The National Bank is committed to the highest standards of governance. This is evidenced by our own guidelines for governance that comply with the latest international and local standards and are currently being updated to comply with the standard guidelines issued by the Palestinian Monetary Authority and the related instructions of the Palestinian Monetary Authority.
The priority of the governance guidelines are to set out organizational structures and update TNB’s policies and procedures whilst implementing principles of disclosure in line with governance requirements. This includes complying with business ethics, due to the importance of protecting the bank’s interests and all stakeholders, and consequently maintaining the bank’s reputation and performance.
The relationship between the bank’s management, represented by its board and executive management, and the shareholders is based upon a framework that ensures the implementation of sound management and governance in achieving its objectives and realizing various benefits for stakeholders, including minority shareholders. The governance system provides detailed, accurate and timely about the bank’s and the board’s responsibilities and the duties of different board committees towards the bank and its shareholders.
The National Bank is committed to implementing sound governance practices and complying with highest standards of efficiency and accuracy in its activities in line with the Palestinian Monetary Authority instructions that are consistent with the latest international best practices and in accordance with the Basel Committee recommendations related to governance.
The bank is committed to meeting the needs of the Palestinian community by providing banking services using the most modern and sound methods and ensuring services are provided in a proper manner to different stakeholders. Additionally, the bank supports the community by sponsoring different social activities.
The bank continuously seeks to maintain the highest levels of transparency towards its shareholders, clients, and the market by disclosing accurate and timely reports in accordance with international financial reporting standards, and the applicable Palestinian Monetary Authority regulations and related legislation. The bank also performs comprehensive studies on the changes in international practices of transparency and financial disclosures. Additionally, the bank is committed to the following:
- That the disclosure procedures are clear, continuous, and accessible to all market players for comparison, and that information is disclosed through various methods that are easily accessible and low cost.
- Disclosing all information of relative importance in a timely manner, ensuring that information reaches all concerned parties.
- Disclosing information providing significant data regarding its activities to each of the Monetary Authority, shareholders, clients, other banks, and the general public, with a special focus on issues that may raise concern for shareholders. The bank discloses this information periodically through easily accessible portals.
- That the annual reports include adequate and useful information that informs investors, depositors, and other stakeholders of the bank’s status.
- Maintaining lines of communications with regulatory authorities, shareholders, depositors, other banks, and the public.
As part of the good governance practices, which the National Bank aspires to implement through its various policies, procedures, and decisions, five committees are entrusted with different tasks and functions within basic frameworks and principles. The committees ensure implementation of good governance principles in line with the Palestine Monetary Authority's (PMA) instructions in this respect.
The Facilities Committee consists of four members of the board and has specific written duties and authorization approved by the board and listed as follows:
- Studying facilities proposals and approving facilities that exceed USD750,000.
- Informing the board in a regular and thorough manner of the bank’s credit portfolio in terms of its size, developments, defaulted loans, provisions against them, and collection efforts. The committee is expected to inform the board immediately of any major developments related to the credit facilities portfolio.
- Setting, for board approval, the Bank’s credit policy, including terms, collaterals, limits, and authorization limits for facilities in branches in accordance with the laws and regulations of the Palestinian Monetary Authority, the decisions and recommendations of the Audit and Risk Committee and the bank’s standards. The committee is also responsible for reviewing and updating the credit policy in line with developments in the economic, political and banking environment, and changes in the bank’s position.
- Approval of marketing plans prepared by the executive management for granting credit facilities of all types.
- Ensuring that the executive management complies with the credit policy and the authorizations determined by the board.
- Studying proposals to grant or renew facilities presented by the Credit Committee of the executive management, making appropriate decisions in accordance with the authorizations and limits assigned to the committee and making recommendations for facilities proposals that exceed the committee’s authorizations.
- Examining the status of bad debts, setting required plans to reduce them and ensuring the adequacy of provisions made against them in accordance with the Palestine Monetary Authority as well as making recommendations about writing off debts.
The Credit Committee holds weekly meetings.
The Investment Committee consists of five board members and can be reinforced by members of the executive management and relevant departments provided that the majority of the committee remains board members. The committee has specific written duties and authorization that are approved by the board, these are:
- Reviewing all reports and studies related to the status of external investments, the bank’s current investments, local and international financial market conditions, and all information that enables the committee to perform its duties in an efficient, professional manner.
