Donetsk National University

of Economics and Trade named after

M. Tugan-Baranovsky

Ye.A. Anufrieva

Scientific Supervisor: senior teacher L.V. Rassolova

PROBLEMS OF CORPORATE GOVERNANCE

IN BANKS OF UKRAINE

Problems which were unknown not long ago or considered only in the context of acquaintance with foreign experience became topical, that testifies to the transition of the bank system of our country to a new level of high quality. Corporate governance in banks of Ukraine is one of these “problems of growth”.

The aim of this article is problems of corporate governance in banks of Ukraine. The problem of corporate governance in banks is topical not only for Ukraine but also for developed countries, although even there this issue began to be discussed in the middle of 1990s.

Despite great importance of corporate governance neither the existing theory nor practice worked out a generally accepted definition of this notion. James D Wolfensohn, President of World Bank gave his definition:”Corporate Governance is about promoting corporate fairness, transparency and accountability”.

According to the principles of corporate governance accepted by the Securities and Share Market State Committee of Ukraine Corporate Governance is defined as “a system with the help of which the activity of the society is directed and controlled”.

Speaking about corporate governance in the banking industry of Ukraine, it is necessary to admit that the majority of owners and managers of native banks are aware of the importance of banking business and acquainted with the native principles of corporate governance. In spite of that the general level of corporate governance in banks of our country remains not high so far. From our point of view such main problems dominate in this area:

- imperfection of division of powers between the bank governance bodies.

- insufficient protection of shareholders’ rights.

- Inadequate disclosure of information of bank activities.

In the process of bank governance bodies’ activity the question of interaction of the Supervisory and Management Boards is the most complicated and not solved yet. The authorities of these bodies are fixed in the statute of the bank and can be delegated only on condition of the corresponding fixation in the record of the body which the stated authorities are given to with setting the date of assignment of the authorities. If authorities are delegated from the Supervisory Board to the Management Board they are both responsible for the solution of the relevant problems to the general shareholders’ meeting according to the generally accepted principles of corporate governance.

The important task of corporate is the creation of the information transparency of company’s activity. Especially it concerns banks as their relationships with their clients are based on trust. For that very reason the question of disclosure of information in other words transparency is paid considerable attention to, first of all among bank regulators. In accordance with the recommendations of the Basel Committee on Banking Supervision banks must disclose the information on:

- the structure of the Supervisory Board;

- the structure of the Management Board, namely personnel, job descriptions, structure;

- the organizational structure of a bank;

- the scheme of payment and material incentive.

It is very urgent for Ukraine to create a unified authoritative evaluation procedure of the corporate governance quality n banks. An independent institute can carry out that assessment.

It is reasonable to include some mechanisms of evaluation of the risks connected with the drawbacks of the corporate governance into the system of the standard regulation of banking business. That would create incentives for the banks to improve their inner procedures of corporate governance.

Banks should set up a committee in the structure of the Supervisory Board. The task of this committee would be the improvement of the corporate governance in banks in particular the creation of information streams which can meet their inner requirements and ensure a necessary level of bank transparency for their external contracting parties.

Thereby banks are a specific kind of the entrepreneurial activity and therefore general principles of corporate governance cannot always take into account the peculiarities of banking business. This issue demands the development of principles of the corporate governance in banking institutions. The National Bank of Ukraine in common with the association of Ukrainian banks should coordinate writing this document.

Literature

1. Mathiesen, Henrik (2002). “Managerial Ownership and Financial Performance,” Ph.D. dissertation, series 18.2002, Copenhagen Business School, Denmark.

2. Enhancing Corporate Governance for Banking Organizations. - Basel Committee on Banking Supervision. - Basel. September 1999. – P. 11.

3. Wolfensohn J., Financial Times, June 21, 1999.

4. Рациональные деловые нормы и корпоративная практика. Некоторые принципы. – Европейский банк реконструкции и развития. – Сентябрь1997.

5. Исследование корпоративного управления в банковском секторе Украины. – Международная финансовая корпорация, США.