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Banks are a critical component of the economy while providing financing for commercial enterprises, basic financial services to a broad segment of the population and access to payment systems. The importance of banks to national economies is underscored by the fact that banking is, almost universally, a regulated industry and that banks have access to government safety nets. It is of crucial importance therefore that banks have strong corporate governance practices.
From a banking industry perspective, corporate governance involves the manner in which the business and affairs of individual institutions are governed by their Supervisory Boards and senior management, affecting how banks:
- Set corporate objectives to generate sustainable economic returns to owners;
- Run day-to-day operations of the business;
- Protect the interests of depositors;
- Consider the interests of other recognized stakeholders; and,
- Align corporate activities and behaviours with the expectation that banks will operate in a sound manner and in compliance with applicable laws and regulations.
Banks are also important catalysts for economic reforms, including corporate governance practices. Because of the systemic function of banks, the incorporation of corporate governance practices in the assessment of credit risks pertaining to lending process will encourage the corporate sector in turn to improve their internal corporate governance practices.
Importance of implementing modern corporate governance standards is conditioned by the global tendency to consolidation in the banking sector and a need in further capitalization.
Best corporate governance practices will enable banks to:
- Increase efficiency of their activities and minimize risks;
- Get an easier access to capital markets and decrease the cost of capital;
- Increase growth rate;
- Attract strategic investors;
- Improve the standards of lending;
- Protect the rights of minority shareholder and other counterparts;
- Strengthen their reputation and raise the level of investors and clients' trust.
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Українська версія |