- Regularly informing the board of the status of the bank’s investment portfolio and all major changes in a timely manner.
- Setting the bank’s investment policy, reviewing, and periodically updating it and ensuring its compliance with the applicable banking laws and regulations. The policy shall clearly specify the method of making investment decisions and authorization limits, of all centers in accordance with the Audit and Risk Committee’s decisions and recommendations.
- Approving investments including investments in all types of securities in accordance with the applicable regulations?
- Approving investments including investments in all types of securities in accordance with the applicable authorizations specified by the board and giving the board recommendations regarding investment decisions that exceed the committee’s authority.
- Ensuring that executive management is committed to implementing investment decisions in line with authorizations and limits specified by the committee.
The Investment Committee holds meetings on a quarterly basis
The Digitization Committee is composed of three members and reviews the bank's digitization strategy on an annual basis, overseeing its implementation by executive management. The committee examines all strategic and technological opportunities to ensure that TNB is at the forefront of technology in the international banking sector.
The Digitization Committee holds meetings on a quarterly basis
Nomination, Remuneration and Governance Committee
The Nomination, Remuneration and Governance Committee at TNB is composed of five members, which are nominated from members of the Board of Directors. It sets the policies for the bonuses of administrative and executive board members, evaluates the board and executive managers, sets plans for job replacement, and specifies remunerations for board members including salaries and bonuses. This committee takes responsibility for the training needs of board members, their requests for information and technical support, as well as overseeing the implementation of the governance policy framework in accordance with the governance manual and the instructions issued by the Palestine Monetary Authority. It also carries out the following tasks:
- Provides information on important topics about the bank to board members when requested to do so and ensures that they keep abreast of the most recent issues relating to banking. To achieve this, TNB encourages its board members to attend seminars and events that give them the opportunity to meet local and international institutions and companies.
- Recommends awards and bonuses (including the monthly salary and other benefits) for the general manager and reviews the remunerations (including salaries) granted to executive management members.
- Provides recommendations to the board regarding benefits and the level of remuneration for the chairman and members of the board.
- Ensures that the bank's bonus policy guarantees that bonuses and salaries offered by the bank are sufficient to attract qualified people and to retain them in accordance with bonuses and salaries offered by similar banks in the marketplace.
- Ensures that the Bank’s bonuses and incentive policies are compatible with the instructions of the Palestinian Monetary Authority and TNB's internal rules, as well as performing a periodic evaluation of the policy to ensure that its objectives are achieved.
- Sets the recruiting criteria, which is subject to board approval, for board members and members of committees.
- Presents recommendations to the board regarding changes it deems necessary for the number of board members or any of the board's committees.
- Ensures that appropriate plans are in place to replace board members and main officials in cases of emergency.
- Oversees the human resources policy.
- Oversees the implementation of the governance policy by working with the administration and the audit committees.
- Provides the board with reports and recommendations based on results attained during the implementation of its tasks including evaluating the Bank’s adherence to its governance manual and examining proposals to amend the manual in order to be compatible with best practices.
- Evaluates the performance of the Board of Directors on a continuous basis.
The Nomination, Remuneration and Governance Committee meets twice yearly.
Audit and Risk Committee
The Audit and Risk Committee is composed of three members of TNB's Board of Directors. All committee members must have academic qualifications and practical experience in the fields of accounting and financial management. This committee also carries out the tasks and duties stipulated in law, legislation, and instructions of control authorities, in addition to the best practices and directions of the Basel Committee. The committee undertakes the following tasks:
- Provides recommendations on nominating an external auditor and specifying their fees. It evaluates the external auditor's independence and objectivity and reviews their audit plan to ensure that it includes all the bank's activities.
- Reviews the bank's interim and annual financial statements and discusses them with management and the external auditor in addition to the provisions and estimates related to them.
