REVIEW OF OPERATIONS · Recognizing the potential of this structure, divisional management took a...
Transcript of REVIEW OF OPERATIONS · Recognizing the potential of this structure, divisional management took a...
REVIEW OF OPERATIONS
International Bank of Asia Limited Annual Repor t 200121
RETAIL BANKING
Retail banking forms the core of IBA’s business. The branch network serves as
the infrastructure for delivering the complete range of the Bank’s products and
services, deposits generated in the Retail Banking Division provide the bulk of
the Bank’s funding, and its systems support the majority of business activities.
With 24 branches, including 4 Superbranches, this network is a key par t of
IBA’s community presence and image.
Recognizing the potential of this structure , divisional management took a
number of steps to exploit these strengths, launching new products,
upgrading branches and expanding the customer base .
For almost four decades of interest rate regulation, the final removal of
restrictions on deposits in July enabled IBA to come out with one of the
most exciting banking products in Hong Kong in
decades. Launched on 3 July 2001, the Magic Money
Manager, commonly referred to as the 3M Account,
provides the convenience of a checking account with
the yield of a savings account. Paying a tiered interest
rate based on the level of balances in the account, the
3M relieves customers of the necessity of managing
two accounts, ending the time consuming task of
avoiding overdrafts and idle balances. The response from
customers has been gratifying, showing that the 3M
fills an important gap in consumer products. In less than
six months low cost deposits increased by HK$1 billion,
and 20,000 new accounts were opened. The increase in current/savings
accounts was a major contr ibutor to the decline in cost of funds during
2001. 3M is IBA’s flagship deposit product for the new millennium, with
other innovative products for thcoming in 2002.
The success of the Causeway Bay Superbranch served as the model for
three additional superbranches in 2001. Stimulated by survey results which
concluded that bigger premises, and in particular wide frontage, provided
clients and potential new customer s with a better impression of product
offerings and a clearer picture of IBA’s financial strength, the superbranch
concept is based on premises twice the size of our average branch space
of 1,000 square feet. The challenge is to locate strategic sites of the proper
size. Where possible , Wealth Management Centers (see Investment Banking
section) are integrated into the Superbranch.
Core infrastructure
Launch of Magic Money Manager Account
Magic Money Managerattracts new accounts
Superbranch network
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Annual Repor t 2001 International Bank of Asia Limited 22
In May the Mei Foo Branch was upgr aded to a
Superbranch by doubling its size through the purchase
of the adjoining premises. In August the Tsuen Wan
Superbranch, with 10,000 square feet of self-owned
space on 3 floors, was inaugurated, merging our Tsuen
Wan and Tai Ho Road branches. This site also serves as
the regional headquarters for the New Territor ies, our
most rapidly expanding retail operation. The Tsuen Wan
Superbranch also incor porates a Wealth Management
Center and Consumer Finance Center, as well as an
office for credit card services. In November the
Whampoa Gardens and Hunghom branches were
merged with the acquisition of the site adjacent to the
original Hunghom Branch.
In a highly competitive environment, operating efficiency
is a must. The creation of the superbranches through
mergers, and the merger of our Wanchai and Hennessy
Road branches in the existing Wanchai Branch premises,
helps to achieve economies of scale. Other measures
to streamline operations, including the centralization
of processing while continuing to provide customers
with the convenience of dealing with their local
branches, is described in the Operations and Suppor t
section of this report.
Retail Banking’s primary customer base is comprised of the individuals
who live and work in the neighborhoods ser ved by our branches.
Branches also suppor t businesses in their local community, often with
relatively simple transaction processing. In recognition of the large
number of small and medium size enterpr ises, or SMEs, that are the
lifeblood of Hong Kong and the special needs they have , a commercial
lending team staffed by experienced officers was established within retail.
Exploiting their special expertise, they are able to assist branch managers
and business development officer s in identifying new customers and
formulating the appropriate credit facilities to support these corporate
customers. This new team fur ther diversifies the revenues of the Retail
Banking Division, and increases IBA ’s penetration of this impor tant
business segment.
