management levels at the bank, which should be reflected in the

performance and actions of such levels.

A code of ethics for staff and top management as well as the philosophy to be adopted by management within the framework of work should be

developed including clear-cut compliance standards based on corporate culture and professional standards at the bank. The code of ethics must be

disseminated in all the bank departments and all staff members should get a copy thereof to read, sign in acknowledgement of that, and undertake to

work accordingly.

Whistleblower policy at workplace must be institutionalized. Accordingly, the bank must develop a whistleblower protection policy to encourage staff

members to come forward and blow the whistle on violations, to provide protection for them, and ensure full confidentiality. The whistle blowing

process must be based on specific documents or information without violating any code of ethics known at the bank. The values adopted at the bank

must stress the critical importance of the necessity of frank discussion of problems that rise within the scope of work and that should be addressed in a

timely manner.

It must be ensured that the bank’s top management has developed and implements policies on conflict of interest and that transactions involving

4parties related to the bank (especially shareholders, CEOs, advisors, members of the board of directors, or any relevant company) are done

independently as if related parties have no inter-relationships so as to avoid any conflict of interests, and not to compromise the interests of the bank,

shareholders and depositors. Such transactions must be disclosed in writing to the bank’s compliance department.

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The organizational structure of the bank must reflect the principles of transparency, accountability and separation of functions through

institutionalizing an efficient system of checks and balances to ensure ongoing supervision and efficient oversight at different job levels

while articulating accurately their individual powers and responsibilities. To note, the organizational structure must have four supervisory

levels at a minimum to guarantee the efficiency of this system:

The supervisory level as represented by the board members through their membership in the board and affiliated committees;

The supervisory level represented by top management members;

Officials in charge of direct supervision of the bank’s various departments

The supervisory level represented by the independent functions of the bank, such as the risk management department, the compliance

department, and internal audit department.

Furthermore, the experience and qualifications of each staff member must meet his/ her job requirements to make sure that each

performs his/ her duties optimally.

2.1.4 In general, any authorization issued by the board must be specific in terms of its subject and its period of validity.

2.2 Formation of the Board

2.2.1 The 6 bank’s board of directors should be composed of an appropriate number of members who are qualified for their positions and should

have a suitable variation of capacities, skills, expertise and knowledge. Each member should have full understanding of the functions of the

board of directors and the committees he/ she participates in. The board should have a member to represent minority of shareholders if their total

holdings represents at least 5% of total holdings.

2.2.2 The bank’s board of directors must be formed in a manner that supports its efficiency and enables it to give objective, sound opinions

independent from the management opinions and free of any conflict of interests.

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2.2.3 The chairman of the board and the CEO. The same person may undertake the chairmanship of the bank’s board of directors and the

functions of the CEO provided the reasons for that be clarified. The two positions may also be separated. Functions and responsibilities of each

must be defined, approved by the board of directors and documented in writing.

2.2.4 The non-executive chairman of the board is responsible mainly for the proper performance of the board in general. He is solely responsible

for guiding and directing the board and ensuring its efficient performance. He must have required experience, qualifications and personal

characteristics that enable him to undertake his responsibilities including the following:

Ensure that decisions are taken on sound grounds and on the basis of full knowledge of the subject; and that a proper mechanism to

ensure the efficient implementation of such decisions in time and the method of following up thereon must be in place.

Promote discussion and criticism; ensure expression of opposing opinions and discussion of the same within the framework of the

decision making process.

Ensure that the board is committed to perform its tasks optimally and in a manner that achieves the best interest of the bank and avoids

conflict of interest.

Maintain the bonds of trust among all members of the board, especially among executive and non-executive members; strengthen the

relations of the board as a whole with the bank’s top management.

Ensure that board members and shareholders have access in a timely manner to sufficient and accurate information.

Ensure the efficiency of the corporate system in force at the bank as well as the efficient performance of the board committees.

Ensure that each member of the board conducts self evaluation including how far the member fulfils his job duties and meets

requirements for enhancing his efficiency according to item (2-5) herein below.

