The corporate governance framework developed for the Georgian banking sector is well-drafted and comperhensive and follows the best international standards - this is stated in a new report on the Observance of Standards and Codes (ROSC) published by the World Bank, which is an update of the first assessment of standards and codes in the field of corporate governance in 2002.

The new ROSC assesses Georgia’s corporate governance (CG) policy framework, as of December 2021, highlights recent improvements in CG regulations, analyses actual practices, makes implementation and policy recommendations, and provides investors with a benchmark to measure CG practices in Georgia.

The document states that the Corporate Governance Code for Commercial Banks, which came into force in 2018 and is mandatory for all banks in Georgia, closely follows the Principles of Corporate Governance for Banks issued by the Basel Committee on Banking Supervision. The report states that:

 

• The code addresses Environmental, Social and Governance (ESG) related aspects, such as board discussions of ESG aspects and risks and requirements for ESG disclosures.

 

• In line with international good practice, the code introduces a gender diversity requirement;

 

• The code contains a number of sophisticated and advanced provisions on remuneration policy, including "malus/ forfeiture" and "clawback" provisions.

 

According to the report, the Corporate Governance Code establishes a modern risk management framework for banks. The overall structure of corporate governance is considered positive and it is noted that, supervisory boards, jointly with the boards of directors, are responsible for devising and approving risk management frameworks. They must also ensure the independence and effectiveness of the internal audit function. The board-level audit committee is responsible for ensuring the adequacy, independence, and efficient cooperation between internal and external auditors. On the implementation of standards related to the internal audit function, the report emphasizes that commercial banks are 100 percent compliant.

 

Within the framework of the program, along with the regulatory framework, implementation and practical  application of the standards is also assessed. According to the report, the banking sector has been at the forefront of implementation of good CG in Georgia. The banking sector has adopted many updated policies, including supervisory boards with a significant number of independent directors, a full suite of board committees, and clear supervisory board responsibility for risk management, internal controls, and the internal auditor.

 

The observance report also includes the assessment of the five main directions of the Corporate Governance framework and recommendations on how to improve each of the directions. Essentially, the report is based on a detailed country assessment completed by Dentons Georgia LLC (that covered both the legal framework as well as practice),  as well as on research which was conducted with the support of the National Bank of Georgia and the Ministry of Finance of Georgia during the assessment process. Recommendations provided in the report draw on a range of internationally recognized standards, guidelines and practices, and the latest available research produced by the World Bank and others.

 

It should be noted that the ROSC survey demonstrates that stakeholder awareness and the perceived importance of CG has increased over the past twelve years.

 

"The CGCCB elaborated by the NBG significantly and positively impacted CG practices in banks. The Code established the minimum requirement for the number of independent members of the Board.  As a result, the share of independent members has increased since 2019. Also, the share of female board members showed a positive change: their share as Board members has increased significantly as a direct consequence of the gender diversity requirement envisaged in the Code. The National Bank continues to work on improving corporate governance standards based on the best international practices, including taking into account the recommendations outlined in the ROSC observance report," said Papuna Lezhava, Vice-Governor of the National Bank.