SME Lending
Mei Foo Superbranch (top);
Hung Hom Superbranch (bottom)
International Bank of Asia Limited Annual Repor t 200123
REVIEW OF OPERATIONS
The superbranches and traditional br anches have
prov ided an e f fec t i ve de l i ver y channe l , no w
supplemented by the commercial lending team. While
internet banking has been slow to win acceptance in
Hong Kong given the widespread presence of bank
branches and the preference for face-to-face contact,
the trend toward growing volume in electronic banking
is clear. IBA initiated the Vir tual ATM in March 2000,
enabling customers to conduct simple transfers from
their home. Through the Internet platform of Net
Alliance, IBA’s joint venture with three other banks
and a leading ISP, an expanded range of Internet banking services was
introduced in 2001. This collaborative effor t not only enables IBA to enjoy
the cost savings on product development and constant update of security
measures through common investment, but also to deliver a branded
electronic banking ser vice to our customers’ homes. Future linkage with
the data warehouse and CRM software , referred to later in this report,
will increase the effectiveness of Internet banking.
The retai l networ k and the customer base provide a wealth of
opportunities to sell the full range of IBA products. Retail Banking, Credit
Card and Consumer Finance, Investment Banking and Hire Purchase have
pur sued a “wr ap around” approach, exchanging customer lists and
conducting joint calls with product specialists to provide our clients with
comprehensive ser vices. This effor t has increased commission income
significantly and is strengthening our relationship with customer s,
encouraging them to direct more of their financial transactions to IBA.
The network, the systems, the products and the image are no better than
the ser vice that our retail staff provides to our customers. The 158
members of the division take pride in their ser vice pledge. Each member
is able to determine his or her career path through the Star Program. This
combination of written and oral examinations which combine the syllabus
of the Hong Kong Institute of Bankers and IBA’s ser vice standards offers
retail staff the opportunity to gain promotion at any time they can meet
the requirements of the next Star level. This program, along with the new
performance evaluation, encourages staff to achieve excellence.
Net Alliance Launch
Customer focus
Wrap around services
Star Program
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Annual Repor t 2001 International Bank of Asia Limited 24
IBA’s Regional Advisory Council, established in 1998,
provides each branch with a respected advisor from
the community to critique service levels and product
offerings. Quarterly updates for the Council members
permits us to conduct focus groups on proposed new
products, ensur ing that they genuinely address customer
requirements. The Council also serves as another channel
to inform the public about our activities, and strengthen
our roots in the community. The Council is chaired by
Mr. James So, independent director of the Bank who
was one of the founding members of the Council.
CREDIT CARD AND CONSUMER FINANCE
IBA has developed solid expertise in consumer lending over the years,
carving out a niche in the highly competitive credit card market and
providing personal loans and asset-based financing for individuals. With
changes in the economy and the slowing of the residential proper ty market,
these segments will increase in importance to IBA’s earnings. During 2001
we mapped out a comprehensive strategy, introduced new products and
deliver y systems, upgraded technology and strengthened our human
resources to widen the scope of our business. The credit card and
consumer finance activities were combined in a single division based on
their common business characteristics and the ability to achieve economies
of scale.
IBA has become a leader in credit card business as the
forerunner in market segmentation through launching
of myCard for the female segment and Magiccard for
the youth segment. In addition, IBA also deliver s
standard, co-branded and affinity cards, as well as
providing merchant ser vices, which has also been a
major source of fee income. Benefit and retention
programs are an important par t of the card strategy,
and these must be constantly enhanced to meet
changing customer preferences. While credit card
business produces high yields, it also represents higher
risk, as evidenced by the impact of rising personal bankruptcies in Hong
Kong. Risk management is an integral par t of success in this business,
from acquisition and approval to monitoring and collection. A profitable
credit card operation requires a well-balanced mix of professional talent,
expense management, financial analysis and risk control.