- Directly supervises the Internal Audit Department to ensure integrity and objectivity in the work of the internal auditing process to perform internal auditing and implementation of tasks independently and without bias. This is done through:
- Provides recommendations regarding the selection, appointment, and termination of the internal auditing director's services and the budget allocated for auditing, as well as specifying the department staff's salaries, bonuses, and annual increases. Oversees compliance monitoring work and observes the extent to which management responds and implements the committee’s recommendations.
- Evaluates the efficiency of internal auditing staff and those in internal control and compliance monitoring as well as risk-management systems and changes to them.
- Reviews and approves the annual audit plan and the audit charter.
- Reviews reports prepared by the Internal Audit Department and monitors the process of rectifying violations.
- Oversees the bank's commitment to legal and organizational requirements.
- Coordinates with the Risk Management Committee to affirm the bank's financial position and performance.
- Reviews guidance in the Palestinian Monetary Authority's reports and monitors the measures taken to ensure that they are implemented and submits recommendations regarding them to the Board of Directors.
- Reviews the reports prepared by the Bank’s Compliance Controller at the bank and follows up on his commitment to the work procedures manual, and ensures his report complies with the relevant requirements of the Palestinian Monetary Authority to achieve the highest levels of compliance with the law, instructions, regulations, and proper banking practices.
- Implements a system that permits staff members to confidentially report their concerns regarding potential violations in a manner that makes it possible to verify these violations independently and to follow up on them without being punished by their superiors or mistreated by their colleagues. The Audit Committee investigates and verifies any information it receives through ta process approved by the board.
- The committee submits regular reports on its work to the Board of Directors.
Tasks of the Risk Committee include:
Identifying and evaluating all types of different risks the bank may be exposed to including credit and market risks, interest and exchange rates, commodity prices, liquidity, operating, non-compliance, country, and reputational risks. The committee also oversees the framework of the bank's governance.
The committee carries out the following tasks:
- Ensures the presence of an appropriate environment for managing risk at the bank. This includes studying the suitability of the bank's organizational structure and the availability of qualified staff who operate independently to manage any basic risk facing the bank following a clear system for risk management. This system provides the following:
- Availability of suitable monitoring of risk by the board and top management.
- The ability to identify, measure, and control all risk affiliated with banking activities.
- The ability to find suitable means to reduce the levels of risk and the potential losses resulting thereof.
- Maintenance of the necessary capital for confronting risk.
- Reviews the bank's risk management policies and strategies before submitting them for approval by the board. The bank's executive management is responsible for developing these strategies in addition to developing management policies and procedures for different types of risk.
- Decides the Risk Department’s structure for board approval
- Observes and accompanies the rapid developments and increasing complexities that may affect risk management inside the bank and submits periodic reports to the board about those developments.
The Risk Committee holds twice monthly meetings
The bank is committed to complying with all regulatory laws and the instructions issued by the Palestinian Monetary Authority and Palestinian law. It continuously works on updating its internal policies and procedures to be in line with new regulations and guidance issued by related authorities and then implements them. The bank also follows up the best international practices to maintain its reputation among local and international banks.
The Compliance Department is responsible for examining and evaluating the internal policies and procedures approved by the board and complying with the regulator’s laws and regulations, assessing risks related to violating compliance regulations and the impact of this violation. If violations are discovered, they are to be followed up and remedied.
The Compliance Department’s duties of issuing policies and procedures require detailed information from clients and continuous updating of the client information to be done by branches on an ongoing basis. This information is required to protect the bank’s interests, shareholders, and clients from any legal repercussions that may result in changes in the rating of the clients or the bank within non-compliant entities lists.
The Compliance Department at The National Bank continually monitors accounts and the accuracy of information provided for each account at the branches, the branch’s commitment to providing documents related to the client’s profession and income. Anti-money laundering procedures are implemented by examining a number of periodic reports accurately, then analyzing some client accounts and comparing them to the nature of their profession and income. Thereafter, communications with the related branches and management are established to confirm the accuracy of the client’s data. High-risk accounts are monitored, and approvals have to be secured before opening any account in line with the bank’s policy. There were no suspected cases in 2014.
The Compliance Department is also responsible for receiving client’s complaints and suggestions, in order to achieve the highest level of client satisfaction regarding the Bank’s services. The Compliance Department receives complaints and works on resolving any issues in line with the regulations and within the specified period of time.
