Corporate Governance
Gulf Bank believes that a strong and explicit corporate governance structure is a key requirement for an effective decision-making process. Strong Corporate Governance also enhances and consolidates the relationship between the Bank and its stakeholders through improved transparency and clear checks and balances.
The Bank is committed to uphold strict standards of corporate governance and business integrity at all levels. The corporate governance structure in place is proactive and aligned with the Bank’s strategic objectives. The structure is based on the prevailing laws and regulations from the Central Bank of Kuwait and other regulators. The structure is operated in conjunction with a robust risk management mechanism which is conducive to an effective decision making process. In doing that, the Bank enhances the protection of the stakeholders’ interests and strengthens confidence in the soundness and quality of its operations.
The Bank’s corporate management structure stresses the engagement of the Board of Directors in monitoring the performance of the Executive Management and the overall activity of the Bank. The Corporate Governance structure also stresses the clear segregation between the Board’s and Executive Management’s prerogatives and establishes clear checks and balances in this respect.
The corporate governance structure is further driven by proactive risk management policies, appropriate delegation of power mechanisms and clear accountability yardsticks.
To enhance a governance culture across the different business units, the Bank organizes continuous training and awareness campaigns to update management and staff about corporate governance in line with global best practice's and local regulatory requirements.
The Bank’s corporate governance structure sets clear boundaries and responsibilities for the operation of the Board of Directors, Board Committees, Executive Committees and supporting Management Committees.
Corporate Governance Compliance with CBK Instructions
In June, 2012, CBK issued instructio ns relating to Corporate Governance. The instructions set out nine pillars for a sound Corporate Governance:
1. Board of Directors;
2. Corporate values, conflict of interest and group structure;
3. Executive management;
4. Risk management and internal controls;
5. Remuneration system and policy;
6. Disclosure and transparency;
7. Banks with Complex Structures;
8. Protection of Shareholders’ rights; and
9. Protection of Stakeholders’ rights.
The Bank has put in place all relevant policies, manuals and guidelines aimed at being fully compliant with the nine pillars. The Bank has, under the leadership of the Chairman and the Board, established a sound and strong Corporate Governance structure as well as stringent and transparent processes of governance.
In carrying out the above, the Bank ensures a continuous compliance with all applicable laws and CBK instructions pertaining to Corporate Governance.
The Bank also endeavors to adopt and implement best international practices in this field, which the Bank believes are critical for its financial performance and role in the community where it operates.
In addition, the Corporate Governance principles are promoted with the various stakeholders, including regulators, shareholders and business community.
Stakeholder Definition
In line with best practice, the following entities/ persons are deemed Bank’s key stakeholders:
1. Customers and depositors
2. Shareholders
3. Regulatory authorities
4. Board of Directors and Executive Management
5. Employees
6. Suppliers and service providers
7. Local and correspondent banks
8. Community where the Bank operates
Corporate Governance - Policies and Procedures
The Bank has a comprehensive framework of Corporate Governance aimed at properly balancing between its ambitious objectives, on the one hand, and adherence to the internal and external governance and compliance systems, on the other hand. Both Board and Executive Management strongly believe that governance should always be the object of concurrent critique aimed at continuously improving the standards in place.
The Bank implements a set of clear and user friendly policies and procedures that establish and reinforce good governance. They include, inter alia:
1. Corporate Governance Manual
2. Disclosure and Notification Manual
3. Risk Appetite Document
4. Whistle Blowing Policy and Procedure Manual
5. Conflict of Interest Policy
6. Related Party Transactions Policy
7. Customer Complaint Handling Policy and Procedures
8. Internal Audit Charter
9. Human Resources Manual
10. Policy and Procedure Standards
11. Compliance Manual
12. Confidentiality Policy
13. Shareholders and Stakeholders Rights Policy
Gulf Bank Corporate Governance Manual – Roles and Responsibilities
The Corporate Governance Manual defines the Board and Executive Management’s respective roles. The overlap between the two roles is precluded. The Manual clearly defines the role of the Chairman, Chief Executive Officer (CEO), Chief Risk Officer (CRO), General Counsel, Board Affairs Division, Chief Internal Auditor (CIA) and Chief Financial Officer (CFO). The independence of key executive roles is secured through well-defined reporting lines. The Board monitors the key executive positions in the Bank. CBK further protects and monitors those positions so as to ensure their independence.
Governance Structure
The Bank has established an organization-wide governance structure aimed at providing a sound practice reflected in the reporting lines, clear segregation of duties, independence of opinion and action in areas such as Anti-Money Laundering, Legal, Compliance, Internal Audit and Risk Management. The structure also adheres to CBK’s regulatory instructions.
