Corporate Governance

General Information

 

Background

Founded as a specialized Bank in December 2018, European Merchant Bank UAB (hereinafter referred to as the EMBank or the Bank) is registered and located at Gedimino pr. 35, Vilnius, Lithuania.

On the 14th of December 2018, the European Central Bank (ECB) has authorized EMBank for the provision of the following banking activities: receipt of deposits and other repayable funds; payment services provided in Article 5 of the Law on Payments; issuance of electronic money and lending activities. Currently, EMBank’s economic activities include acceptance of deposits from natural persons, lending and payment services to the legal persons. All of the previously indicated services are supervised by the Bank of Lithuania. Furthermore, the Bank has passports to twenty-six countries within European Economic Area (EEA) the Member States for its activities.

 

Management and Organisation

 

Supervisory Board

The Supervisory Board is a collegial body performing supervision of the activities of the Bank. The Supervisory Board in its current composition consists of below members:

• Mr. Ekmel Cilingir – The Non-executive Member who is also Chairman of the Board.
• Mr. Vygintas Bubnys – Independent Member of the Supervisory Board
• Ms. Simona Grinevičienė – Independent Member of the Supervisory Board
• Mr. Hakan Turkmen – Independent member of the Supervisory Board

 

The Supervisory Board holds regular meetings at least on a quarterly basis. The Supervisory Board forms the overall strategy and vision of the Bank and sets out policies that reflect the goals and objectives set. All members of the Supervisory Board have knowledge and expertise relevant to the Banking industry and the services offered by the Bank.

The Supervisory Board’s responsibilities are to:

• consider and approve Bank’s business strategy,
• analyse and assess information on the implementation of the Bank’s business strategy,
• elect and remove members of the Management Board,
• supervise activities of the Management Board and the CEO of the Bank,
• submit its comments and proposals to the Shareholders’ Meeting on the Bank’s set of annual financial statements, the draft of profit/loss distribution and the annual report of the Bank as well as the activities of the Management Board and the CEO of the Bank,
• approve business plans of the Bank,
• make credit decisions regarding loans with amounts above the threshold level defined in “Credit Decision Making and Authorization Policy”,
• ensure that the Bank has an effective internal control system,
• on a regular basis review and assess internal policies of the Bank in order to ensure that managing bodies of the Bank timely and effectively determine, assess, and control risks of the Bank and Bank’s activities,
• submit proposals to the Management Board and CEO of the Bank to recall their decisions which do not comply with the applicable laws, Articles of Association of the Bank, or decisions of the Shareholders’ Meeting.

The Supervisory Board also acts as (i) the Risk Committee and (ii) the Nomination Committee of the Bank.

Click here to access the organizational chart.

 

Management Board

The Management Board is a collective management body of the Bank, comprises of five members. The regular members are (i) the CEO of the Bank, (ii) 2 Deputy CEO(s) of the Bank, (iii) the Head of Global Sales of the Bank and (iv) the Chief Risk Officer (CRO). The CEO is the Chairman of the Management Board.
The Supervisory Board elects, suspends and removes the members from the Management Board in accordance with the procedure established by law and by internal regulations of the Bank.
The Management Board meetings are held regularly and weekly on a predetermined schedule and additional meetings can also be held due to necessity.

The duties of the Management Board are consisting of:

• approval of the management structure of the Bank and the positions of employees.
• approval of the positions to which employees are recruited through competition.
• analyse and evaluate the information on the organisation of the activities of the Bank, the financial status of the Bank, the results of business activities, income and expenditure estimates, the stocktaking and other accounting data about changes in assets.
• Analyse the set of the Bank’s annual financial statements and the draft of profit/loss appropriation and shall submit them to the Shareholders’ Meeting together with the annual report of the Bank.
• analysing the credit limit setting proposals for banks by the financial institutions department.
• analysing the loan proposals approved by Credits Committee as the final approver body or loan proposals by local or global sales departments as the first approver to be recommended to Supervisory Board.
• acts as the supervisory body to which the following committees report: Credits Committee, Asset and Liability Committee and Information Security Committee.

 

CEO

The Bank’s CEO has the ultimate responsibility for the overall management of the Bank as well as for treasury, corporate banking, corporate governance, and credits functions.
The EMB’s organizational structure is organized in a way to cover all relevant areas of the Bank as well as to ensure that the segregation of duties is maintained, and effective control and risk management is in place. For example, the CEO is overseeing the main banking activities, such as card development, capital markets, credit facilities, financial institutions, and treasury departments.

 

Bank’s Committees

Efficient and effective governance of the Bank is ensured by committees.
The Bank currently has 6 (six) Committees, namely:
(i) Audit Committee,
(ii) Asset/Liability Committee (ALCO),
(iii) Risk Committee,
(iv) Credit Committee,
(v) Nomination Committee and
(vi) Information Security Committee (ISC).

