Speaking at The Bahamas Directors Forum on Corporate Governance held at the British Colonial Hilton, Julian Francis said that with the capital markets in the country just developing, the banking system currently has a responsibility for overseeing a vast percentage of the country’s national savings, which is in effect the capital of the Bahamian people.
“The answer, as we see it, is that the initiative will come from where there is the largest potential for losses,” Mr. Francis said. “In the Bahamas, capital and financial assets are allocated, to a major extent, through the banking system. Our capital markets are just now developing. Hence our banking system has the awesome task of the responsibility for the overwhelming percentage of our national savings οΎ– that is the capital of the Bahamian public.”
The governor continued that in their roles as financial intermediaries, banks have to decide how to best allocate this capital and subsequently manage the risk associated with this task.
“Everyday banks face credit, liquidity, interest rate and market risk,” Mr. Francis said. “Banks must deal effectively with fiduciary, reputation, operational, settlement, technology, outsourcing, compliance, legal and regulatory risks in order to remain viable and profitable. How banks deal with these risks is directly related to their governance structures. The better the governance structure, the better the policies and procedures, the better the management of the organisation, the better these risks are managed.”
The Central Bank governor also said that as a developing offshore jurisdiction already under the microscope of international observers, a lapse in corporate culture could be a lot more devastating for The Bahamas as reputation capital is not as easily or quickly repaired and replaced. And, the financial costs this could cause the economy may also not be as easily absorbed.
“Therefore, the maintenance of sound corporate governance processes and structures at every level of our economy, government, parastatals, the Central Bank and the other regulators, private financial institutions, and private corporate entities in general is imperative for the continued well being of our economy” Mr. Francis said.
According to the governor, the Central Bank recognizing the importance of good governance of the financial sector was one of the first Central Banks to release comprehensive guidelines on corporate governance in December 2001.
Directors will have to certify that their organisations are in compliance with the Central Bank’s corporate governance standards on an annual basis. Written certification is required to be submitted to the Central Bank within 120 days of each calendar year.
In a presentation to the Bahamas Association of Compliance Officers in December 2002, Cassandra Knottage, deputy manager Bank Supervision at the Central Bank outlined that for banks and trust companies, corporate governance relates to the way in which the business affairs of each individual organisation is directed and managed by the board of directors and senior management.
This includes the effective management of compliance with applicable laws, regulation and guidelines. In this presentation it was said that unlike other companies, banks and trust companies are generally highly leveraged and most of the resources used by these institutions in conducting their businesses belong to others. As a result, the expectations of the Central Bank for the quality and effectiveness of the corporate governance of all its licensees are high as a high quality of corporate governance in individual organisations would promote general stability and the successful functioning of the overall financial system.
Martella Matthews, The Nassau Guardian