The Governance structure in place follows a three-tier approach: The Board Level; The Board Committees’ Level and The Executive Management Level, through several Committees.
a. The Board - Governance Organization
In 2018, the Annual General Assembly elected eight of the Board members and Kuwait Investment Authority (KIA) appointed its representative on the Board for the three-year board mandate (from 2018 to 2020). The Board members have diverse academic and professional backgrounds. The role of the Board is to monitor constructively the performance of management and help develop proposals on strategy.
The Board aims to promote the Bank’s long – term success, deliver sustainable value to shareholders and promote a culture of openness and debate.
Board members are properly and continuously trained to tackle all the challenges that the Bank faces. Directors also receive comprehensive guidance from the Board Secretary on the Bank’s governance framework and associated policies. During the year, the Board completed in in-house induction program and the members participated to several conferences and seminars about banking and financial activities.
Performance Evaluation
The Board undergoes a comprehensive performance evaluation annually. An independent external consultant is retained to conduct a performance evaluation of the Board and Board Committees' effectiveness. The external consultant conducted the performance appraisal and carried out an individual interview with the Board Members for this purpose. The appraisal’s outcome was very satisfactory regarding the composition and performance of the Board.
Board Overall Responsibilities
The Board of Directors assumes a comprehensive responsibility for the Bank’s activity, including setting, overseeing, and monitoring the implementation of the Bank’s strategic objectives, risk strategy and corporate governance. The Board is also responsible for overseeing the Executive Management’s performance.
The Board’s core responsibilities include the following:
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Monitor the Bank’s business, financial soundness and compliance with regulatory and legal requirements;
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Set out the Bank’s strategic objectives and oversee the performance of the Executive Management;
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Preserve the interests of shareholders, depositors, creditors, employees, and other stakeholders;
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Approve the internal control framework and ensure its proper implementation;
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Ensure that transactions with related parties are properly reviewed and vetted prior to being carried out;
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Ensure that the Bank has adequate polici es and processes in place for all areas of its activity;
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Disclose reliable and timely information to the shareholders with regard to the Bank’s performance and forecasts;
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Set criteria for the evaluation, compensation and succession for key management roles and
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Carry out a periodic review of the Corporate Governance practices to ensure their effectiveness.
The Board members take part in a series of training and continuing education programs. In addition to a formal induction program, the Board members receive regular bulletins designed to keep them abreast of industry progress relating to their duties and responsibilities.
The Chairman of the Board of Directors plays a key role in the proper functioning of the Board and maintenance of mutual trust among its members. He carries out the following:
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Ensure that Board decisions are made on a sound and well-informed basis;
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Oversee the implementation of the Whistle Blowing Policy and Program for the Bank;
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Build a constructive relationship between the Board and Executive Management;
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Ensure a high level of corporate governance in the Bank and
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Create a culture during Board meetings promoting constructive critique in case of divergent views, and encourage discussion and voting in such cases.
Organization of the Board’s Business
The Chairman, in consultation with Executive Management, proposes the items to be included on the agenda of the Board meeting.
The Board Secretary organizes the Board’s business. The responsibility of the Board Secretary is to provide all stakeholders with confidence and comfort that the Bank is properly run. He also ensures that the Board members are provided with sufficient information and details well before the Board/ Committee meetings, enabling them to make enlightened decisions in respect of the matters to be discussed.
The Board Secretariat keeps a conflict of interest and related parties register which is annually updated by the Board Corporate Governance Committee.
The Board meets at least 6 times annually and at least once every quarter. The Board Secretary takes note of the Board’s deliberations and decisions. The Board Secretary, under the Chairman’s supervision, is responsible for the follow-up on the implementation of Board resolutions.
Board Meetings and Attendance
During 2018, the Board of Directors met regularly and Directors received information between meetings about the Bank’s activities and the activities of the Management Committees. 6 Boa rd meetings and 29 Board Committees meetings were held in 2018 deatiled as follows:
The minutes of each meeting are part of the Bank's records.
All Board Committees have submitted quarterly updates to the Chairman about their respective activity.
Board Remuneration
The Board Nomination and Remuneration Committee recommended to the Board of Directors, subject to the approval of the shareholders at the Annual General Assembly Meeting, that the total remuneration of the Board of Directors for 2018 be equal to KD 135 thousand (2017: KD 135 thousand).
