Corporate Governance for Banks in Southeast Europe: Policy - IFC

Background Box 1: Legal Requirements for Independence in SEE BanksAlbaniaIn Albania, Article 35(4) of the Law on Banks requires that “At least one-third of the members of the SteeringCouncil shall be composed of individuals that . . . are not connected through private interests . . . with thebank, shareholders that control the bank or its executive directors.” There is no requirement that these“independent” members sit on board committees, members of which can be outsiders (not board members).Bosnia and HerzegovinaIn both entities of Bosnia and Herzegovina, the Law on Banks requires members of the “audit board” to beindependent from the executives of the bank. 25 Audit boards are special structures that have a different legalstatus from audit committees of the board as typically understood under best practice. 26 Members of theaudit boards can be outsiders (not board members).BulgariaIn Bulgaria, there is no requirement for the appointment of independent directors of banks that are notpublicly listed. The three largest banks are subsidiaries of EU banks that are publicly listed and whosegovernance policies are determined by group practice. In general, the presence of independent, nonexecutiveboard members is the exception rather than the rule.CroatiaIn Croatia, few banks have independent board members. The requirement to have at least one independentboard member on the supervisory board entered into force on January 1, 2010, and it is expected thatcompliance will improve in the future.FYR MacedoniaIn FYR Macedonia, Article 88(2) of the Banking Law requires that one-fourth of the board be independent(outsiders). 27 The same law requires the majority of the members in the auditing committee to be electedfrom the members of the supervisory board, and “the other members shall be independent members.” Theauditing committee is therefore made up of a minority of members who do not sit on the supervisory board.MontenegroIn Montenegro, Article 30 of the Law on Banks, requires that at least two board members be independentfrom the bank. “Independent from the bank” means a person that 1) has no qualified stake in the bank orthe parent company of the banking group to which the bank belongs; and 2) in the previous three years hasnot been employed in the bank or its subsidiary company. Article 39 of the same Law, requires the auditcommittee to be made up of at least three members, the majority of whom are not connected to the bankand have experience in finance.25 Article 76 of the Law on Banks of Republika Srpska and Article 32h of the Law on Banks of the Federation of Bosnia and Herzegovina provide that the“Chairman and members of Audit Board may not be appointed from the group that includes the Chairman or members of Supervisory Board andmust not be members of Management or staff within the bank, nor may he/she have direct or indirect financial interest in the bank, except for thecompensation based upon conduct of that function.”26 Ibid.27 According to Article 2(27) of the Banking Law, “Independent member” is “a natural person and natural persons connected thereto, who: is notemployed or a person without special rights and responsibilities in the bank (i.e., a member of the Supervisory Board, member of the Board ofDirectors, member of the Auditing Committee, member of the Risk Management Committee and other managers as defined by the Statute of thebank. In the case of a foreign bank branch: is a natural person managing the branch; is not a shareholder with a qualified holding in the bank or doesnot represent a shareholder with a qualified holding in the bank; does not work, or has not been working in an audit company over the last threeyears, which at that time audited the operations of the bank; and has no financial interest or business relation with the bank in an amount exceedingDenar 3,000,000 annually, on average, over the last three years.”Corporate Governance for Banks in Southeast Europe Policy Brief 19