Foreign Account Tax Compliance Act (FATCA)
The bank is committed to implementing the FATCA gradually and within the specified timeframe. FATCA is an American law with the aim of reinforcing tax evasion by American taxpayers through non-American financial institutions and foreign investments instruments. The FATCA is applicable to all clients whether individuals or corporations according to the following categories:
- Clients who hold an American nationality whether by birth, citizenship or naturalization.
- Clients who hold an American Green Card / residency.
- Non-American entities owned by American/s by majority.
As for FATCA, The National Bank is officially registered to comply with the American tax compliance laws. The bank prepared a brief and work plan to amend all the bank’s systems to be compliant with this law. The forms for opening accounts and updating client data were amended in line with the law that requires all new and outstanding clients of the bank to complete the approved citizenship forms, sign them and present them with the documents required to open an account.
Anti-money Laundering and Combating Terrorism Financing (AML and CTF)
The National Bank is committed to working within the legal frameworks related to AML and CTF based on the Palestinian Law #20 updated in 2015. The bank also implements the related instructions and regulations issued by the Financial Follow-up Unit in the Palestinian Monetary Authority and the Financial Action Task Force. The bank issued and approved a policy dedicated to combatting these issues and preventing any possible transactions that could be done through the bank, especially in light of the increasing dangers of money laundering and the different modern methods of these transactions with the use of advanced banking and financial technologies. AML and CTF regulations have been stringently enforced to maintain the bank’s reputation at a local and international level. The bank established an independent AML unit, in accordance with the instructions of the Palestinian Monetary Authority. This unit is responsible for preparing regular reports outlining measures taken to prevent money laundering and follows up financial and banking activities to ensure branch compliance by reviewing the procedures and activities of branches and assessing their compliance with AML instructions. If there are any suspected activities they are reported to the Financial Follow-up Unit. The Bank also examines the environment of monitoring money laundering and financing terror using the best methods and practices to maintain a low-risk investment environment.
Know Your Client (KYC) Database
In accordance with the instructions of the Palestine Monetary Authority and AML and CTF Law No. 20 of 2015, and in order to ensure best practice i at the local and international levels, the compliance and AML/CTF departments monitor compliance with the procedures related to client information before and after the opening of accounts, the method of documenting these accounts, the purpose of opening accounts and rating them according to the estimated level of risk. This indicates the likely future activity of a client and reinforces the effectiveness of control procedures, in addition to enhancing the decision-making process.
Banking Secrecy Provisions
The National Bank abides by the provision of bank secrecy through the approved policies, which are circulated to all employees, regardless of their position. It is prohibited to give any data, statements or information either personal or about client accounts, directly or indirectly, unless written approval has been previously given by the account holder or by a competent judicial authority under Palestinian law or by the regulatory authorities accredited by the Palestinian Monetary Authority.
The bank recognizes the importance of an effective Internal Audit Department to reinforce internal control systems that support comprehensive banking controls as the first line of defense, and its role in achieving the bank’s objectives under its supervision through a structured systematic approach to evaluate and improve the effectiveness of risk management, monitoring, and reinforcing governance. The bank ensures that the Internal Audit Department has a sufficient number of qualified trained personnel that are adequately rewarded. The Internal Audit Department is authorized to access any information or contact any employee, and all other authorizations that enable them to perform their duties as required. The functions and duties of the department are as follows:
- Develop an annual risk-based audit plan and present it to senior management and the Audit Committee to review and approve. Report to the senior management and the Audit Committee on restrictions that limit the resources available for the internal audit plan.
- Ensure the implementation of each audit task in the internal audit plan including identifying objectives and scope, sufficiently allocating and overseeing appropriate resources, document work programs and test results, reporting on t task results with conclusions and recommendations that can be implemented by the relevant parties.
- Submit a detailed report and summary of the results of all audit visits, recommendations, and follow-up procedures to the Audit Committee. Monitor the results of the audit and any measures that need to be taken and inform the senior management and the Audit Committee on periodic basis of any measures that have not been effectively implemented.
- Maintain a professional team of auditors who have the knowledge, skills, experience, and professional degrees to fulfill the conditions of the internal auditing mandate. Develop an integrated training plan for the internal audit staff, to encourage them to stay abreast of the profession’s developments, ensuring commitment to the principles of honesty and objectivity and maintaining confidentiality and efficiency.
