Corporate Governance: The Way to Sustainable Finance

Arab African International Bank (AAIB) firmly believes that the road to impactful corporate governance entails values that achieve sustainable businesses as an end goal – AAIB seeks to maintain the balance between economic growth, profitability, and environmental, social, and governance (ESG) concerns.

AAIB corporate governance goes beyond having effective controls in place. It is about the voluntary adoption of governance practices, individual behavior, and corporate culture.

• Corporate governance is a living and dynamic framework: At AAIB the role of internal control functions goes beyond monitoring and control to guidance and consulting on risk awareness.
• Linking risk-management practices to organizational performance: ensuring that consistent risk-management and compliance practices are in place without losing focus of long-term growth and profitability.
• Being an early adopter of what the Bank considers to be best practice internationally: where appropriate, by applying before a legislation or regulatory directive is published.
• Empowering staff members to come forward and report any serious issues: AAIB’s whistle-blowing policy is managed by the Compliance department, whereby findings – if any – are reported to the Board’s Audit committee.

AAIB has in place an effective control framework that properly monitors compliance and the transparent reporting of financial results, as well as assesses potential risks and proposes the appropriate management thereof. The applied control framework consists of the following:

The Board is assisted by its Audit, Risk, Corporate Governance, and Remuneration committees in performing its oversight role on bank operations and management.

Within the powers delegated to them, senior management is responsible for ensuring the implementation of an effective control framework and for setting the tone for the AAIB’s risk culture, which reflects the Bank’s attitude toward risk-taking and risk management, as well as integrates risk awareness into the Bank’s daily operations.

In addition to the primary role assumed by the Bank’s control functions, risk and control issues are also discussed by the Bank’s internal committees, such as the ALCO & Market Risk Management, Operational Risk Management, Retail Credit Risk, Risk and Control, to name a few. Internal committees are responsible, among other things, for ensuring that AAIB has appropriate and current risk policies in place that address the major risks faced by the Bank. The committees’ recommendations are presented to senior management and Board-level committees for review and appropriateness.

AAIB has a consolidated independent risk-management function with access to the Board through its Risk Committee. The Consolidated Risk Management Group is mainly concerned with the identification, assessment, monitoring and control, and reporting of the main risk categories to which AAIB is exposed. This is addressed mainly through the following functions under its supervision: Credit Risk, Market Risk, Operational Risk and Policies and Procedures Unit.

AAIB has a centralized, independent Internal Audit function, which reports directly to the Board’s Audit Committee. The Division’s primary focus is on the following activities:

• assessing the effectiveness and adequacy of internal policies and procedures;
  
• reviewing the Bank’s financial reporting;
  
• conducting risk-based audits on the Bank’s branches and functions (including other control functions) to evaluate / validate the effectiveness of internal control systems within the Bank, as well as to review the compliance of branches and functions with internal and regulatory policies and guidelines;
  
• following up on the implementation of corrective actions related to audit findings.
  

The Internal Control Division is responsible for ensuring that the established controls are complied with. In essence, the Division is responsible for reviewing the daily transactions on the Bank’s ledgers to ensure their proper execution, documentation, and compliance with regulatory and internal regulations, policies, and guidelines. Its role expands to the regular review of various functions at the branch level.

The main role of AAIB’s Compliance Function is to safeguard the Bank against “compliance risk,” which is defined as the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with compliance laws, rules, and standards applicable to its banking activities. AAIB’s Compliance Function has access to the Board Audit Committee, which ensures the department’s neutrality and independence.

Furthermore, AAIB has created the position of Corporate Governance Advisor to provide support to management and the Board’s Corporate Governance Committee on the implementation of best practices and the assessment of the overall governance framework.

Egypt’s revolution created instability that threatened the security and flow of operations in the country’s financial sector. As a corporation with effective management mechanism, AAIB’s Board of Directors claimed the expansion of Corporate Governance Committees in Egypt to include Risk and Information Technology Committees. All of AAIB’s Corporate Governance Committees are working according to the terms of reference issued by the Board of Directors in 2011. The committees abide by the minimum requirements of the terms of reference and reassess the terms every year. The committees are not limited to senior officials and decision-makers but include all stakeholders. This inserts new blood into AAIB’s corporate culture and encourages the independence of various functions such as Compliance, Audit, Control, and Risk.

Juniors are observers: AAIB uses different approaches to surpass the traditional corporate governance goals, whereby the Corporate Governance Committees are not limited to standard scenarios. This means that the Corporate Governance Committees are not limited to senior management in the Bank but include juniors from all functions to integrate corporate governance from the whole bank.

Comply or justify: AAIB follows a strict policy to govern and control the institution. All processes comply with the following guidelines for the Central Bank of Egypt, the Center for International Private Enterprise, and the Bank for International Settlement. “If you cannot comply, then you have to justify.”

For development to be sustainable, it must not only seek profitability but must address social justice; equality; reduce – and eventually eliminate – poverty; preserve natural resources; and remain within the limits imposed by the ecosystem. AAIB has partnered with the United Nations Development Programme to enhance the competitiveness of the financial sector in Egypt and to embrace the ESG agenda to establish sustainable growth. Sustainable finance must contribute to the economic growth of the countries. The objectives of the partnership are:

• promoting awareness of sustainable finance in Egypt;
  
• developing a national model for inclusive banking, which in turn enables the financial sector a strategy for  offering financial assistance to low-income families and individuals;
  
• reducing and mitigating the financial risks of big markets by distributing wealth and risks on different market segmentations;
  
• developing banking practices that aim to have a positive impact on people, profits, and the environment and encouraging ethical business practices.