2014 SUSTAINABILITY REPORT
Sustainability and Corporate Governance
Scrupulously mindful of corporate governance principles in the conduct of any operation, Ziraat Bank strives to meet the expectations of all of its stakeholders and to achieve a sustainable performance in line with that approach.By fostering the climate of teamwork that is essential for improving one’s competitive strength, corporate governance encourages active cooperation among all stakeholders and thus helps progress towards their planned objectives.
Scrupulously mindful of corporate governance principles both during and subsequent to the conduct of any operation, Ziraat Bank strives to meet the expectations of all of its stakeholders and to achieve a sustainable performance in line with that approach.
In all matters pertaining to corporate governance, Ziraat Bank focuses on the four fundamental principles of fairness, transparency, accountability, and responsibility. The bank provides for performance-enhancing mechanisms by engaging its stakeholders in its decision-making processes.
Ziraat Bank recognizes that in the context of corporate governance, its own financial success and profitability, the health and safety of its employees, and the interests of its other stakeholders are all intimately and mutually interconnected.
The Ziraat Bank Board of Directors consists of nine members. This number is deemed to be sufficient for the bank to effectively organize and conduct its business activities. The duties of board chairman and CEO are performed by different individuals. The chairman of the Ziraat Bank Board of Directors has no executive duties.
Ziraat Bank Board of Directors
Member |
Duty |
Muharrem Karslı |
Chairman |
Yusuf Dağcan |
Deputy Chairman and Member |
Hüseyin Aydın |
CEO and Member |
Fahrettin Özdemirci |
Member |
Feyzi Çutur |
Member |
Metin Özdemir |
Member |
Mustafa Çetin |
Member |
Cemalettin Başlı |
Member |
Salim Alkan |
Member |
For more detailed information about Ziraat Bank’s Board of Directors, please refer to pages 62-65 of the 2014 annual report.3
The Ziraat Bank CEO is fully authorized and responsible for the conduct, administration, and coordination of the bank’s day-to-day business in the broadest sense. There are ten assistant general managers, each one of whom is responsible for a designated aspect of the bank’s business. Ziraat Bank’s senior management consists of its CEO and its assistant general managers.
For more detailed information about Ziraat Bank’s senior management, please refer to pages 66-69 of the 2014 annual report.4
3) http://www.ziraatbank.com.tr/en/InvestorRelations/Documents/AnnualReports/AnnualReport2014.pdf
4) http://www.ziraatbank.com.tr/en/InvestorRelations/Documents/AnnualReports/AnnualReport2014.pdf
Because Ziraat Bank is a state-owned bank, it has no real-person ultimate controlling stockholders. Ziraat Bank’s sole shareholder is the Undersecretariat of the Treasury of the Republic of Turkey.
The highest governing body at Ziraat Bank is the Ziraat Bank Board of Directors. The selection of that board’s members and of other committees at the Bank is subject to the provisions of the third section of the bank’s charter. For more detailed information please refer to http://www.ziraatbank.com.tr/en/InvestorRelations/CorporateGovernance/Pages/ArticlesofAssociation.aspx
Some of the professional managers who are members of the Ziraat Bank Board of Directors and also of the bank’s senior management serve as members of the boards of directors of the Ziraat Bank subsidiaries that make up the Ziraat Finance Group.5
Principles pertaining to the involvement of Ziraat Bank Board of Directors members in duties outside the bank are subject to the provisions of the Banking Act, the Turkish Commercial Code, and other relevant laws, regulations, and administrative provisions.
These committees, whose formation is mandated by the Turkish Commercial Code, the Banking Act, and other applicable regulations, consist of the following:
The Ziraat Bank Board of Directors is authorized to set up other committees as it deems to be necessary.
For more detailed information about Ziraat Bank committees and their membership, please refer to page 73 of the 2014 annual report.6
5) For details about the Ziraat Finance Group please click here.
6) http://www.ziraatbank.com.tr/en/InvestorRelations/Documents/AnnualReports/AnnualReport2014.pdf
Internal audit, internal control, and risk management activities at Ziraat Bank are performed by the Board of Auditors, the Internal Control and Compliance Department, and the Risk Management Department. These units’ duties and responsibilities, which are segregated from one another, are coordinated by the Assistant General Manager Office for Internal Systems.
