Banks operating in the UAE must allow small investors to have access to financial statements and give them fair share prices to ensure they have enough protection, the Central Bank governor has said.
Sultan bin Nassir al Suwaidi said the country’s 51 banks must have what he described as appropriate experience and a “sound character” so they can maintain a balance between the interests of major and small investors.
Speaking at a governance conference in Abu Dhabi last week, Suwaidi disclosed that the Central Bank is planning to introduce a new test system for banks’ chief executives to ensure they are qualified enough.
“The rights of small investors can be protected through various mechanisms and controls,” he said in the speech, released by the Central Bank on Tuesday.
“Banks should grant small investors the right to review and verify the institution's financial statements, hence enable them to monitor management performance……they should also grant them the ‘Right of Appraisal and Payment’ which gives them the right to claim fair prices for their shares if forced to sell them, in case of a merger for example,” he said.
He said banks must also establish what is known as the "Pre-Emptive Rights" which give small investors priority to buy shares in case of new issues, in order to preserve the same ratio of ownership they previously have in total shares.
Suwaidi, a veteran UAE banker, noted that the Basel-III Accord required regulatory authorities and central banks to ensure that the banks' boards of directors have established appropriate standards which identify the roles assigned to higher management and enable the appointment of individuals who are appropriately qualified for such roles.
He said they should also guarantee that available human resources and established motivation systems are in place to assist higher management in performing its tasks, and that they are in line with the prudential guidelines regarding the granting of loans to customers.
“These are essential elements to ensure the soundness of banks….on such basis, the appointment of the Chief Executive Officer and managers of departments in the UAE’s national banks are subject to the Central Bank’s approval which seeks to ensure they have the required qualifications and experiences to assume such responsibilities,” he said.
“Moreover, the Central Bank is currently preparing a ‘Fit & Proper Test’ for senior executives in banks and financial institutions operating in the UAE.”
Suwaidi said the test is focused on ensuring that such officers do have the required technical expertise, mainly in risk assessment and risk management, which proved essential in the wake of the 2008 global fiscal distress.
“I would like to reconfirm the utmost importance the Central Bank attaches to the implementation of sound corporate governance guidelines in banks and financial institutions operating in the UAE, and in such a way so as to ensure the stability of the banking and financial sector, being one of the most important pillars of stability of the national economy as a whole.”
Suwaidi said a sound Board of Directors governance would require the independence of the board of directors.
This includes the absence of subordination of one member to another member, the absence of close family relationships between members and the absence of overlapping interest links, he added.
“The existence of such links is likely to create dissenting blocs within the board. Soon, this gives rise to disagreements that will leak out to the staff and create alliances to the blocs within the board, thereby undermining the decision- taking process and weakening the institution,” he said.
“For these reasons, the Central Bank required national banks to seek its prior written approval for boards of directors’ nominations, and retained its right not to approve nominations at its own discretion.”