Corporate Governance

Banque Bemo sal (the Bank) is committed to high standards of corporate governance. The Board believes that the Bank's commitment to ethical corporate dealings in the conduct of its business has been an important element of its success during its 14-year history. This commitment applies to the dealings of the Bank with its shareholders, customers, employees, suppliers, regulators and the community. It is also reflected in the Bank’s corporate values. Following the publication of Basic Circular No 106 on 26/07/2006 by the Central Bank of Lebanon related to the Principles of Good Corporate Governance and Best Practice Recommendations, the Bank has initiated a complete review of its corporate governance practices.

To this end, the Board of Directors adopted the Corporate Governance Guidelines and appointed a Committee to ensure compliance with the provisions of the Guidelines. Under the Guidelines, compliance with the principles of good Corporate Governance principally starts with the Board of Directors. It is the Board’s responsibility to foster the long-term success of the bank and secure its sustained competitiveness in accordance with its fiduciary responsibility. To have a structure of compliance, the Guidelines established and defined the responsibilities and functions of the Board and the various Committees necessary for good corporate governance i.e. the Nominating & Corporate Governance Committee, the Talent Management Committee, the Audit Committee, the Real Estate Investments, Participation and Associations Committee, the Operational Risk Management Committee, and the Credit & Market Risk Management Committee. Each of the Committees has a charter setting out its responsibilities. Charters and Bank policy statements have been consolidated in one repository, ‘The Board Policy Manual”, which is constantly updated.

The Guidelines also established an evaluation system by which the Directors and the Executive Senior Management can rate the bank periodically against certain leading practices and principles on good Corporate Governance.

In order to better understand and implement the stated principles and guidelines thereof in a satisfactory manner, our Directors and Senior Managers are continuously updated on the main developments related to Corporate Governance including latest best practices published from reputed international agencies and regulatory directives.

CREDIT&MARKET RISK MANAGEMENT

Overview

Credit Risk arises from the unwillingness or inability of a customer/counterparty to meet obligations and commitments in relation to lending, trading and other financial transactions.

The Credit & Market Risk Management Unit, which is a separate risk management function supporting directly the General Management of the Bank, ensures the promotion of a sound Credit & Market Risk Management environment in the Bank through continuous and ongoing review, policy setting, and abidance to imposed regulatory directives.

Credit Risk Management

The management of credit risk at Banque Bemo sal includes an ongoing review of credit limits, policies and procedures; the approval of specific exposures and the constant re-evaluation of the loan portfolio.
Fundamental to the Credit Risk Management process is a centralized Credit Risk Function, which is independent of the Customer Relationship function analyzing and assessing credit exposures based on predefined credit risk acceptance criteria. 
A formal internally developed credit risk rating system ensures appropriate credit rating assignment.

Market Risk Management

The main objective of Market Risk Management is to ensure that the overall market risk exposure is maintained at prudent levels and consistent with the available capital.
This function includes asset and liability management & interest rate risk management.

Market Risk is dimensioned and controlled in both the trading book and Balance Sheet.

In the trading book, market risk is controlled by a daily analysis of positions and exposures in trading instruments.

In the balance sheet, interest rate risk is dimensioned using earnings-at-risk (EAR), which arrays the repricing behaviors of assets and liabilities.

Approach
           
A Credit & Market Risk Management Committee was established to approve policies and procedures including trade areas definitions, credit origination standards, lending authorities and general loan standards as well as tools to ensure proper control of Market Risks.

A report is submitted on quarterly basis to the Credit & Market Risk Management Committee consolidating risk exposures and reporting findings and deviations if any. Updates and amendments are then relayed to the Board of Directors. 

Operational Risk Management

Mission Statement

"To promote a sound Operational Risk Management environment in the Bank"

We strongly believe that the primary goal of Operational Risk Management is Business Success and Value Creation to our stakeholders

Internal Governance

Operational Risk is the risk of losses due to inadequate or failed internal processes, people, and systems or from external events. It includes risks relating to legal.

The ORM unit is a separate risk management function that builds an OpRisk focus approach, implements a dynamic ORM program; and ensures a strong operational risk-awareness culture at all levels, an effective escalation of overall exposure to the Board and Senior Management and sponsoring of the Business Continuity Management.
An Operational Risk Management Committee has been instituted to approve ORM policies and procedures; review operational risk exposures, and the type of losses and their impact; it ensures that proper tools and systems are available to manage OpRisk efficiently.           

Management of OpRisks

In order to proactively and efficiently manage the OpRisks, a set of appropriate techniques and tools have been implemented at Banque Bemo:

Risk Management

Overview

Managing risk is an integral part of the Bank’s business strategy. Banque Bemo sal believes that risks must be properly understood, measured, monitored and actively managed. This allows the Management to understand and to manage the Bank’s risk profile within pre-defined limits. The ultimate goal is to enable the Bank to maximize its risk-adjusted return on capital and to ensure that risk is managed in a manner which is consistent with the Bank’s objectives, risk tolerance, control standards and management philosophy.

Principles

Framework

Board of Directors and Senior Management duties: The Board of Directors is responsible for the Bank’s overall level of risk assumed and risk management policies. The Board charges Management with developing, communicating and implementing these policies as well as assigning limits to the appropriate business units.

Communication of Risk Management Policies: The formulation of policies relating to Risk Management is communicated within the hierarchy of the Bank. Senior Management continuously ensures that the policies are embedded in the culture of the Bank.