Board Committees’ Structure
In line with the Governance regulations issued by the CBK, the Bank has in place five committees to oversee and monitor the Bank’s overall activity. The committees are the following:
1. Board Corporate Governance Committee
2. Board Audit Committee
3. Board Risk Committee
4. Board Nomination and Remuneration Committee
5. Board Credit and Investment Committee
Each of the above committees has its own bylaws, Chairman, Deputy Chairman, Members and Secretary.
Board Committees
I. Board Corporate Governance Commitee (BCGC)
a. Committee's Scope of Activity
The Board Corporate Governance Committee oversees the overall structure of Corporate Governance in the Bank and ensures compliance with relevant CBK instructions on Corporate Governance. The Committee ensures that the depositors and shareholders’ interests are protected and shareholders’ obligations are met, taking into account the interest of the other stakeholders by implementing and monitoring processes to report any conflict of interest and related party transactions.
b. Composition of the Committee
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Mr. Omar Kutayba Alghanim,
Committee Chairman
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Mr. Bader Nasser Al Kharafi,
Committee Deputy Chairman
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Mr. Sayer Bader Al Sayer,
Committee Member
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Mr. Nabil Abdel-Malek,
Committee Secretary
c. Committee Meetings
The Board Corporate Governance Committee convenes not less than twice per year. The presence of two members is required to hold a meeting.
d. Key Achievements in 2018
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Conducted a comprehensive Corporate Governance (CG) review of all the manuals, policies, procedures and documents related to Corporate Governance and introduced required amendments.
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Reviewed the process of monitoring and reporting under the Whistleblowing policy.
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Reviewed and approved the AML Unit activities.
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Reviewed Compliance and Disclosure Unit’s activities for 2018 and approved their action plan for 2019.
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Ensured compliance of Bank's related parties with governance requirements.
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Engaged all the Bank’s divisions in the governance framework and provided guidance on enhancing governance practices.
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Monitored best practices in corporate governance and made recommendations on governance matters.
e. Changes during the year
No change in the composition of the Committee and its scope of activity took place in 2018.
II. Board Audit Committee (BAC)
a. Committee’s Scope of Activity
The Board Audit Committee carries out its duties within the framework of governance principles and practices established by the Board of Directors. The Board Audit Committee promotes accountability of the key players and ensures that they perform in the best interest of the Bank and its shareholders to enhance shareholder value, taking into account the interests of other stakeholders. The Audit Committee’s role is to assist the Board of Directors in fulfilling its oversight responsibilities. To this effect, the Board Audit Committee has been authorized to provide oversight and reasonable assurance on the financial reporting process and highlight the accounting issues of material impact on the financial statements, the integrity and adequacy of the Bank internal control and risk management system, internal and external audit processes, effectiveness and assessment of performance, the Bank process for monitoring compliance with laws, regulations and code of conduct and, the Internal Audit function. The Board Audit Committee appraises the performance of the General Manager/Chief Internal Auditor and recommends to the Board of Directors the nomination, termination, appointment and remuneration of the external auditors. Since its effectiveness is directly linked to that of the Board of Directors, the Board Audit Committee works closely with Executive Management to obtain any information required to enhance the performance of the Board.
b. Composition of the Committee
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Mr. Khalid Faisal Al Mutawa,
Committee Chairman
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Mr. Basel AlRashied AlBader,
Committee Deputy Chairman
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Mr. Sayer Bader Al Sayer,
Committee Member
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Mr. Sadeq Al Saraf,
Committee Secretary
c. Committee Meetings
The Board Audit Committee convenes once every three months or as needed, or at the request of its Chairman or its two members. The presence of two members is required to hold a meeting.
d. Key Achievements in 2018
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Monitored the activities of the Internal Audit Division, including review of its plans, strategies, procedures, follow-up activities, organizational structure and operation and staffing budgets.
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Approved the Internal Audit 3-Year strategic plan with related Key Performance Indicators (KPIs).
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Approved the Internal Audit updated three-year risk-based plan (2019 – 2021) and reviewed the issues, action plans and recommendations set forth in the Internal Audit reports.
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Held meetings with GM-Internal Audit, External Auditors and Bank Compliance and Disclosure Officer without the presence of Executive Management.
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Reviewed the s cope and approach of External Auditors' audit plans for the year ending 31st December 2018.
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Reviewed and recommended the annual and quarterly financial statements to the Board of Directors.
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Reviewed issues, action plan and recommendations set forth in the CBK mandated Internal Control Report.