Invite the board of directors to meet at least once every two months and sets its agenda.

2.2.5 Balance and independence in the bank’s board of directors

2.2.5.1 Independence and objectivity of the board of directors should be achieved through providing the board with non-executive members with

proper qualifications and experience. A non-executive member means a board member who is not available.

on a full-time basis to run the bank (that is, he is not a staff member in the bank) and does not receive monthly or annual remuneration from the

bank. Nor does he provide any paid consultations.

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2.2.5.2 When forming the board of directors, a balance should be stricken between executive members (no less than two) and non-executive

members (independent, non-executive members in particular) so that the possibilities of power concentration and dominance of one person (or

more) over the remainder of members in terms of the decision-taking process are reduced, and that the board can supervise the actions of the

executive management. The majority of the members of the board of directors must be non-executive members, and the board membership

period for a non-executive member must not exceed two consecutive cycles or a maximum period of six years unless there are strong, specific

justifications that must be disclosed to the Central Bank of Egypt.

2.2.5.3 The board must, via its annual report, lists all its non-executive members whom the bank considers independent members. Proposals

regarding their nomination must be submitted through the governance and nominations committee and be presented to the board to secure the

approval of the general assembly. A member of the board is considered to be independent if he meets the following conditions:

He is experienced.

He is not an employee of the bank or has not been one of its related parties for the last three years.

He has no kinship relations with any member of the board or top management or any of the related parties to the fourth degree.

He has no interests conflicting with his duties or having the potential of affecting his impartiality during deliberations and decision taking.

He does not receive from the bank any remuneration or amount of money except for remuneration for his membership in the board.

He is not an 9major shareholder in the bank or represents it.

He is not a partner with the bank’s auditor or has been his employee for the last three years.

His membership has not exceeded a period of six consecutive years.

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2.2.6 Each bank must designate a person qualified and informed enough about banking activities to be in charge of 10“the secretariat of the

board” . A department for the secretariat may be formed. Its role is not limited to writing minutes of meetings of the board but also includes, inter

alia,

Making preparations for meetings of the board and topics to be put forward during the session (i.e. agenda), and making available

information and details about such issues and sending the same to members of the board prior the meeting in a timely manner.

Following up on implementation of the board’s decisions within the framework of the mechanism set for that purpose.

Recordkeeping and documenting all that is related to the board’s decision and issues presented to it while ensuring access by the board

to significant information in a timely manner.

Coordinating with the head of the compliance unit as well as all departments of the bank to present the results of their operations before

the board.

Coordinating with all committees of the board to ensure efficient communication among such committees and the board.

Coordinating with the governance and nominations committee within the framework of providing access to support information for the

chairman of the board in the process of evaluation of members, committees and proposals put forward by the board to the general

assembly in terms of selection or replacement of one of the members.

Ensuring, within the scope of its responsibilities and without conflict with the role of departments related to such issues, that members of

the board are kept posted about the most important updates on supervisory or legal responsibilities resulting from developments in the

bank’s processes/ activities, or in the legal framework it is subject to.

Providing necessary information about the bank to new members and introducing them to remainder of the members.

2.3 Board’s Responsibilities and Obligations

2.3.1 The bank board of directors is absolutely responsible for supervision of the bank’s management in general, and should undertake the

following 11main functions to support and ensure the efficiency of the corporate system at the bank:

2.3.1.1 Adopt strategic orientations and main objectives of the bank, supervise their implementation and ensure their dissemination among the

bank’s staff.

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2.3.1.2 Adopt the organizational structure and determine the structure of powers and responsibilities in the bank.

2.3.1.3 Select senior officials among members of the bank’s top management, supervise and replace them (if necessary) subject to feedback

from the CEO.

2.3.1.4 Supervise and follow up on the performance of the bank’s top management; hold it accountable and secure from it clear explanation and

clarification regarding issue at hand. Members of the board of directors should have access to all material and critical information in a timely

manner so as to be able to evaluate the performance of management.