This organization is structured so as to embrace all Bank units and branches as well as Bank-owned subsidiaries subject to the Bank’s oversight. Its purpose is to minimize any risks that might adversely affect the thoroughgoing and secure conduct of banking operations, the fulfillment of long-term profit targets, the reliability of financial and administrative reporting, and/or the Bank’s reputation and financial stability.
Internal audit system
The Board of Auditors takes a risk-focused approach in the fulfillment of its responsibilities to ensure that the activities and operations of the Bank’s headquarters units, domestic and international branches, and subsidiaries are compliant with the requirements of laws and regulations and are compatible with the Bank’s own strategies, policies, principles, and objectives. The board conducts its activities in such a way as both to keep the Bank’s senior management informed and to contribute to their decision-making processes.
The Board of Auditors has 184 bank inspectors on its staff. The board conducts its activities in line with internationally-accepted internal auditing standards. Besides checking the Bank’s operations for their compliance with statutorily mandated procedures, in 2014 the board also reviewed and assessed the effectiveness and efficiency of the transaction procedures involved in both primary and secondary processes. In addition, processes governed by Banking Regulation and Supervision Agency (BRSA) regulations pertaining to information systems and banking processes were also audited by information technology inspectors in line with the Bank’s own practices.
244 branchesActivities taking place within the Board of Auditors in 2014 are summarized below.
Inspectors are given the opportunity to constantly improve their professional knowledge and experience by conducting inspections at different Bank units from time to time. They also continued to be provided with training on personal and professional issues at regular intervals during 2014.
The practice of recruiting qualified human resources for the Bank’s administrative staff by allowing inspectors to transfer to such positions continues. Fifty-four new assistant inspectors were also recruited and hired by the Bank in 2014.
Along with the inauguration of the Operations Center and following the Board of Auditors’ assessment of systematic changes arising from revisions in the Bank’s organizational structure, from new modules added to lending decision-making processes, and from centralized credit allocation structures, a new auditing model incorporating all business processes was put into use. The results of inspections are now being made available for all Bank units to use.
Under a newly-introduced Findings Follow-Up Mechanism, issues that are identified during inspections are no longer just reported; attention is now also being given to the need to eliminate or correct, within a designated period of time, whatever shortcomings and errors are at issue.
In keeping with its strong sense of responsibility and awareness of its duties, the Board of Auditors will continue to execute the internal auditing plan in line with goals and policies set forth by the Bank’s senior management and within the framework of current auditing approaches, to report its findings to the Board of Directors through the Audit Committee, and to monitor measures that are taken on the basis of the findings.
Internal control and compliance system
Internal control activities are structured so as to embrace the operations of all headquarters units and of all domestic and international branches as required by “Regulation on Bank Internal System and Intrinsic Capital Adequacy Assessment Processes”. Such activities are constantly reviewed and revised in line with the Bank’s requirements.
While internal control activities are conducted so as to be compatible with the Bank’s primary objectives and strategies from the standpoint of their scope and methodology, a proactive approach has been adopted in order to more readily accommodate changes in strategies and conditions arising from altered risk perceptions and from the changeover to a new service model. To this end, the Bank formulated and put into effect its New Control Model. The goal of this more proactive structure is to help ensure that Bank’s operations exceed sectoral norms and that they are conducted in a manner that is compatible with both internal and external regulations as well as with the demands of competition.
Domestic branch checks are performed both on location and centrally within the framework of a program that is prepared taking into account branches’ current levels of risk exposure.
Internal control operations at all branches located outside Turkey are carried out in line with control programs that are prepared for each year.
Headquarters unit control cycles are determined taking into account their functions, potential risks, terms of reference, and impact on the Bank’s balance sheet. These cycles are revised as needs may require.
The findings ascertained as a result of all of these activities are compiled under specific headings in reports that are circulated among appropriate units and the members of senior management.
In the case of issues which are identified during internal control activities and which are deemed to be in need of more detailed attention, a preliminary examination is performed by internal control personnel on location. This practice continued in 2014 as well. Based on the reports of such preliminary examinations, appropriate action was taken by the Bank in a timely manner. Instances of suspected misconduct were reported to the Board of Auditors so that a full examination/investigation could be conducted as circumstances warranted.
