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

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

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

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

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

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

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

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

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

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

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

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

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

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