Structure

The Bank has adopted the following structure to ensure sound application and efficient implementation of the Risk Management Policy (Credit & Market Risk, Operational Risk)

Internal Audit

Banque Bemo’s Internal Audit Department objectively ensures that the highest levels of transparency, proficiency, and due professional care are maintained to preserve the public trust in the Bank as well as the mutual respect with Banque Bemo customers and correspondents.

The Internal Audit main concern is to provide reliable assurance for preserving stakeholders’ interests, and be the protective shield that keeps shareholders, clients, staff, and Bank from unwanted risk exposures.

Internal audit activities are performed in compliance with the International Standards for the Professional Practice of Internal Auditing.

The Internal Audit’s solid principles of Objectivity, Integrity, Competency and Confidentiality in conjunction with the Audit Department’s structure and reporting lines, have assured Auditor Independence and have become an integral part of our organization.

The Internal Audit team forms an integrated system that reacts dynamically to changing conditions.

Another component of the Bank’s control structure, the Audit Committee has been established in order to facilitate the tasks of the Board of Directors and to promote appropriate internal controls in addition to monitoring the work and performance of the Internal Audit Department.

The Audit Committee assists the Board in fulfilling its oversight responsibilities for the integrity of the Bank’s financial statements as well as the Bank’s compliance with legal and regulatory requirements, and the external auditors’ qualifications and independence.

Through the Audit Committee, the Board receives reliable assurance that the Bank’s processes, policies and controls are being monitored and adhered to.

The formal organization of the Internal Audit Department and of the Audit Committee has been defined in their respective charters which are fully compliant with the internationally set standards.

Anti-Money Laundring Compliance

A-  Structure

1. Local Regulators

The Bank is subject to and complies with the AML regulations of both the Lebanese and Cypriot authorities, namely basic circular 83 of 2001 of the Central Bank of Lebanon and the Guidance Notes of 1996 of the Central Bank of Cyprus. It is worth mentioning that the issuance of the directives of the Central Bank of Lebanon came as a consequence to the decreed law 318 of April 2001 (criminal code act of money laundering activities).
The Bank has therefore committed to full compliance with all AML laws and regulations, FATF recommendations and international standards of Basel Committee regarding “Know Your Customer” procedures.

2. AML Committee

The Bank has established an Anti-Money Laundering Committee that consists of 7 permanent members including the General Manager acting as Chair. The Committee meets on a quarterly basis in order to review any AML related issue.

3. Money Laundering Reporting Officers (MLRO)

The Bank has two distinct Officers for the Lebanon and Cyprus Operations, both reporting directly to the AML Committee.
The Floor Managers act as the branches MLRO.

B. Policies and Procedures

The Bank has adopted internal policies, procedures and controls to ensure that it complies with the AML obligations in existing legislations and regulations. These procedures are subject to annual review or amended when necessary.

1. Customer due diligence / Know Your Customer policy:

Compliance is conducted by the central compliance unit at the Head Office in Beirut on all newly opened accounts on which both Central Banks of Lebanon and Cyprus are strictly applied, on top of the internal policies and procedures of the bank.

1. No new account can be opened without the proper approval of the Division Heads or their back-up.
2. All new accounts are subject to thorough checking and control by the Customers’ Support Desk whereby any noted irregularity is sent back to the concerned Division for correction, completeness and perfection.
3. All blacklisted names are regularly updated in the database.
4. Lebanon MLRO systematically sends updates on OFAC and CBC lists to our Cyprus Branch Manager.

2. Monitoring of transactions

1. All incoming payments are duly scrutinized and checked by both Limassol and Beirut MLRO prior to processing by the Transfers Desk at Central Operations in Lebanon.
2. All outgoing payments are duly authorized by the related Account Managers before execution.
3. All Trade Finance activities are approved by the related Accounts Managers/Heads of Divisions who have proper insight of their customers’ businesses
4. Exception reports have been generated for the daily controls, enabling a satisfactory level of monitoring over the various types of transactions.

3. Reports of suspicious transactions:

The Bank is required to report any suspicious customer activities to the regulatory authorities being the Special Investigation Commission - SIC (Lebanon) and MOKAS (Cyprus). Internal policies and procedures are in place to ensure compliance with the applicable legislation and regulatory requirements. The records’ retention for such transactions is a 5 years period.
Exception made to few inquiries initiated by SIC in 2006 there were no cases to report.

4. Employee training program:

The Bank MLRO conducts periodic training sessions to all of the Bank’s staff, at least on annual basis. Special focus is given on the identification and reporting of suspicious transactions. Moreover, constant communication is established between the main compliance unit and the branches by sending information and updates regarding AML issues.

5. Independent audit and compliance review function:

1. Audit

The Bank’s internal and external auditors conduct programs of audits and compliance testing of the Bank’s policies and operational procedures to AML.
Local regulators

2. The Bank is subject to regular compliance visits from the local regulators in order to assess the level of monitoring and abidance to the regulations.

6. Correspondent banks:

The Bank’s main correspondents are all prime name International Banks. In addition, the Bank’s internal policies ensure that we do not offer ‘payable-through accounts’; hence recommendation VII of the FATF 40 recommendations in relation to cross-border correspondent banking is strictly applied.
The Bank does not conduct business with shell banks.