2.3.1.5 Hold periodic meetings with the bank’s top management and internal audit department to review and discuss policies in force, follow up

on progress of implementation of the bank’s strategic objectives. The board’s non-executive members must, with the attendance of the chairman

of the board, meet together at least once a year without the presence of the board’s executive members.

2.3.1.6 Control and supervise the operations of the bank, taking into account that the tasks of the board should not include engagement in

executive functions, which is the jurisdiction of the top management.

2.3.1.7 Control and manage any possible conflict of interests of the bank management, members of the board of directors, and shareholders,

including misuse of the bank’s assets, and abuse of related parties’ transactions; set rules to regulate what the chairman and members of the

board and staff may receive in terms of gifts. The board should make 12necessary disclosure, including that to the Central Bank of Egypt, about

the bank’s policies on conflict of interests and information about transactions with related parties.

2.3.1.8 Members of the board of directors to adopt and review periodically disclosure policies, and supervise their implementation within the

framework of the provisions of the law and international standards.

2.3.1.9 Evaluate on a constant and periodic basis the effectiveness and efficiency of the policy and practices of governance and internal control

of the bank.

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2.3.1.10 Promote corporate governance in the bank and encourage all staff members and top management to apply governance practices;

ensure that the bank encourage its customers to apply governance practices to their establishments.

2.3.1.11 Be aware and understand the supervisory and legal environment of the bank; comply with the laws, regulations and supervisory

controls; maintain dialogue among members of the board and supervisory entity so as to bring about mutual understanding of points of view with

the purpose of achieving financial viability of the bank.

2.3.1.12 Allocate appropriate time and efforts by all members to ensure the board performs its functions.

2.3.1.13 Approve and adopt strategies and polices on the bank’s management of risks; review and re-assess the same periodically; understand

on an informed basis the risks the bank is exposed to, set acceptable tolerance limits, and ensure that management takes necessary steps to

identify, measure, follow up on and monitor risks in accordance with set policies and strategies.

2.3.1.14 The board to adopt and review periodically policies on basics of information technology management, especially as related to ensuring

security and confidentiality of information at the bank.

2.3.1.15 Adopt, review and reassess on a periodical basis policies on salaries and remunerations in line with the level of risks the bank is

exposed to.

2.3.2 Always ensure that interests of shareholders, staff, depositors as well as other stakeholders are achieved; avoid conflict of interests; refrain

from taking or participating in any decision if a suspicion of conflict of interests in the functions or obligations of a board member appears, and

perform due diligence to ensure that.

2.3.3 Meet at least once a month per invitation of the chairman of the board, or as he deems justified. The bank’s CEO may request the

chairman of the board to invite the board to convene and should provide an agenda of issues he wishes to present.

2.3.4 Any member of the board may not be absent for more than a third of the board’s sessions in a year. Otherwise, the chairman of the board

must inform the general assembly of the bank to take whatever action it deems necessary.

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2.4 Communication Channels and Professional Development

2.4.1 The bank should take interest in different methods of communication, setting up proper channels of efficient communication, exchange of

information among members of theboard of directors, top management and different supervisory functions in accordance with their respective

powers and duties. For this help different management levels at the band perform their tasks optimally. Such exchange of information must be

done fully, accurately and in a timely manner.

2.4.2 Members of the board of directors must have access to critical information in a timely manner, clearly and accurately to enable them

perform their duties and tasks optimally.

2.4.3 Technical skills of the members of the board of directors must be developed on an ongoing basis through different methods to achieve that,

especially members who are from outside the financial or banking sector.

2.5 Assessment of efficiency of bank board of directors’ performance

The bank board of directors must adopt a specific system to conduct a self-assessment at the level of the board and its committees as one unit,

as well as at the level of individual performance of each member. This should cover how far each member fulfils his job duties and requirements

needed to enhance his efficiency. The responsibility for assessment of performance of members rests with the chairman of the board.

2.6 Board’s Committees

Board’s committees play a significant role in supporting the board of directors during the decision making process, especially when the chairman of the board assumes the functions of the CEO simultaneously.