 

Audit Committee

The primary function of the Audit Committee is to assist the Supervisory Board of the Bank in fulfilling its oversight responsibilities for financial reporting processes, the effectiveness of internal controls, the internal audit process and monitoring of compliance with laws, regulations and the Bank’s policies and procedures.
The Audit Committee maintains free and open communication with the Supervisory Board, Management Board, the independent auditors, internal audit, and any other party affected by the work of the Audit Committee.
In its current composition, the Audit Committee consists of 3 (three) members: Chairman Ekmel Çilingir, member Vygintas Bubnys and member Simona Grinevičienė.
Members of the Management Board, Head of Internal Audit, Internal Control Officer / Manager, external auditor and/or other relevant employees of the Bank shall participate in meetings of the Audit Committee at the request of the Audit Committee.
The Audit Committee’s responsibilities and duties cover:

• monitoring of the external audit and effectiveness of the financial reporting process.
• determination of the criteria for selection of external auditor and assessment of qualification and experience, preparation, and submission of recommendations to the Supervisory Board for the appointment of the external auditor.
• review and discuss internal quality control procedures applied by external auditors.
• investigate the circumstances of the resignation of the external auditor and make recommendations on steps deemed to be required in consequence thereof.
• monitoring and evaluating the effectiveness of the financial reporting process.
• approving the Internal Audit Charter, resourcing, budget, and organizational structure of the internal audit function.
• review risk scoring of audit areas and approve strategic and annual audit plans and any changes in plans during the course.
• monitor, consider, and present recommendations to the Supervisory Board on the effectiveness of the risk management systems, governance and internal control system within the Bank.
• review the effectiveness of the Bank’s compliance system and related monitoring processes.
• monitor and consider the effectiveness of the whistle-blower scheme in the Bank.

Click here to access the charter of the Audit Committee.

 

Internal Audit Department

For ensuring even-better governance at the Bank level, European Merchant Bank UAB’s Internal Audit Department plays an important role. It represents an independent and objective assurance and consulting function as the third line of defense. Through the application of a risk-based methodology, IAD evaluates and examines whether proper measures are taken to ensure ‘control’ in the organization and its activities.

 

Asset/Liability Committee (ALCO)

ALCO’s primary duties and responsibilities are to assess the adequacy and monitor the implementation of the Bank’s Asset, Liability, Liquidity and Fund Management Policy.
ALCO is consisting of the following members: CEO, CFO, CRO, Head of Treasury, Head of Global Sales, Head of Local Sales, Head of Financial Institutions, Head of Treasury and Capital Markets. Depending on the subject, other employees can also be invited to present their views and provide feedback.
ALCO convenes regularly once each 2 (two) weeks, and non-regular meetings may also be called when circumstances require.
The ALCO Committee’s primary duties and responsibilities are to assess the adequacy and monitor the implementation of the Bank’s Asset, Liability, Liquidity and Fund Management rules. The ALCO Committee focuses on the following:

• To oversee the key balance sheet assets and liabilities.
• To execute the respective policies to have healthy management of financial statements in line with the budget.
• To receive and review reports on liquidity, market risk and capital management.
• To supervise, deposit-loan pricing of treasury department for the local and global market.
• To drive the policy for sustainable funding for the balance sheet.
• To ensure compliance with banks policy and regulatory requirements
• To review and supervise and monitor concentration risk arising from both borrowers and depositors.
• To review requirements set by external regulators
• To supervise Treasury Department to allocate the bank’s remaining assets and liabilities to meet risk and profitability objectives.
• To monitor performance and risk of the Bank’s investment portfolio, including equity securities held at fair value, and strategies including portfolio activity, unrealized gains and losses, portfolio yield, duration and total return, and credit quality.

Click here to access the charter of the ALCO Committee.

 

Risk Committee

The Supervisory Board of the Bank acts as – up until there is a separately established Risk Committee – the Risk Committee of the Bank.
The Supervisory Board, in the role of the Risk Committee:

• monitors the Bank’s overall actual and future risk appetite and strategy, considering all types of risks, to ensure that they are in line with the business strategy, objectives, corporate culture, and values of the institution.
• oversees the implementation of the institution’s risk strategy and the corresponding limits set
• oversees the implementation of the strategies for capital and liquidity management as well as for all other relevant risks of the Bank (including reputational risk), in order to assess their adequacy against the approved risk appetite and strategy.