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Reviewed and endorsed to the Board of Directors the renewal of Board Audit Committee and Internal Audit By-Laws/Charters
Furthermore, and in accordance with best international practices, the Board Audit and Board Risk Committee held their fifth joint annual meeting to discuss issues of common interest to the two committees. Also, as per best practice, in 2018, the Board Audit Committee Chairman has become member in the Board Risk Committee to ensure that the hand shake between Risk and Audit functions is strengthened.
e. Changes during the year
Subsequent to the re-formation of the Board Committees on 10th May, 2018, Mr. Khalid Al Mutawa was appointed as Board Audit Committee Chairman and Mr. Sayer Al Sayer was appointed as Board Audit Committee member.
III. Board Risk Committee (BRC)
a. Committee’s Scope of Activity
The Board Risk Committee’s main duties are to provide oversight of the Bank’s Risk Management, ensure autonomy of the Risk Management function and enhance the effectiveness of the Board of Directors monitoring of risk issues facing the bank. The Committee reviews significant risk exposures and provides the Board with an update on the Bank’s current and future risk strategy and appetite, and oversees the Executive Management’s implementation of the strategy. The Committee evaluates the risk exposure, concentration and tolerance limits and has authority to approve the aggregate transactional and trading limits for extraordinary or new risks. Furthermore, the Committee reviews, on a quarterly basis, credit risks rated 6 or worse and exposures which constitute more than 10% of the Bank’s capital. In addition, the Committee reviews any specific transaction or risk position and the impact analysis of any potential risks or changes in external environment that it deems relevant for the management of the risks facing the Bank and instructs actions to be taken to mitigate and manage risks to ensure conformity to the Bank's risk appetite.
b. Composition of the Committee
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Mr. Bader Nasser AlKharafi,
Committee Chairman
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Mr. Ali Morad Behbehani,
Committee Deputy Chairman
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Mr. Khalid Faisal AlMutawa,
Committee Member
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Mr. Sadeq Al Saraf,
Committee Secretary
c. Committee Meetings
The Board Risk Committee convenes not less than four times a year. The presence of two members is required to hold a meeting.
d. Key Achievements in 2018
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Reviewed the periodic risk management reports and dashboards.
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Reviewed and recommended the risk policies and the risk appetite for approval and ratification by the Board.
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Held a joint meeting with the Board Audit Committee to review the Bank’s risk profile, internal audit updates, Internal Control Review (ICR) reports, key projects and material legal cases.
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Reviewed the cyber risk assessment report and the Bank’s plan to further strengthen its cybersecurity.
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Reviewed status and action plan on large concentration credits.
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Reviewed summary of all credit approvals granted by Executive Credit Committee.
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Reviewed progress of IFRS9 project and provisions estimates from parallel runs during the year.
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Reviewed the status of material legal cases.
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Held meeting with the Chief Risk Officer without the presence of the Banks Executive Management.
e. Changes during the year
Subsequent to the re-formation of the Board Committees on 10th May, 2018, Mr. Bader Al Kharafi was appointed as Board Risk Committee Chairman and Mr. Khalid Al Mutawa was appointed as Board Risk Committee member.
IV. Board Nomination and Remuneration Committee
a. Committee’s Scope of Activity
The Board Nomination and Remuneration Committee (BNRC) ensures that all components of granting financial remuneration are compliant with the framework of enhancing the effectiveness and management of the Bank’s risk management. The Board Nomination and Remuneration Committee also submits recommendations to the Board of Directors (BoD) on the nomination of Board members. The Committee reviews the nominated members’ skills, capabilities and qualifications in accordance with the Bank’s approved policies and standards, while adhering to (CBK) instructions. The Committee conducts an annual review of the Board of Directors structure and recommends changes that can be made in line with the best interest of the Bank.
Furthermore, the BNRC ensures that the Board members are consistently informed on the latest banking updates and vet the soundness of the principles and practices upon which remuneration is granted.
The BNRC, with the Board Risk Committee, reviews the compensation and benefits of members of the Executive Management (as specified by CBK), including the principles and criteria used to assess their annual performance. This also includes an evaluation of the authority of the board members and their leadership characteristics. In conducting its role, the BNRC annually prepares a Remuneration Grading Policy and submits it to the Board of Directors.
b. Composition of the Committee
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Mr. Jassim Mustafa Boodai,
Committee Chairman
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Mr. Bader Abdulmohsen ElJeaan,
Committee Deputy Chairman
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Mr. Omar Hamad AlEssa,
Committee Member
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Mr. Sadeq Al Saraf,
Committee Secretary
c. Committee Meetings
The BNRC convenes at least twice a year. The presence of two members is required to achieve quorum and hold a meeting.
d. Key Achievements in 2018
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Monitored, promoted, and exceeded the Kuwaitization plan for the Bank with a rate of 73%. This was further developed through the Ajyal Graduate Development Program and Middle Management Modular Program to build a leadership pipeline.