The bank board of directors sets the rules and procedures for formation of its committees and designating its functions, powers, and duration. It is necessary to clearly disclose such rules and procedures. The board should also monitor on a constant basis the operations of such committees to ensure their efficient role, and may consolidate some committees subject to suitability of their functions.

Ensuring access to sufficient information from management and possible engagement by committees of external resources and consultations

When forming committees, it should be taken into account that expertise of the members of the committees are related to tasks designated for each, especially in respect of financial, banking, economic and legal aspects.

Without prejudice to the provisions of the law regarding formation of both the audit committee and the executive committee, each bank shall form several committees reporting to the board of directors, including the risk management, salaries and remunerations committee, and governance and nominations committee. The following is a list of the major functions of these committees:

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2.6.1 Executive committee

The committee shall be formed in accordance with Article 82 of Law No. 88 of 2003. Its functions shall be as set forth under Article 29 of the

executive regulations of that law.

2.6.2 Audit Committee

2.6.2.1 The committee shall comprise three non-executive members of the board with proper experience according to Article 82 of Law No. 88 of

2003. It is necessary to make sure that a balance of sufficient capabilities, knowledge and familiarity with financial issues and audit and

accounting fields in line with the size of the bank and sophistication of its operations is stricken.

2.6.2.2 One of the most important functions of the audit committee is to monitor operations of the bank’s internal audit department, especially as

regards integrity of internal control systems. The head of the bank’s internal audit unit shall submit reports directly to the audit committee and the

board of directors. In addition, there are other functions for the audit committee as set out under Article 27 of the Executive Regulations of Law

No. 88 of 2003.

2.6.2.3 The audit committee shall have an important and efficient role as regards the relationship and coordination with external auditors of the

bank, and providing means of direct communication between external auditors and the committee. The committee shall assume the direct

responsibility for the following:

Propose appointment or removal of external auditors as well as determination of their salaries and remunerations.

Agree with external auditors regarding scope of audit

Receive audit reports and ensure that the bank management has taken necessary remedial procedures in a timely manner vis-à-vis

issues identified by the external auditors, as well as shortcomings and weaknesses of the internal control systems and non-compliance

with policies and laws in force.

2.6.2.4 The Central Bank of Egypt must be provided on a quarterly basis with a copy of the report generated about the meeting of the committee

as set forth under Article 82 of 2003 and Article 28 of the Executive Regulations thereof, which includes major comments, actions taken or any

significance issues.

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2.6.3 Risks Committee

2.6.3.1 Majority of the members of the committee shall comprise non-executive members of the board. Its members shall not be less than three,

and the committee chairman shall be non-executive. The head of the risk management department of the bank shall be invited to attend

meetings of the committee.

2.6.3.2 The most important function of the committee is to monitor functions of the bank risk management department. The committee also

monitors the extent of compliance with strategies and policies referred to under Article 2.6.3.3 below through reports sent to it by the risk

department. On the other hand, the committee shall submit periodic reports to the board.

2.6.3.3 The committee shall submit its proposals regarding strategies and polices on the bank’s management of risks (including strategies

related to capital, liquidity management, credit and market risks, operational risks, commitment and reputation risks, and any other risks the bank

may be exposed to). The bank board of directors must approve and adopt them after introducing any amendments it deem necessary.

2.6.3.4 The bank’s top management shall be responsible for developing the structure of functions of the risk department, and identifying its tasks,

which should be presented to the risk commitments and approved by the board of directors.

2.6.4 Salaries and Remunerations Committee

2.6.4.1 A Committee comprising three non-executive members of the board, with the head preferably from among independent members, shall

be formed.

2.6.4.2 The committee shall be directly responsible for determination of remuneration of senior executives at the bank, and submitting proposals

about the remuneration of 14board members, including all financial transactions, including salaries, allowances, in-kind privileges, incentive

shares and any other elements of a financial nature, taking into consideration desired objectives.

2.6.4.3 Necessity of focusing on the bank’s internal control functions (risk management, compliance department, and internal audit) in terms of

reward, which is determined on the basis of objectives achieved without prejudice to their independence.