 

Credit Committee

The Credit Committee reports to the Management Board of the Bank and consists of five members:
(i) CEO as the chairperson of the Committee, (ii) Head of Local Sales in the case of proposal of international credits / Head of Global Sales in the case of proposal of local credits, (iii) Legal Counsel, (iv) Local Credits Manager in the case of proposal of international credits / International Credits Manager in the case of proposal of local credits and (v) Chief Financial Officer. Besides to above-mentioned, the CEO can invite any employees to the meetings as a guest when needed. CRO (or the highest senior manager in charge of risk function when CRO is not present) of the Bank also attends the committee meetings as a guest and has direct access to Management Board and Supervisory Board. The Credit Committee shall meet at least monthly and may hold additional meetings as needed or appropriate.

The specific authority and responsibilities of the Credit Committee include the following:

• approve credit proposals under the limit set to the Committee and make recommendations regarding credit proposals to the upper authorisation level – Management Board and Supervisory Board of the Bank.
• monitoring of overall credits concentration limits, including credits to one borrower, by industry, by product.
• monitoring of the Bank’s credit products, origination volumes, market area and credit facilities development.
• monitoring the Bank’s quality of both credits portfolio and individual credits, credits portfolio tendencies, expected credit losses, and collateral policy.
• recommending to the Management Board for approval of Credit risk/Lending policies and procedures commensurate with the Bank’s specific risk tolerances and strategic goals and monitoring the implementation of lending policies.
• periodical review of the Bank’s credits grading system and monitor the performance of the system, including a review of classification reports, external credit reviews and examination reports.
• performing a periodic review of the Bank’s high-risk and non-performing credits. Review collection practices and strategies, as appropriate.
• preparing and making periodic reports to the Management Board.
• annual review of this Charter and recommend changes to the Management Board as needed.

Click here to access the charter of the Credits Committee.

 

Nomination Committee

The Supervisory Board of the Bank acts as – up until there is a separately established Nomination Committee – the Nomination Committee of the Bank
The Supervisory Board, in the role of the Nomination Committee, is mainly responsible to:

• identify, recommend, and approve Management Board candidates.
• dismiss Management Board members.
• assess the balance of skills, knowledge, and experience in the bank’s body and prepare a description of the functions and abilities required
• for the specific position and assess the time required to perform the position
• at least annually evaluate the balance of knowledge, skills, diversity, and experience of the individual Management Board members (and the Head of Administration, where applicable) and Management Board collectively.
• assess the structure, size, composition, and performance of the Management Board (and the Head of Administration, where applicable) and make recommendations with regard to any changes.

Information Security Committee (ISC)

The Information Security Committee’s main duty is to provide recommendations to the Management Board of the Bank in relation to all information security efforts undertaken by the Bank. This committee also coordinates and communicates the direction, current state, and oversight of the information security program.
The Information Security Committee is composed of 6 members: (i) Chief Information Security Officer (CISO), (ii) Chief Risk Officer (CRO), (iii) Chief Technology Officer (CTO), (iv) Head of Operations, (v) Compliance Manager, and (vi) Data Privacy Officer (DPO). Members from Internal Audit, HR, Finance, and other departments might be called for the ISC meeting on a need basis. The Security Committee convenes at least once a month.
The responsibilities of the Information Security

Committee covers:

• formulating, reviewing and recommending the information security policy of the Bank.
• review the effectiveness of policy implementations.
• providing clear direction and visible management support for security initiatives.
• initiating plans and programs to maintain information security awareness.
• approving and monitoring major information security projects and the status of information security plans and budgets, establishing priorities, and approving procedures.
• ensuring the security activities are executed in compliance with the policy.
• identifying the significant threat changes and vulnerabilities.
• assessing the adequacy and coordinating the implementation of information security controls.
• promoting information security education, training, and awareness throughout the Bank.
• educating the team and staff on ongoing legal, regulatory and compliance changes as well as industry news and trends.
• reviewing the status of security awareness programs.
• assessing new developments or issues relating to information security.
• reporting to and or presenting to the Management Board on information security activities on at least a quarterly basis.

Click here to access the charter of the Information Security Committee Committee.

Two-Tier Structure

 

The Supervisory Board

Supervising the policy of the Management Board and the general affairs of the Bank and supporting the Management Board with advice is the Supervisory Board’s task, as stated in European Bank’s articles of association and the Charter of the Supervisory board in line with the rules in Lithuania.

The Supervising Board of EMBank UAB comprises four members:

• Mr. Ekmel Cilingir – The Non-executive Member who is also Chairman of the Board.
• Mr. Vygintas Bubnys – Independent Member of the Supervisory Board
• Ms. Simona Grinevičienė – Independent Member of the Supervisory Board
• Mr. Hakan Turkmen – Independent member of the Supervisory Board

 

Click here to access the charter of the Supervisory Board.

 

The Supervisory Board is supported by Audit Committee.