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Led the Bank restructuring for optimization review.
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Recommended and approved executive compensation payouts and submitted recommendations in that respect to th e Board for a resolution.
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Submitted recommendations to the Board in relation to adjusting the Annual Compensation in line with Market Trends and Compensation Results.
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Submitted recommendations to the Board in relation to salary increments and bonus payments.
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Assessed the adequacy and effectiveness of the Remuneration Policy.
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Completed a third party audit of executive compensation.
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Approved and executed the plan for Board Effectiveness Assessment.
e. Changes during the year
No changes were made to the composition of the Committee in 2018; however, the Committee’s by-laws were reviewed and approved by the Board of Directors.
V. Board Credit and Investment Committee (BCIC)
a. Committee’s Scope of Activity
The overall purpose and scope of the Board Credit and Investment Committee that was formed in March, 2018 are to review, approve, reject or modify or conditionally approve credit proposals exceeding the authority delegated to the Executive Credit Committee and up to the legal lending limit of the Bank, except credit facilities extended to the Bank’s Board members as per CBK guidelines. BCIC is also empowered to approve all investments or divestments above the delegated authority of lower level committees and discounts for settlements and write-offs for abandonment and discounts exceeding the authority delegated to the Executive Credit Committee. BCIC has also the authority to grant a credit delegation to the Executive Credit Committee.
b. Composition of the Committee
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Mr. Omar Kutayba Alghanim,
Committee Chairman
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Mr. Bader Abdulmohsen ElJeaan,
Committee Deputy Chairman
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Mr. Omar Hamad AlEssa,
Committee Member
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Mr. Sadeq Al Saraf,
Committee Secretary
c. Committee Meetings
The Committee meets once in a month or more frequently if required. At least 2 voting members are required to hold a meeting. Out of the two voting members, one must be the Chairman or the Deputy Chairman of the BCIC.
d. Key Achievements in 2018
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Setting up a Board level committee to approve credit and investment proposals has strengthened Corporate Governance in line with the instructions and directives of the Central Bank of Kuwait and has enhanced the efficiency and transparency of credit approval process.
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Approved large credit proposals that constitute the major portion of Bank’s credit portfolio, including Bank limits and country limits.
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Approved Treasury limits in line with the Risk Appetite approved by the Board of Directors of the Bank.
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Approved amendments made to the Investment Policy to address the observations of Central Bank of Kuwait.
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Took effective steps to reduce Non Performing Loans that resulted in improvement of the NPL ratio of the Bank.
e. Changes during the year
The Committee was formed in March, 2018 and no changes in the composition of the Committee and its scope of activity to ok place in 2018.
Executive Management Governance Structure
The modus operandi of Executive Governance is reflected in the committees operating at the Executive level. These include credit committees, risk committees and several other committees set out in the chart below:
Executive Management Organization
Succession Planning
The Board's Nomination and Remuneration Committee vetted the Bank's succession planning process for senior management to ensure transparency and satisfactory alignment with Bank strategy.
The succession plan is reviewed and approved by the Board of Directors with the purpose of identifying critical roles across the organization, which if not filled in a timely fashion, would potentially place the organization at risk. Succession planning identifies a minimum of one successor for each key role.
Remuneration Policy
The Bank’s Executive Remuneration is designed to attract, motivate and retain leadership talent responsible for strategic growth of the Bank and ensure sustained shareholder value. Executive remuneration is intended to be based on a philosophy of ‘Differentiation’ to establish an ethos of ‘Meritocracy’, create a strong alignment between business performance and executive payout as well as compliance with (CBK) and Capital Markets Authority (CMA) guidelines. These fixed and variable rewards are an integral part of the Bank’s total reward framework that:
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Is fully integrated with the Bank’s strategic objectives and supports the core values;
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Enables the attraction of the desired profile of potential employees, retention of key talent, and internal mobility and differentiation based on performance; and
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Is fair and equitable – ensures the mix of fixed and variable rewards that are relevant at the different levels of seniority. The Bank shall in general have a variable compensation based on ‘At-Risk’ approach for the senior executives whereby enough incentives are built-in to encourage outstanding performance notwithstanding that the variable remuneration pool encourages strengthening the capital base of the Bank yet prevents undue and excessive risks.
The Remuneration policy is based on ensuring that the disclosure of payouts is clear, comprehensive and timely to facilitate constructive engagement of all stakeholders and allow them to assess performance against clear targets, achievement of the Bank’s strategy and risk posture.