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2.6.4.4 The committee shall analyze the findings of the study and review of levels of salaries paid by the bank and compare the same with other

establishments to make sure the that the bank is capable to recruit and maintain the best staff. It can seek the assistance of the head of human

resources and invite him to attend its meetings.

2.6.4.5 The committee shall be responsible for developing clear and written policies on salaries and remunerations at the bank to be reviewed

and re-assessed periodically subject to the level of risks the bank is exposed to, and clarify the rationale for such actions. The board must

approve and disclose such policies including the aggregate amount of the twenty top paid officials in the bank, listing salaries, allowances, in-

kind privileges, incentive shares, and any other elements of financial nature.

2.6.4.6 The committee must take into consideration the following when undertaking its tasks:

Take into consideration the bank’s long term objectives when developing policies on salaries and remunerations. In particular, linking

remunerations of members of the board’s committees and top management of the bank with short term objectives only should be avoided.

When proposing remunerations of the board non-executive (including allowances for attending committees), take into consideration their

actual participation in the board and not to link them with the short term performance of the bank

Possibility of controlling variable remunerations so as not to limit the ability of the bank to boost the capital base.

Determine the volume of variable remunerations, with possibility of setting limits thereof, as well as method of distribution among the

bank’s departments based on the volume of risks it is exposed to, especially risks of liquidity and capital required to cover such risks.

Granting remunerations in the form of shares or equity must be based on job level, and minimum limit of holdings and period of retention

of such instruments must be set.

As far as staff members whose jobs have significant impact on level of risks are concerned, their variable remunerations should reflect the

level of the bank’s performance and risks it is exposed to, must be determined on a periodic basis for a period not to exceed one year and

must be disbursed in accordance with standards for measurement of performance as specified by the bank.

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2.6.5 Governance and Nominations Committee

The committee comprises three non-executive members of the board. It is responsible for the following:

Assess on a periodic basis the governance system at the bank

Propose suitable changes to the governance policies adopted by the board of directors

Prepare on a periodic basis report on overall governance status at the bank

Review the annual report of the bank, especially as related to disclosure items and other items related to governance

Study comments made by the Central Bank of Egypt’s inspection of the governance system and take the same into consideration

Maintain, document, and follow up reports on assessment of performance of the board

Put forward proposals regarding nomination of independent members, appointment/ renewal of membership, or removal of a member.

3. Relationship among members of the bank board and top management and clear definition of powers and functions

3.1 Cooperation between the bank board and top management is a major pillar of efficient governance, including clear definition of powers and

functions of each. While the board plays a significant role in guidance and leadership, the top management’s role is to prepare and implement

strategies and policies approved by the board to ensure the level of risk tolerance acceptable to the ban. Independence of the board and its

members from top management must be maintained, and there should be no relations that may affect the objectivity of members in terms of

taking decisions.

3.2 The board should make sure that top management is enforcing policies related to prohibiting or limiting activities, relations, or circumstances

that could weaken the quality of the governance system at the bank, including, inter alia, conflict of interests, 15internal lending, and related

parties or specific establishments given special treatment (such as lending together with special facilities that are not given to the other clients of

the bank). In addition, it should be ascertained that the board and top management must understand the general structure of the bank and the

volume of its operations.

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3.3 Each bank must have a guidelines manual illustrating powers and responsibilities at the level of the bank and includes main work procedures

and duties of both the bank board of directors and top management.

3.4 The board and top management must bear the responsibility for developing and supporting professional and ethical standards, and

promoting the culture of internal control in the bank. Specific polices on practices related to such standards must be developed, and the

necessity of following up on implementation by the staff should be stressed.

3.5 Top Management

3.5.1 This includes senior officials at the bank who are responsible for day-to-day supervision of the bank’s operations, e.g. head of financial

department, head of compliance department, head of risk management, official of the bank’s internal audit, bank operations head, as well as

other sectors heads and general managers at the bank.

3.5.2 Members of top management must have necessary experience, knowledge and capabilities for practicing good management and

leadership of staff as they are accountable before the board for the performance of the 16bank.