Its main objective is as follows:

Audit Committee advises the Supervisory Board on and supervises the status of and developments in, the Bank’s risk management system, internal control systems, and compliance-related matters. It also performs a review of the European Merchant Bank’s financial statements and the reports of the external auditor. Moreover, it discusses the relationship with the external auditor, including his independence, remuneration, and other non-accounting-related activities executed for the Bank.

 

The Management Board

The Management Board of European Merchant Bank is jointly responsible for the management of the Bank, it includes realizing the Bank’s targets and strategy, and the policy and results arising thereof. Compliance with all relevant laws and regulations, management of the risks attached to our banking activities, and the funding of the European Merchant Bank in line with the approved risk appetite are within the responsibilities of The Management Board.

Click here to access the charter of the Management Board.

Remuneration Policy

 

PURPOSE AND OBJECTIVES

The purpose of the Remuneration Policy (the “Policy”) is to define core principles of remuneration of employees of European Merchant Bank, UAB (the “Bank”). The Policy establishes the basic principles of remuneration in order to reward sustainable long-term value creation in line with the interests of shareholders, investors, and customers to enable the Bank to attract, retain and train talented employees with the right competence. The Policy is compulsory to all employees in the Bank. Employees are subject to inform the pay system without discrimination of age, nationality, race, social status, religion, etc. The Bank aims to assimilate a multinational company structure with talented employees and aims to work in cooperation.

The Remuneration Policy and practices under this policy are implemented in accordance with the provisions of the Labor Code of the Republic of Lithuania.

 
Please click for the full Remuneration Policy

Lithuanian Law on Banks and Corporate Governance

Law on Banks of Republic of Lithuania No IX-2085 entered into force on 30 March 2004 and is regulating the procedure for setting up, licensing, pursuing of business and restructuring as well as supervising of the banks established in Lithuania as well as foreign banks operating in the Republic of Lithuania, in order to ensure a stable, sound, efficient and safe banking system.

Please refer to the below link for further information on the Lithuanian Law on Banks and relating secondary legislation:

https://www.lb.lt/uploads/documents/docs/21253_6d745b158d1324e86d8ce7f9a66a7205.docx

 

Lithuanian Corporate Governance

In Lithuania, the Banks form and carry out their activities in accordance with Civil Code No. VIII-1864 of the Republic of Lithuania, Law on Companies of the Republic of Lithuania No VIII-1835, Law on Banks of the Republic of Lithuania No IX-2085, and other applicable laws and secondary legislation regulating applicable corporate governance rules and principles.

For further information, you may reach Law on Companies of the Republic of Lithuania from the below link:

https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/2af0c0d049b811e68f45bcf65e0a17ee?positionInSearchResults=0&searchModelUUID=b1b2f6cb-0ba8-478f-a6e4-dccbe8173023

The Bank’s focus on long-term value creation is inherent to its private ownership structure.

Long-term sustainability is given a prominent role in determining the Bank’s strategy and in the decision-making process. On an annual basis, the strategy is being reviewed and where necessary updated (as a result of the most recent strategic discussions, the Bank will particularly focus on digital banking and fintech projects). Inter alia through the regular updates that are given on the implementation of the Bank’s strategy, the Supervisory Board monitors the implementation thereof.

It is of great importance for the Bank to be continuously informed about the latest (technology) developments in this rapidly changing society. In order to adequately anticipate this, internal training is being organized, external seminars/courses are attended.

EMBank has established an Internal Audit department in accordance with the principles and best practice provisions of the Law on Banks.

EMBank’s risk management framework is comprehensive and managed by an independent risk management function under the direct responsibility of the Chief Risk Officer. Risk management plays a central role in the bank’s decision-making process.

Grant Thornton Baltic UAB has been appointed as the Bank’s external auditor. The Audit Committee discusses the Bank’s audit plan and any findings of the external auditor.

 

Effective Management and Supervision

The composition of the Supervisory Board and Management Board is very well balanced inter alia taking into account the specific knowledge and experience of each of the members. According to EMB articles of association, Supervisory Board has 3, Management Board has 5 members.

The respective interests of the Bank’s main stakeholders (being EMBank‘s clients, employees and business partners, the shareholders as well as society) are taken into consideration in the decision-making process.

 

Conflict of Interest Policy

EMBank has effected procedure suitable for managing potential conflicts of interests. Such arrangements have to be complied with for professional integrity – and transparency reasons.

The generic arrangements aim at setting criteria and controls that identify and govern potential conflicts of interest arising from, amongst others, different functions and units of the Bank (including Personnel) and its Clients.

The Bank has specific arrangements in place to ensure proper management of potential conflicts of interest in related party transactions. These arrangements include procedures to identify, authorize and report related party transactions to Legal Counsel and Supervisory Board.