Recommendations of the 10th International Banking Congress (IBC-2001)

    Congress participants appreciate the results of the Russian banking system development, over recent years, and solutions to problems raised by the 1998 financial crisis. Positive development of national economy was beneficial for minimizing the impact of the crisis. The 10th International Banking Congress is satisfied to see a more active use by the Russian banking system of international banking experience to promote the systemic stability of banks.

   Congress welcomes the work of the Bank of Russia and Government of the Russian Federation to introduce a set of measures for a full-scale reform of banking system. The Congress participants hold that clauses of the conceptual document worked out by the Bank of Russia and dedicated to problems of the Russian banking system development can serve as a basis for drawing up the reform programme.

   The Congress participants point out that recommendations of international banking congresses made on key problems of the Russian banking sector reform were as outlined in the above document are:

implementation of a set of measures for the Russian banking system reform in line with international standards;
development of a system for risk management and transparency of credit institutions;
a higher financial stability of banks as well as measures taken by the Bank of Russia and Government of the Russian Federation for elimination of systemic crisis risks, depositors trust building measures and a greater attraction of their savings for investment into Russian economy;
prevention of the use of banks for unfair commercial practice;
taxation system favouring the banking business development.

   Having discussed the theme "Corporate governance in credit institutions", the Congress establishes that forming of banks adequate corporate governance systems becomes a pressing problem.

   A demand for a higher quality corporate governance is caused by the need for minimizing the banking business risk at the cost of financial stability of credit institutions throughout the development and increased complexity of banking business.

   A necessary condition for effective corporate governance is the legislative system development and law enforcement to ensure a higher responsibility of company owners and managers and reliable protection of creditors' and investors' rights as well as to establish a favourable economic and investment climate in Russia and improve the banking supervision system.

   The condition for the effective corporate governance is market discipline development, requirements to banking business transparency and internal banking structures increasing, banking supervision improvement.

   Measures to improve the legislative basis of banking and reorientation of supervisory measures on the essential aspects of banking and fundamental banking risks, should have their positive impact .

   Congress points out that basis measures for prompt improvement of the Russian banking system are covered in principle directives of the state monetary policy for 2001 and in the joint statement by the Government of Russian Federation and the Bank of Russia on economic policy for 2001 and some aspects of medium-term strategy. Congress participants consider that implementation of these measures will promote a more effective corporate governance in credit institutions.

   Observing a decade traditions of international banking congresses held in Saint-Petersburg and their growing importance for exchange of experience, and a search for solutions to problems of Russian banking business development, Congress stresses that this form of collective interaction of the international banking community will be actively developed for further improvement of the Russian banking system.

It is recommended by the Congress to:

1. Credit institutions:

Make use of the Basel Committee's recommendations for banking supervision and corporate governance in credit institutions, as well as of "The principles of corporate governance in the Organization or economic cooperation and development " for establishment of the corporate governance system.
Develop measures for a proper transparency of corporate governance. The corporate governance structure should provide for timely and accurate disclosure of information prescribed by law on the work of a credit institution including information on its financial status, ownership and management structure all users concerned including stockholders (participants).
Introduce international accounting and financial reporting methods for adequate managerial economic information. Concentrate on quality of the management accounting needed for decisions making commensurate with real operational risks.
Practice equal treatment of all stockholders by the credit institutions' control bodies including the state, independent their share in the equity capital, and follow the principles underlying of commercial transactions for participants from credit institutions so as to provide equal terms and conditions for other clients.
The Board of Directors should focus on fundamental problems such as strategic management and planning, correspondence between long-term objectives of credit institutions and their resources.
Increase substantially the role of internal control system. The internal control system should be commensurate with the nature and size of transactions and cover the work of a credit institution. Boards of Directors should be aware of the organization and results of internal control. The internal control service should be independent and accountable to top level executives and Board of Directors of credit institutions.
When making decisions on the use of new information technologies, the management of credit institutions should fully realize risks involved in electronic information transmission channels and automated decision making as well as introduce changes into corporate governance and internal control systems.
In order to provide for adequate and independent assessment of management quality, participants of credit institutions and members of the Boards of Directors should use the independent external audit more widely.
For counteracting the criminal interference and prevent against the use of the credit institutions for money laundering, more attention should be given to upgrading the professional skills of the bank personnel and "Know your Client" principle.
The practical management should incorporate of banking risks modern methods of examination and evaluation of financial status of partners of credit institutions including and use of economical and mathematical methods; banking associations should establish data bases on the quality of the borrowers' servicing of bank loans (credit centres).

2. Banking Associations:

Generalize the best Russian and foreign corporate governance experience in credit institutions in order to work out corporate governance standards in credit institutions and recommendations on business ethics for banking personnel.
Introduce the above standards into banking practice.

3. Bank of Russia:

Continue to develop banking supervision, so as to strengthen reinforce the corporate governance and internal control systems, specifically:
Undertake a gradual transition from quantitative limitations of individual factors typical for credit institutions to a complex evaluation of the quality of internal bank management and internal control over the risks by supervisory bodies, estimate the adequacy of judgement of a credit institution on the real level of risks and adequacy of reserves for losses.
Develop unified approaches to the regulation and supervision of credit institutions irrespective of the form of ownership and specifics of credit institutions.
Work out recommendations for quality assessment of corporate governance in credit institutions.
Take into account the experience gained by the Russian credit institutions and recommendations of international institutions in the legal documents of the Bank of Russia regarding internal control systems in credit institutions.
Continue the work on introduction of international accounting standards and financial reports in credit institutions together with international institutions and audit companies.

4. The Government of Russian Federation and the Federal Assembly:

Set up favorable conditions for business and investments into Russian economy, including banking. These conditions should embrace:
- Adequate requirements of the market economy including the protection of creditors (including the mortgage relations) and investors;
- Taxation issues, including:
  - The rate of profit tax in credit institutions at the level of that for non-banking sector companies.
  - Elimination from profits and costs taken into account for taxation, reassessment funds in foreign currency, receipts for payments into the authorized capital of credit institutions.
  - Incorporation into reserves, taken into account in the taxable basis for the profit tax of credit institutions, all reserves formed under normative acts of the Bank of Russia for risks due to appropriate operations and transactions.
  - Referring to the costs taken into account in the taxable basis for the profit tax, capital expenses in industrial facilities (relating to the banking activity) and costs relating to the organization of bank branches and representative offices.
  - Referring intangible assets to the objects, relating to the banking activities and referring the depreciation costs to those included in true costs of the banking services and into accounting of the taxable basis for the profit tax.
Complete the work on adoption of the amendments to Federal Laws "On Banks and Banking Activities", "On bankruptcy of credit institutions", so as to develop a system for legal control of corporate governance in credit institutions.
Enact the Federal Law "On Counteracting the Legalization (Laundering) of Money Received due to Criminal Activities".

We are looking forward for your participation in IBC-2002.

St.-Petersburg Foundation for Support of the International Banking Congresses
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