3.5.3 [Members of] Top management, each within the scope of his jurisdiction, must follow up on the performance of managers of the bank

departments and sections in terms of the bank activities and operations, and see how far they conform with work procedures and policies

developed by the board.

3.5.4 Management must make sure that staff members at the level of the bank understand well and comply with the strategies, objectives and

policies.

3.6 The board of directors supervises the operations of the bank top management and check how far it conforms with the board policies as this is

considered a major part of the checks and balances systems that should be available in the efficient governance system as set out under item

(2.1.3).

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4. Optimal use of findings of work by internal and external auditors and functions of bank internal control

To ensure achievement of an efficient governance system at the bank, the board of directors needs cooperation and support of internal

and external auditors, as well as functions of internal control at the bank (i.e. risk management, compliance department, internal audit

department). Both the board and top management must use properly results of operations of these departments, and comments and

reports of external auditors of the bank.

Optimal utilization of the recommendations and comments of the above departments helps validate information cleared by management

as regards soundness of the bank operations and performance.

It is necessary to separate between the tasks of those in charge of internal control in the bank so that they can work independently of

each other. Communication lines between any of the above-mentioned jobs and the bank board of directors and top management must be

direct.

The bank board of directors and top management are responsible for ensuring availability of sufficient resources for risk management,

compliance department and internal audit department, as well as staffing these departments with employees having qualifications and

experience commensurate with their needs.

4.1 Function of internal audit

4.1.1 Functions, powers, and responsibilities of the internal audit department at the bank should be disclosed and documented in writing.

4.1.2 Major responsibilities undertaken by the bank internal audit department includes:

Assess efficiency of the bank internal control systems (including the two functions of risk management and compliance); produce reports

on shortcomings detected.

Assess how far implementation of work at the different sections of the bank conforms to work procedures and policies in place.

Assess how efficient procedures and policies in place are and how far they keep abreast with work and market developments.

Follow up on correction of shortcomings listed in the internal audit reports.

4.1.3 Ensure direct contact between the internal audit department and both the bank board of directors, top management, and the audit

committee. The internal audit department submits its reports to them directly, especially in the case of comments or proposals aiming at

improving the efficiency of the bank internal control systems.

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4.1.4 Comments and proposals submitted by the audit department must be followed up on by the competent management level with the purpose

of soundness of their comments and periodic reports must be prepared for following up on implementation.

4.1.5 The bank board of directors and top management has a role in giving weight to shortcomings revealed by the bank internal audit

department, especially those related to risk management and internal control systems, through the following:

Work on an ongoing basis on ensuring the importance of audit and internal control functions and disseminate that vision at the level of the

bank to ensure all staff members are familiar with the importance and efficiency of the existence of such functions in the bank.

Utilize in an optimal and timely manner the comments revealed by the internal audit department. Top management must take appropriate

remedial actions as soon as possible.

Encourage and support independence of the bank internal auditors through providing channels of direct communication with the board of

directors and the audit committee; engage them in providing feedback on the efficiency of the bank internal control systems and risk

management; and ensure easy access by the staff of the bank internal audit department to reports and significant information related to

different sectors of the bank.

4.2 Relation of the board with the bank external auditors

4.2.1 Highlight significance of direct communication between external auditors and the bank audit committee and sending reports directly to it (as

stated above, in the section on the audit committee).

4.2.2 It is necessary that the board non-executive members meet at least once a year with external auditors, with the head of the internal audit

department and the head of the compliance department present, excluding top management.

4.2.3 Both the bank board of directors and top management should contribute to enhancing the role of 17external auditors and ensuring that

financial statements reflect all the major aspects of the bank’s performance and reveal its real financial position.

4.3 Compliance Functions

4.3.1 The bank should be familiar enough with the risks of compliance, which means possible exposure to financial losses or what may blemish

the reputation of the bank as a result of the bank’s non-compliance with applicable laws to be followed as well as regulations and controls issued

by supervisory entities as it is possible that the bank may suffer as a result of its failure to comply with the law and standards to be followed.