- Take measures to ensure that the Internal Audit Department’s work is implemented in accordance with the international framework of professional auditing practices, the requirements of control authorities and the business’ policies and procedures.
- Allow auditors complete and direct access without constraints to all functions, the ability to examine all records and access all material assets, contact staff to allow any auditing task. The auditor shall be subject to accountability for the confidentiality of records and information and the safeguarding of them.
- The Internal Audit Executive Manager will ensure the organizational independence of the Audit Committee’s internal audit activity or the Board of Directors at least annually. The Internal Audit Executive Manager shall disclose any interference in setting the auditing scope and completing its work, and reporting results related to it. Any ramifications of this interference will be reported.
- Implement a program for maintaining and improving quality that covers all internal audit activity. The program includes an evaluation of the extent to which the internal auditing activity is compliant with standards. It shall evaluate the efficiency and effectiveness extent of the internal audit activity and identify available opportunities for improvement.
The bank is committed to ensure regular rotation of the external auditor and takes into consideration that the selected external auditor must be accredited by the Palestinian Monetary Authority with a practicing license granted by the relevant authorities. The external auditor will not be granted any direct or indirect facilities from the bank against their personal guarantee including on behalf of their spouses, children, any related entity that they are partners in separately or jointly for a percentage of more than 5%, or members on the board, with no direct or indirect benefit from the bank or any of the affiliated companies, and to not be a manager, employee or client of the bank or the banks affiliated companies.
Duties of the External Auditor:
- Performing their duty according to the terms and conditions that regulate the auditing profession and comply with the international auditing standards, and the Code of Professional Conduct in Auditing.
- Audit the financial statements and accounting records of the bank consisting with IFRS and IAS.
- Comply with the minimum disclosure requirements for financial statements as issued by the Monetary Authority.
- Full confidentiality under the professional rules of conduct, including not revealing information they have acquired by virtue of their work until after their audit at the Bank has been completed.
- The Audit Committee will be provided with a copy of the auditor’s report (administrative letter) and conduct a meeting with the Audit Committee without the attendance of the executive management at least once a year.
- Submit an annual report to the bank’s general assembly, outlining the reviewing and auditing activities of the bank, stating that its accounts were conducted in compliance with the IAS, expressing their fair opinion regarding the financial statements for the period audited and confirming that they were prepared in accordance with the IFRS and IAS.
- Attend the general assembly meetings and answer any questions by the shareholders.
- Present a report to the Monetary Authority and a copy to the board within two months of the end of the financial year. The report should include the following:
- Any violations of the bank laws or any other applicable regulations committed by the bank during the audited year.
- The auditor’s opinion on the adequacy of the bank’s internal control systems.
- The auditor’s opinion on the adequacy of provisions to meet potential risks related to the bank’s assets or liabilities.
- Verifying the auditor’s non-reserved opinion regarding the information obtained during the audit.
Risk Policy and Methodology
An independent committee of the board is responsible for managing risks related to the bank’s various activities, including measurement of risks and continuous monitoring. Risks are managed and controlled within specific limits and rations that are approved by the board of the Palestinian Monetary Authority, and the internal controls and safety procedures are tested for their efficiency to ensure minimal negative impacts on the bank’s activities.
Additionally, the management and the Risks Department analyze the bank’s financial statements through the Assets and Liabilities Committee, assess various risks and make the necessary decisions required to manage them in line with the management’s expectations of adequate profits while maintaining reasonable and controlled levels of risk.
The instructions issued by the Monetary Authority are implemented to ensure the bank's ability to handle risks through stress testing scenarios, impact measurement and the setting of appropriate plans to mitigate risks accordingly. The department also implements the instructions of the Monetary Authority regarding Basel II requirements that are meant to ensure the bank’s adequate capital capability to contain any possible risks. The bank also reviews the accuracy of procedures followed for the Internal Capital Adequacy Assessment Process (ICAAP) in order to ensure that bank’s ability to face all types of risk and the extent of their impact. Moreover, the bank is working on applying the IFRS9, which aims to protect the bank from credit risks since granting the credit and not at the onset of default as it was previously, reinforcing the quality of credit procedures and clients, thereby reducing the associated risks of default.
