IFC, a member of the World Bank Group, the IFC Global Corporate Governance Forum and the European Bank for Reconstruction and Development are helping banks and other financial institutions in Southeast Europe improve their corporate governance practices to enhance their performance and competitiveness.

At a high level policy meeting on corporate governance of banks in the region, hosted by the EBRD, institutional experts and regional participants reviewed and endorsed a Policy Brief on Corporate Governance for Banks in Southeast Europe. The brief included recommendations on how to improve board practices, disclosure, and risk management.

One key recommendation of the policy brief is targeted at bank group structures and stipulates that parent banks need to be aware of subsidiary bank governance practices and ensure that subsidiary banks adhere to appropriate governance practices from both parent and subsidiary jurisdictions. The policy brief also provides extensive recommendations on internal controls and the roles of supervisors.

The policy brief emanates from the reflections of the first meeting of the High Level Policy Group. That meeting was held in Belgrade in December 2009 to draw lessons from the financial crisis and discuss international best practice in bank governance. “The financial turmoil has revealed severe shortcomings in risk management practices both in companies and financial institutions in the region,” said EBRD Chief Counsel Michel Nussbaumer.

The participants faced a main challenge in understanding the different circumstances of local versus foreign markets, and subsequently making recommendations tailored to the specific circumstances and needs of Southeast Europe.

“Given the prevailing role of banking institutions as a source of finance in the region, it is of the utmost importance to improve the governance of banks,” said Philip Armstrong, Head of the IFC Global Corporate Governance Forum. “Moreover, banks are in a unique position to influence the corporate governance of their corporate borrowers. They can become role models for other companies in implementing high standards and best practices.”

More than 65 banking regulators and practitioners attended the meeting, including ones from Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Montenegro, Romania and Serbia.

The event received support from the Austrian Development Agency and the Luxembourg Ministry of Finance. The policy brief will be publicly released in July.