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4.3.2 Top management is responsible for developing policies on the function of compliance to be approved by the board of directors, and

disseminated among all staff members of the bank. The person in charge of compliance submits his reports directly to the bank audit committee.

4.3.3 Stress the necessity of a permanent, efficient function in place in each bank; ensure the independence of the compliance official and

enable him to communicate directly with the audit committee and the board. Top on the list of tasks of the compliance function is the following:

Follow up on an ongoing basis how far the bank sticks to binding laws, regulations and supervisory control, including governance systems

and policies to be adopted. In case of any comments on shortcomings, it is necessary to report them to the concerned management level

and the audit committee.

Receive reports from the bank staff about illegal or unethical practices at the work place and investigate the same in accordance with

instructions set out under item (2.1.3).

Measure expected impact in the case of occurrence of any changes to the legal framework the bank is subject to.

Ensure conformity of any product and procedures introduced by the bank to laws and supervisory rules in place.

4.4 Risk management function

4.4.1 Each bank should have a clear organizational structure that includes an independent unit for risk management and clear designation of

persons in charge of risk management, and definition of their tasks and responsibilities, especially powers and tasks of the head of risk

management. It is necessary to separate between tasks to avoid any conflict of interests. The risk management unit must have direct contact

with the board and the bank risk committee and shall submit periodic reports thereto based on the significance of information reported.

4.4.2 The following is a list of the major functions of risk management at the bank:

Analyze risks the bank may be exposed to; ensure accurate analysis is conducted early and at the right time. Major risks include those

related to credit, market, liquidity and operations.

Define specific work process as regards measuring, monitoring and controlling risks.

Measure how far the work process regarding measurement, monitoring and controlling risks continue to be relevant and efficient, and

make any changes thereto if necessary according to developments in the market and the environment the bank operates in.

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Policies adopted by the bank board of directors to include acceptable tolerance levels of risks the bank may be exposed to. It is necessary

that these limits should be consistent with how far the bank can tolerate risks and how far this is suitable for the amount of capital, taking

into consideration the bank risk measurement system and the risk management process as a whole.

The bank should have appropriate and efficient management information systems, especially as regards the risk monitoring and control,

and should ensure that these systems are efficient to provide the bank top management, as well as the risk committee and the board of

directors, with periodic reports on a quarterly basis at least, reflecting how far the bank complies with the risk tolerance limits in place, and

pointing out violations of these limits, reasons and remedial plan to be adopted.

The management reports must be presented in a reader-friendly form so that members of the board can evaluate risks highlighted therein,

and make the right decision thereabout, especially as related to the results of stress tests.

5. Disclosure and Transparency

The bank must be committed to disclosure in accordance with supervisory rules issued by the supervisory entity and requirements of

professional standards. Furthermore, it is necessary to make available several methods and channels of communication to provide access to

information, including, inter alia, annual reports, websites, and reports addressed to supervisory entities. Other than the information the bank has

to disclose as mentioned above, we have to reiterate the following:

Structure and formation of the bank board of directors

Responsibilities, experience and qualifications of the board

Structure of private ownership in the bank

The organizational structure of the bank including, for example, general structure of jobs, work sectors, subsidiaries, and companies with

common interests, and the board committees.

Code of ethics at the bank.

Policies of the bank as regards conflict of interests, insider transactions, and related parties transactions.

Policy of the bank on governance practices.

Policies of the bank on salaries and remunerations, including disclosure of the aggregate amount of the twenty top paid officials in the

bank, listing salaries, allowances, in-kind privileges, incentive shares, and any other elements of financial nature.

Policies of the bank on its social responsibility and progress in this regard.

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6. Relationship between the bank board of directors and shareholders

6.1 Meeting and having discussions with shareholders

The board is responsible for ensuring open channels of communications with the bank’s shareholders are in place. The following factors must be

in place at a minimum to ensure efficient dialogue with shareholders:

The chairman of the bank board of directors must make sure that the points of view of the bank shareholders are accessed by all

members of the board as regards the bank strategies and the governance systems.

Periodic meetings with institutional shareholders and non-executive and independent members must be held to be familiar with their

opinions and points of view regarding strategies of the bank.