Hence, the risk policy is based on preventive actions rather than corrective actions; the new IFRS9 regulation will further reinforce this. Accordingly, the risk policy and methodology are based on prevention in line with the implementation of Basel II requirements relating to the second section of supervisory review. In order to do so, internal controls are monitored and periodically reported by the Risk Department to the board committee after being reviewed by the executive management. These reports address all types of risks faced by the bank and the bank’s position. The risks faced by the bank can be summarized as follows:
- Operational Risk:
Operational risk is the risk of losses due to the inability of departments and branches to achieve their goals due to the disruption of their operations by people, systems, or external sources or events, including disruptions in the information system (documentation, processing or accounting transactions of financial activities), or failure in internal controls that could lead to unexpected losses. Therefore, these risks are concerned with human error, system failures or inadequate procedures and controls.
The bank continually works to minimize the occurrence of these risks to the best of its ability by implementing sound and robust control policies and procedures, including the separation of authorities and bilateral controls of activities.
- Market Risk
Market risk arises from changes in interest and exchange rates. In this context, the bank works on controlling these risks by having diverse investments and by monitoring market risks through regular reports that are produced by the relevant departments which are reviewed by ALCO.
- Interest Rate Risk
Interest rate risk refers to losses arising from fluctuations in interest rates that could impact the bank’s cash flow or fair value of its financial instruments. The bank is exposed to interest rate risks as a result of time differences between the re-pricing dates of assets and liabilities, which are systematically monitored by the Treasury Department and the Assets and Liabilities Committee, which includes the Risk Department as a member.
The bank measures interest rate risks through lower and higher limits of interest rate changes in specified periods of time, in addition to re-pricing assets and liabilities using the risk strategies.
- Exchange Rate Risk
Exchange rate risks arise from the bank’s activities in foreign exchange transactions including risks arising from fluctuations in exchange rates and risks arising from revaluation of currencies based on floating exchange rates. Exchange rate risks can impact the bank’s assets and liabilities value and can lead to significant losses.
Foreign exchange risk is the current or future exposure of profits and capital resulting from exchange of reversing the exchange rate of currencies.
Foreign exchange rate risks could arise in two cases:
- Incompatibility between the bank’s assets and liabilities in different currencies for each currency (including off-balance sheet items)
- Mismatching of currency cash-flows.
Foreign exchange positions are monitored daily and prevention strategies are implemented to ensure that foreign exchange positions are within limits approved by the board and compliant with the Monetary Authority regulations.
- Stock Prices Risk
Stock price risk results from changes in the fair value of investments in stocks, and the bank manages those risks through diversifying investments across various economic industries and geographic regions.
- Credit Risk
Credit risk refers to the risk that the other party in financial transactions will not be able or willing to fulfil his obligations to the bank which may result in losses. The bank mitigates credit risk through limiting direct credit facilities (retail and corporate) and the credit facilities granted to each sector and region. The bank also monitors credit risk and constantly assesses the financial positions of clients in addition to using collateral. The bank has the following policies to mitigate credit risk:
- Reviewing credit concentrations to ensure there are no excesses.
- Studying any proposed product in regard of the risks related to it and giving recommendations.
- Monitoring the classifications of corporations and individuals based on the applicable credit rating procedure.
- Liquidity Risk
Liquidity risk refers to the risk that arises from the bank’s inability to meet its financial obligations in due time. Liquidity risk is managed through the diversification of sources of funds, managing assets and liabilities of the bank and matching their maturities, and maintaining a reasonable balance of cash and other financial instruments including those that are readily realizable. The bank also monitors its liquidity position periodically in accordance with the regulations of the Monetary Authority which states that specified ratios of deposits that must be kept at all times with minimum limits. Liquidity position and rations specified by the Monetary Authority are also monitored by the Assets and Liabilities Committee.
The bank must also constantly match the maturities of assets and liabilities to face this risk, in an effort to ensure the availability of necessary liquidity or readily realizable financial instruments to meet obligations including withdrawal of deposits or any other short-term or long-term liability.