In addition to such matters, compliance reviews were also carried out by internal control personnel as required by article 18 of “Regulation on Bank Internal System and Intrinsic Capital Adequacy Assessment Processes”. In the course of such reviews, all operations conducted or planned by the Bank as well as new transactions and products are checked to be sure that they comply with laws and regulations, with the Bank’s own policies and rules, and with commonly accepted banking practices. During these compliance reviews, existing bank-internal rules and proposed changes in them are also examined and views concerning them are circulated among appropriate units.
Besides their conduct of internal control functions, internal control personnel also continued to prepare and issue reports containing suggestions of ways to improve existing processes at the Bank and to mitigate the risks inherent in them. The objective of this practice is to preclude risks by spotting them in advance, to make the Bank more competitive by improving its business processes, and to increase customer satisfaction while also taking measures to cut costs.
The practice of recruiting qualified human resources for the Bank’s administrative staff by allowing internal control personnel to transfer to such positions continued.
Risk management system
Ziraat Bank’s approach to risk management is rooted in fostering a risk culture throughout the entire Bank that is compatible with the requirements of Regulation on Bank Internal System and Intrinsic Capital Adequacy Assessment Processes and in keeping its risk management functions at the “best practices” level by constantly improving both its systems and its human resources.
Care is given to ensure that all risk management system activities are coordinated through the involved participation of the operational branches with which each type of risk is associated. The principal risk categories are defined as “Credit Risk”, “Market Risk”, “Operational Risk”, and “Balance Sheet Risks”. The last category includes the interest rate risks and liquidity risks to which the Bank is exposed on account of its banking operations. A fundamental goal of all risk management is to abide by internationally recognized best practices.
Under the heading of credit risk management, Basel III-compatible methods are used to define, measure, monitor, and report credit risk. The Bank has been calculating its core credit risk exposure and reporting it monthly on the basis of its solo and consolidated accounts to BRSA ever since this practice was mandated by law as of 1 July 2012.
Under the heading of measuring creditworthiness using advanced quantification methods, work is currently being carried out at the Bank based on the results generated by applying scoring models to different loan portfolios. Statistical methods are employed to confirm both the validity of these rating models and to quantify the effectiveness of their performance. Credit risk limits approved by the Board of Directors are also monitored while scenario analyses and stress tests are carried out based on non-performing loan ratios.
Under the heading of operational risk management, the operational risks to which the Bank is exposed are defined, classified, measured, and analyzed. The results of such analyses are supported by means of stress tests. Such operational risk limits as may be approved by the Board of Directors are also monitored at regular intervals. The operational risk loss database in the Finart environment allows incidents of operational risk to be tracked. Information technology risks and associated actions are followed up. Risk exposure assessments are conducted for companies providing outsourced support services as required by current BRSA regulations.
Under the heading of market risk and balance sheet risk management, market, liquidity, and interest rate risks arising from banking accounts are measured, analyzed, delimited, reported, and monitored. Analyses are also supported by means of stress tests. Such market risk and liquidity risk limits as may be approved by the Board of Directors are also monitored at regular intervals. A “Liquidity Coverage Ratio” is now being calculated as per BRSA regulations published in line with Basel III criteria. This ratio is also reported to BRSA every week on a solo and every month on a consolidated basis. In the case of market risk, backtest analyses are performed for the bank-internal models that are used.
To determine the amount of shareholders’ equity that is associated with losses that the Bank may sustain due to its risk exposure, a capital adequacy assessment is conducted using the economic capital approach. The results of this assessment are reported to senior management.
The results of the risk management analyses and the associated risk indicators are reported to the Board of Directors and the Audit Committee at six-month intervals and to executive units and internal system units on a daily, weekly, and monthly basis.
Ziraat Bank will continue to make use of internationally-recognized advanced risk management techniques in order to carry out its risk management activities for all risk categories and to make such risk management an integral part of its strategic decision-making processes in the future as well.
