Iranian Private Lenders to Adopt Corporate Governance Principles

The Central Bank of Iran has notified Basel III principles on corporate governance to Iranian private banks and credit institutions, as part of the regulator's mandate to incorporate global standards.

According to an announcement on its official news website, CBI aims to strengthen leadership in credit institutions, achieve operational goals and enhance financial reporting and adherence to laws and regulations.

The establishment of good and effective corporate governance is one of the major factors contributing to the creation and strengthening of healthy risk management, oversight and transparency of banking system and paints a clear picture of how the components of an institution must work to achieve corporate targets.

Corporate governance principles, a comprehensive set of reform measures, have been developed by the Basel Committee on Banking Supervision under the umbrella of Basel III.

Monday's directive was approved during the latest meeting of the Money and Credit Council on May 2 and has now been communicated to the banking system for private banks to pass it down to "units affiliated with banks and non-bank credit institutions" and supervise their implementation.

According to CBI, maintaining the stability and health of credit institutions hinges upon correctly managing them and correct management cannot be ensured but with the establishment of a suitable corporate governance system. That is why, it adds, CBI has published international documents throughout the years, beginning from 2004 with Improving Corporate Governance in Banking Units with the last published document being the 14 Principles to Improve Corporate Governance in 2015.

The Basel Committee guidelines include principles such as risk identification, monitoring and controlling, risk management and communication, disclosure and transparency, the board's overall responsibilities, board qualifications and composition, the board's structure and practices, senior management, governance of group structures, compliance, internal audit, compensation and the role of supervisors.

One-Year Stretch

In its directive, the central bank has obligated all non-government credit institutions to implement their corporate governance structures in accordance with the contents of the directive within a maximum of one year from the time of its notification and report their progress to CBI, which should be subsequently presented to MCC.

In line with Note 3 of Article 16 of the Law to Remove Hurdles on Competitive Production and Improve the Financial System of the Country, the Economy Ministry has been obligated to act in accordance with a directive, which will be approved later to establish corporate governance in state-owned banks within a maximum of three years.

The CBI announcement adds that "considering the current conditions of state-owned banks, namely the machinations of appointing their chief executives and other regulations related to the structure of state-owned banks", the current directive has been communicated only to private institutions.

The current directive can provide a basis for enforcing corporate governance requirements in state-owned banks.

While state-owned banks have yet to receive a clear directive for revamping their corporate governance structure, the CBI directive for non-government banks also comes belatedly as its general manager of anti money-laundering division heralded the imminent arrival of both by late May.

"The corporate governance directive will be communicated within the next few days to all commercial lenders," Abdolmehdi Arjomand-Nejad had said earlier at the 26th Conference on Monetary and Exchange Rate Policies.