Salary Structure
The Bank seeks to recruit and retain employees in a manner that is externally competitive and internally fair. The Bank’s remuneration policy applies consistently across all grades. The Bank’s salary structure is designed to ensure internal and external salary equity, whilst providing flexibility to recognize different degrees of individual performance and acknowledge levels of responsibility.
Annual Merit Increment
The Bank shall review the performance of all employees on an annual basis and may award eligible employees a merit increment as agreed by the Management, effective January 1st of each calendar year.
HAY Job Evaluation
The Bank utilizes the HAY Job Evaluation system which helps establish the relative value of jobs in the Bank to ensure a fair and equitable remuneration to incumbents holding various jobs in the organization based on a structured methodology of evaluating those jobs.
Promotion Increment
The Bank promotes competent and experienced employees when a position becomes available and the incumbent meets the set criteria. The promotion will warrant an increase in the employee’s basic salary and a change to allowances and benefits applicable to the new position.
The Remuneration Policy is fully compliant with regulatory requirements including application of “claw back” regulations that will allow the Bank to withhold payout of a part of the deferred compensation of key executives due to certain performance conditions not being met, including misconduct, negligence, misstatement, exceeding credit approval and/or risk limits, and any other dubious business practices.
Employee Benefits
The Bank provides a range of employment related benefits. An employee may be entitled to certain benefits according to the eligibility criteria and job conditions; these include both Gulf Bank products/services at preferential terms, and non-banking benefits in line with business needs and market practices.
The Bank also provides a Shadow Equity Plan, which presents an opportunity to those executives who contribute to the Bank’s success and growth to benefit from the organization’s long-term growth. These shadow shares reflect the market value of the Bank’s ordinary shares and will be redeemed for cash by the Bank upon vesting at a price equal to the Bank’s ordinary shares market price at vesting date, in accordance with the plan’s terms and provided all the conditions of the plan are met.
The shadow shares are not constitutional ordinary shares of Gulf Bank and, as such, they do not entitle the holder to any right to ownership or equity of the Bank.
All personnel included in each of the above categories form part of the management team at the Bank. The management team encompasses all key decision makers and their assistants.
The senior management includes Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and other business heads. Material risk takers are defined as executives whose activities have a material impact on the risk profile of the Bank.
The total remuneration paid to five senior executives was KD2,094 Thousand (2017: KD2,014 Thousand). The total remuneration paid to the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Risk Officer (CRO) and Chief Internal Auditor (CIA) amounted to KD1,590 Thousand 2017: KD1,508 Thousand).
Compliance and Disclosure Unit
The Unit monitors the process of compliance with the laws, regulations, and instructions issued by CBK, CMA, Boursa Kuwait and the Ministry of Commerce, in addition to compliance with the resolutions and directives issued by the Board. The Unit advises the Board at first-hand, through the Board Affairs Division, on the degree of conformity of its resolutions to the regulatory authorities’ instructions.
The Unit also enhances the Bank’s compliance at all times with the organizational and legal/regulatory requirements related to disclosure and transparency and ensures that all shareholders, investors and stakeholders are provided, in an accurate and timely manner, with all material information related to the Bank, including its f inancial position, performance, business results, any changes in the ownership or management of the Bank and any other matters as required under the rules and regulations issued in this regard, mainly under CBK Instructions on Corporate Governance related to Disclosure and Transparency, in addition to Resolution No. 72 of 2015 and the Executive Decree related to Law No. 7 of 2010 regarding the Establishment of the Capital Markets Authority and the Regulation of Securities Activity, as amended.
Disclosure and Transparency
The Bank is committed to providing timely, consistent, and accurate information to its stakeholders, which is consistent with legal and regulatory requirements within a transparency framework which ensures that consistent disclosure practices are applied and that the business community, including individual investors, have prompt and simultaneous access to the disclosed information.
Accordingly, the Bank has adopted a Disclosure and Transparency Policy setting forth the details of disclosure requirements and corporate responsibilities in that respect.
Insider Information
In line with the instructions issued by the regulatory authorities, the Bank initiated clear board-approved policies and procedures with regard to dealing with insider information that preclude employees, members of the Board and Executive Management from exploiting such information for personal benefit. The procedures were circulated to all staff, and a declaration was obtained from Gulf Bank insiders acknowledging that they are aware of the legal implications and the penalties against misuse of such insider information.
Code of Ethics
Gulf Bank’s code of ethics is an integral component of the corporate governance framework and is complemented via the code of conduct. It is adhered to by the Board of Directors and Executive Management in their daily interactions with employees, customers and other stakeholders.
