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Corporate Governance ReportCorporate Governance Report (cont’d)To qualify for appointment as chief executive, a person must hold a graduatedegree from a recognized University or an equivalent professional qualificationand have at least ten years experience as a professional banker in a seniorexecutive post. The chief executive is appointed by the Board of Directors.Directors shall designate one amongst them to be the Chairman of the Board.No director can be designated as Chairman unless he possesses demonstratedexpertise and experience in the field of financial services and isknowledgeable in information technology.Share Ownership LimitationIn terms of article 2.8.1 of the constitution of the Company, no shareholder other thanInternational Financial Bodies, International Banks, International Institutions/Organisations shall hold directly or indirectly more than 3% of the issued share capital lessany treasury shares of the Company without previous authorisation of the Board ofDirectors of the Company. By derogation the above provisions shall not apply to thoseshareholders who were holding more than 3% of the issued share capital of theCompany before the tenth of March 1995, provided always that each of thoseshareholders shall at no time hold a higher percentage of the issued share capital of thecompany than the percentage each said shareholder was holding as at above date.In terms of Section 19 (b) (i) of the Banking Act 2004 which came into force onNovember 10, 2004, no person shall hold directly or indirectly 10% or more ofthe Capital or of the voting rights of the Bank except with the prior approval ofthe Central Bank.SHAREHOLDERS’ AGREEMENTNedcor Bank Ltd, as our strategic alliance partner, has the right by notice inwriting to SBM, to nominate for election two directors to the Board of SBM aslong as it holds at least 20.1% of SBM equity.Nedcor Bank Ltd shall be consulted upon the appointment of the ChiefExecutive of SBM.RELATED PARTY TRANSACTIONSIndividuals or entities are considered to be related to the Group if they have theability, directly or indirectly, to control the Group or exercise significant influenceover the Group in making financial and operating decisions or vice versa, or if theyand the Group are subject to common control. The definition of ‘control’ and‘significant interest’ laid down in the Central Bank guideline on Related PartyTransactions are more stringent than IAS. The thrust of the Guideline is to promoteself regulation and self discipline. As a general rule, all transactions with a RelatedParty must be at arm’s length.The Guideline imposes limits onexposure/transactions value toindividual Related Party which shall notexceed 2% of Tier 1 Capital and 25% ofTier 1 capital to all Related Parties inaggregate. Prior written approval ofthe Central Bank is required where theabove limits are exceeded.The Bank/Group credit policy andprocurement policy require that creditfacilities and transactions with RelatedParties are captured at source andwhere the exposure limits and thetransactions exceed the materialitylimits established by the Board andapproved by the Central Bank, theConduct Review Committee (CRC)approval is sought. In instances wherethe above limits are exceeded, priorapproval from the Central Bank issought. The CRC, consisting of allindependent non-executive directors,meets every quarter and reviews alltransactions initiated in the quarterunder review. After each meeting, thematters reviewed by the CRC arereported to the Board of Directors. TheBank reports on a yearly basis to theCentral Bank on the proceedings of theCRC during the year.Note 29 to the Financial Statementsgives on and off balance sheet creditfacilities and other Related Partytransactions for the past 3 years.At June 30, 2005, exposure to the sixlargest Related Parties were Rs4,444M,Rs1,474M, Rs194M, Rs126.4M,Rs77.0M and Rs70.0M or 80.3%,26.6%, 3.5%, 2.3%, 1.4% and 1.3% ofthe Group Tier 1 Capital respectively.119