The board should disclose in its annual report steps taken by its members, especially the non-executive ones, within the framework of

reaching consensus and understanding of the opinions of institutional shareholders regarding the performance of the bank.

6.2 Optimal use and proper utilization of the annual meetings of the general assembly

6.2.1 The board should make the most of the meetings of the general assembly through supporting communication with shareholders and

encouraging them to participate effectively in the meetings.

6.2.2 Shareholders must be provided with sufficient information and in a timely manner as regards date, place and agenda of the assembly, as

well as timely, full information about issues on which decisions would be taken in the meeting.

6.2.3 The chairman of the board should make sure that heads of the audit committee, salaries and remunerations committee, and governance

and nominations committee are ready to respond to any queries from the shareholders. On the other hand, the board must provide an

opportunity to shareholders to enable them to pose their questions, oral or written, in accordance with provisions of the Corporate Law No. 159 of

1981.

6.2.4 Disclosure is necessary to be made to the general assembly about significant transactions of the bank, such as transactions with related

parties, which are to be presented to shareholders to be aware of.

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7. Tight control over complex structures/ transactions within framework of governance applications

7.1.1 It is necessary for the bank to limit undertaking transactions that take the shape of complicated, or unjustified legal forms, or aiming at

having a negative impact on the principle of abiding with transparency, or transactions that are conducted through unclear organizational

organizations, thus limiting the capability of both the bank board of directors and top management to perform efficient supervision over such type

of transactions.

7.1.2 The bank board of directors and top management should be well aware and understand fully the bank structure, affiliated entities and

associated risks. They should also have complete understanding of any sophisticated transactions or processes expected to be released and

resulting risks. It is necessary to develop clear-cut policies and procedures on how to address such risks and set proper limits to reduce the

same. This includes understanding the links among these entities and the parent bank, legal and operational risks associated with such

structure, and insider transactions, and the effect of all this on the methods of finance for the whole group, capital, level of risks under normal

circumstances or unfavorable ones alike and the reputation of the group as a whole; and necessity of limiting risks that may result from such

complex structures/ transactions through the following:

Conducting periodic monitoring to check how far policies, procedures and limits in place are applied appropriately.

Ensuring that the nature of such structures/ transactions is consistent with and conforms to laws and supervisory controls the bank must

follow.

Necessity of providing sufficient information related to such structures/ transactions and associated risks. Reports about them must be

submitted to the bank board of directors and must be disclosed to the Central Bank of Egypt. This information should include the purpose

and volume of such transactions, related strategies, associated risks, supervisory and control mechanisms for them, and confirmation of

necessity of proper disclosure about them.

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8. Definitions Executive Member:

A member of the Board of Directors who is also a member of the executive management of the bank and participates in the daily affairs of the

bank and earns a monthly salary in return thereof.

Non- Executive Member:

A member of the Board who provides opinions and technical advice and not involved in any way in the management of the bank and not

receiving a monthly or annual salary.

Independent Member:

A member of the Board who enjoys complete independence, this means that the member is fully independent from the management and the

bank. Autonomy is the ability to judge things after taking into account all relevant information without undue influence from management or from

other external entities.

Independence cannot be attained by a Board member in the following situations:-

a. If the member is currently conducting or was conducting in the last three years executive assignments in the bank.

b. If there is any relationship with any of the Board Members or Senior Management or with any related parties till fourth degree.

c. If he has any interests that may influence his fairness in discussions and taking decisions.

d. If he is receiving a salary or any wages from the bank except for being a Board Member.

e. If he is a shareholder or representing the bank.

f. If he was a partner or an employee of one of the external auditors or one of its subsidiaries during the last three years.

g. If he used to be a Board member in the bank for 6 consecutive years.

Stakeholders:

Any person having an interest or a stake in the bank, such as shareholders, employees, investors, creditors, customers, suppliers and

supervisors.

Minority Shareholders:

Shareholders who represent a segment of non-controlling investors of the bank and therefore they are not able to affect the banks’s policy and

trends.