97.97%Ziraat Bank’s efforts to prevent money-laundering and terrorism-financing are conducted in accordance with a policy concerning such issues that is publicly disclosed on the Bank’s corporate website. Ziraat Bank is committed to preventing any of its products or services from being used either to legalize the proceeds of criminal activities or to finance terrorism by ensuring that all of its managers and other employees comply with this policy fully and without exception.
The Ziraat Bank Audit Committee is charged with all duties, authorities, and responsibilities pertaining to the conduct of the compliance program governed by “Regulations Concerning Compliance Programs for Obligations Pertaining to the Prevention of Money-Laundering and Terrorism-Financing” and also set out in all laws, regulations, and administrative provisions applicable to such issues.
Ziraat Bank conducts its activities in line with the principle of “Know Your Customer”. Besides requiring its customers and anyone acting on behalf of a customer to prove their identity, the Bank also ensures that all statutorily-mandated records are maintained in full.
Training
Ziraat Bank personnel are provided its systematic training on issues related to the prevention of money-laundering and terrorism-financing.
Such training is prepared and carried out with the involvement of appropriate units under the supervision and coordination of a designated compliance officer.
While all personnel at Ziraat Bank are provided with training on issues related to the prevention of money-laundering and terrorism-financing, priority is given especially to the training of employees who come into direct contact with customers. Training on such matters is also provided to newly-hired employees as part of their orientation program.
During 2014, 97.97% of all Ziraat Bank employees took part in this training. For more detailed information on this subject, please click here.
Many of the policies adopted and put into effect by the Ziraat Bank Board of Directors are as much concerned with sustainability management as they are with the effective operation of its corporate governance structure.
Sustainability Policy
For Sustainability Policy of Ziraat Bank, please click here.
Disclosure Policy
http://www.ziraatbank.com.tr/en/InvestorRelations/CorporateGovernance/Pages/DisclosurePolicy.aspx
Prevention of Money-Laundering and Terrorism-Financing Policy
http://www.ziraatbank.com.tr/en/InvestorRelations/CorporateGovernance/Pages/AMLPolicy.aspx
The following issues are integral elements of the Ziraat Bank Human Resources Policy, which is accessible to all personnel on the Bank’s intranet:
Environment-related issues at Ziraat Bank are dealt with in the context of Sustainability Policy.
Under a project that is scheduled to begin in 2016, Ziraat Bank will begin developing and implementing a corporate social responsibility policy that will apply to its investment-financing loans. This project will be focusing on strengthening the oversight of environmental and social risk management processes and on developing tools for the management of bank-financed investments’ environmental and social risks. Another aspect of the project consists of involving all concerned units in the formulation of a Ziraat Bank Environmental & Social Risk Management Procedure.
Ziraat Bank has adopted a code of ethics that was prepared and published by Banks Association of Turkey in accordance with the requirements of article 75 of the Banking Act (Statute 5411). In line with this, Ziraat Bank regards the following as core tenets:
In keeping with the Ziraat Bank Code of Ethics and in order to safeguard the rights and interests of accountholders, to maintain financial market confidence and stability, to ensure the effective operation of deposit, credit, and payment systems, and to prevent transactions and practices that might lead to serious economic losses and also to be mindful of social wellbeing and environmental protection, Ziraat Bank gives consideration to the following:
The Ziraat Bank Financial Institutions & Investor Relations Unit is charged with managing shareholder relations and with maintaining statutorily-prescribed transparency in its dealings with shareholders in the event of a public offering of its shares. This unit is ready to play an active role in the protection and convenient exercise of shareholder rights such as the right to obtain information and the right to perform examinations. Thus although the Bank has not yet undertaken a public offering, it is already behaving as if it has done.
Ziraat Bank’s corporate website, which is located at www.ziraatbank.com.tr, plays an important role in the Bank’s public disclosure processes by providing access to up-to-date information about the bank. Although Ziraat Bank is not a publicly-traded company, it nevertheless already complies with corporate governance principles to a substantial degree. The extensive offerings of information and documents on the Ziraat Bank corporate website, which are published in both the Turkish and the English languages, range from the Bank’s trade registry information to its current partnership and management structure, from its articles of association to its material event disclosures, and from its financial statements to its annual reports.
From the “Sustainability” tab on the website, visitors have access both to Ziraat Bank’s Sustainability Policy and to the sustainability reports that the Bank has published.