Conflict of Interest
Gulf Bank adopts a conflict of interest policy to ensure that all transactions are carried out transparently.
Gulf Bank seeks to ensure that a conflict of interest does not adversely affect the interests of clients, the Bank, its shareholders or other stakeholders through the identification, prevention or management of any conflict of interest.
Confidentiality
The Board, Executive Management and employees are committed to maintain the confidentiality of information pertaining to the Bank’s stakeholders in accordance with the rules and regulations issued by the Central Bank of Kuwait and other regulatory bodies.
Whistle Blowing Policy
In compliance with CBK instructions, and further to the Bank’s commitment towards the shareholders and third parties, and in pursuance of the highest ethical standards and business integrity requirements, the Bank established a “Whistle Blowing Policy” and a direct reporting channel to the Chairman. The policy encourages positive communication between the Board, Executive Management and staff for the purpose of achieving and maintaining highest standards of professional, transparency and integrity.
The policy aims at detecting any practices that fall out of the scope of laws, regulations and sound professional conduct, so as to be remedied in a timely manner. It also provides confidentiality and ensures full protection to the whistle blower.
Board Affairs Division
The Board Affairs Division oversees and manages all matters related to the Board of Directors and its committees. The Division is in charge of preparing the agenda, scheduling and compiling the minutes of meetings of the Board of Directors and its committees and the Annual General Assembly of Shareholders. It also advises and updates the Board of Directors on corporate governance issues and new laws and regulations issued by the regulatory authorities with regard to corporate governance.
The Division has a liaison and coordination role between the Board of Directors and Executive Management in matters related to the implementation of the policies and resolutions approved by the Board.
The Board Affairs Division further coordinates with the Disclosure and Compliance Unit in order to ensure compliance with the relevant instructions issued by the CBK, Capital Market Authority, Boursa Kuwait and Ministry of Commerce & Industry.
Investor Relations Unit
The Investor Relations Unit is dedicated to serving Gulf Bank's stakeholders and the investment community by delivering sound corporate governance, ensuring transparency, and providing the latest corporate information.
Customer Complaints Unit
The Bank is keen to find proper solutions to the complaints raised by customers (individuals). In order to achieve this target, the Bank set up in 2011 an independent unit specialized in handling customer complaints, reporting directly to the CEO. The Unit has its own policies and procedures, along with the required mechanisms to handle customer complaints in accordance with CBK instructions issued in this regard. The unit is also responsible for supervising the implementation of the Customers Protection Manual which guarantees good performance and transparency in banking services provided by GB to its customers. The supervision of the precise implementation of the CPM alongside the activities of this unit allowed the bank to successfully enhance customer satisfaction, protection, loyalty and trust.
Related Party Transactions
Certain related parties (Major Shareholders, Board Members and Officers of the Bank, their families and companies where they are the principal owners) are customers of the Bank in its normal course of business.
The transactions with these parties are concluded at arm’s length and on substantially the same terms as those governing comparable transactions with unrelated parties.
Details of all transactions in which a Director and/or related parties might have actual or potential conflicts are provided to the Board of Directors for its review and approval. Where a Director is interested, that Director neither participates in the discussion nor votes on such matters. The Bank’s policy is, as far as possible, to engage in transactions with related parties only at arm’s length terms and in accordance with relevant laws and regulations.
The details of such transactions are provided in Note 23 of the Financial Statements.
Major Shareholders
Please refer to Gulf Bank’s page at the official website of Boursa Kuwait (www.boursakuwait.com.kw) for the list of major shareholder(s) who own or have control over 5% of the Bank’s share capital.
Adequacy of Internal Control Systems
The Board of Directors, further to CBK rules and instructions issued in June, 2012, declares and certifies that it has reviewed the internal control systems in place and confirmed their effectiveness and adequacy.
Internal controls form an integral part of the Bank’s processes in its conduct of business. The Board of Directors has the overall responsibility to maintain sound internal controls and provides a broad oversight in this respect to the Executive Management. The Executive Management is responsible for the establishment and maintenance of the Internal Control Systems. The Executive Management is also responsible for the ongoing improvements to the Internal Controls, through constant evaluations to meet the emerging needs and activities of the Bank and to ensure that the Bank is in compliance with applicable regulations and policies.
The key elements, which ensure the adequacy of Internal Control systems in the Bank, include the following:
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Existence of appropriate Board approved policies and Executive Management approved procedures, which are subject to regular reviews and updates, to validate applicability and sufficiency.
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Existence of several Board level committees which monitor all significant areas and activity.
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Existence of specialized control functions such as Compliance, Risk Management and Internal Audit. Processes consistent with the “Three lines of Defense” principle are in place to ensure weaknesses are identified and reported to Executive Management and the Board.
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Existence of an independent review process by Internal Audit Group, which assesses the Bank’s process as per its mandate, including independent assurance and evaluation of the appropriateness of design and operating effectiveness of governance, systems controls, risk management and internal controls to monitor, manage and mitigate the Bank’s key risks and its related processes, as per the approved annual Audit plan. Internal Audit focuses on the areas of significant risks, verifies and assesses the adequacy and effectiveness of the internal control system and reports significant issues and control gaps with the Management agreed actions, to the Board Audit Committee and the Board of Directors.
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Existence of independent control reviews on financial accounting records and statements by External Auditors as per the requirement of local laws and regulations, and submit such audit reports in the form of Management letters to the Board of Directors and CBK.
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Existence of a comprehensive independent Internal Control Review process, performed annually by an international audit firm (other than the external auditors), as per the requirement of CBK, which identifies and reports any internal control deficiencies along with a Management action plan, to address such issues. The latest report was issued in June, 2018 and included no significant findings (Annexure-A). A summary of ICR report for the year ended 31st Dec 2017 was presented to the Board of Directors during 2018 and was reviewed and approved by the latter. The external audit firm has conducted two follow-up reviews 30/09/2018 a nd 31/12/2018 to ascertain corrective actions to its findings as per CBK requirements.
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The Board Audit Committee provides an oversight and strengthens the independence of Internal and External auditors. The Committee reviews the Internal Audit reports, Central Bank audit reports, Management Letters, Internal Control Review reports and monitors periodically the status of such issues through a sound follow-up process to ensure appropriate implementation of controls to address identified issues.
Report on Internal Control Systems
28 June, 2018
Board of Directors,
Gulf Bank K.S.C.P,
P.O Box: 3200, Safat 13032,
Kuwait
Al Shaheed Tower, 6th Floor
Khaled Ben Al Waleed Street, Sharq
P.O. Box 25578, Safat 13116
Kuwait
Tel: +965 2242 6999
Fax: +964 2240 1666
www.bdo.corn.kw
Dear Sirs,
Report on Accounting and Other Records and Internal Control Systems
In accordance with our letter of engagement dated 14 February, 2018, we have examined the accounting and other records and internal control systems of Gulf Bank K.S.C.P, for the year ended 31 December 2017.
We covered the following processes of the Bank:
Our examination has been carried out as per the requirements of the Central Bank of Kuwait (CBK) circular dated 17 January 2018 considering the requirements contained in the Manual of General Directives issued by the CBK on 14 November 1996, Pillar IV of corporate governance instructions in respect of risk management and internal controls issued by the CBK on 20 June, 2012, instructions dated 23 July, 2013 concerning Anti-money laundering and combating financing of terrorism, instructions dated 9 February, 2012 regarding confidentiality of customer’s information, financial securities activities and instructions regarding internal controls with respect to prevention and reporting of fraud and embezzlement cases.
As members of the Board of Directors of the Bank, you are responsible for establishing and maintaining adequate accounting and other records and internal control systems, taking into consideration the expected benefits and relative costs of establishing such systems and complying with the requirements contained in the CBK instructions mentioned in the above paragraph. The objective of this report is to provide reasonable, but not absolute, assurance on the extent to which the adopted procedures and systems are adequate to safeguard the assets against loss from unauthorized use or disposition; that key risks are properly monitored and evaluated; that transactions are executed in accordance with established authorization procedures and are recorded properly; and to enable you to conduct the business in a prudent manner.
Because of inherent limitations and internal control system, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the systems to future periods is subject to the risk that management information and control procedures may become inadequate because of changes in conditions or that the degree of compliance with those procedures may deteriorate.
Having regard to the nature and volumes of the Bank operations, during the year ended 31 December 2017, and the materiality and risk rating of our findings, and the exception of matters set out in the report submitted to the Board of Directors of the Bank, in our opinion:
The accounting and other records and internal control systems of the Bank were established and maintained in accordance with the requirements of the Manual of General Directives issued by the CBK on 11 November 1996 and letter issued by CBK on 17 January 2018,
The findings raised in the examination and assessment of the internal controls do not have a material impact on the fair presentation of the financial statements of the Bank for the year ended 31 December 2017, and
The actions taken by the Bank to address the findings referred in the report, including previous years’ findings, are satisfactory.
Yours faithfully,