Regional Advisory Council
Building on consumer lendingexpertise
International Bank of Asia Limited Annual Repor t 200125
REVIEW OF OPERATIONS
IBA freshened its standard VISA and MasterCard
programs with a new look and a dining reward
program, as well as a dual product promotion with
the CashPlus product. New customers were also
attracted by a balance transfer program. magiccard,
the product aimed at the 18 to 28 year old youth
segment, offered special travel spending rewards. A
unique website , www.magiccard.com.hk has been
spec ia l ly es tab l i shed wi th cybergames and
enter tainment information favored by this age group.
myCa rd , I B A ’s h i g h p ro f i l e p rog r am fo r
contemporary females, are now provided with an
interactive for um, www.mycard.com.hk, with
information on topics r anging from health and fitness to investment and
finance. This includes a chatroom with advice from professional consultants,
a shopping cor ner with merchant privileges and a wr iting corner for
customers to submit their own articles. myCard holder s were also offered
a special low interest CreditPlus facility.
Merchant acquisition and relationships are also an important part of the
credit card business. Over the course of 2001 we added more than 1,100
new merchant accounts. We conducted a merchant satisfaction sur vey to
identify additional requirements, in the process confirming the high level
of satisfaction with our ser vices. IBA also worked with merchants to
combat fraud, providing training to their employees with a resulting sharp
reduction in acquirer fr aud, benefiting the merchant, the Bank and the
credit card system.
Protecting the revenues generated by cardholders and merchants is a
critical task that requires increasing sophistication. Monitoring and cross-
checking systems were upgraded over the year to automate r isk
management to a higher level. The collection teams for credit card and
consumer finance have been merged to achieve better behavioral analysis
and efficiencies. A new credit-scor ing program developed in conjunction
with one of the wor ld’s leading companies was completed at the end of
the year for implementation at the beginning of 2002. IBA has also been
actively involved in the taskforce of banks, regulators, consumer r ights
and bankruptcy administrators formed to address the r ise in personal
bankr uptcies.
magiccard Website
Credit card services formerchants
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Annual Repor t 2001 International Bank of Asia Limited 26
During 2001 IBA built on its experience in credit card,
personal loans and consumer hire purchase to expand
its network of Consumer Finance Centers and its
consumer hire purchase par tnerships with leading
merchants in Hong Kong. Four Consumer Finance
Centers are now in operation in Central, Causeway
Bay, Mongkok and Tsuen Wan. Thir ty-five merchants,
ranging from international giants such as Sony and
Samsung, leading retail chains such as Broadway Photo
Supply and Luk Fook Jewellery to providers of beauty
products, water purification and car security, are all part
of the IBA Credit consumer hire purchase business. Personal loans include
phone cash, children’s education and continuing education finance .
The risk management objectives described for credit card operations are
matched in the personal loan segment. Working with Hong Kong
Polytechnic University, a new consumer loan system has been developed
which will expedite loan processing as well as provide the management
information capabilities to enhance monitoring and collection of loans.
The merging of the two collection teams referred to above , along with
aggressive analysis of trends conducted by our business information
specialists, are proactive measures to maintain our traditionally low levels
of delinquency.
Credit card and consumer loans grew by 25% during 2001. The interest
income generated by these products more than offset the decline in
residential mor tgage loans, and were a major contributor to the 11%
increase in net interest income during the year. IBA is pur suing a strategy
of achieving higher returns, not asset growth for growth’s sake alone . The
success in expanding our existing consumer finance business is a pr iority
in our five-year plan.
Central Consumer Finance Center
New personal loan computersystem
International Bank of Asia Limited Annual Repor t 200127
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CORPORATE BANKING AND HIRE
PURCHASE
One of IBA’s most important principles is diversification, including revenue
sources along with individual customer and industr y exposure. Financial
institutions that have been overly reliant on housing loans faced a dilemma
in 2001 as home purchases stagnated. They had to book new loans at
ever declining margins, or watch their loan por tfolios shr ink. IBA has
maintained a solid business ser ving customers among Hong Kong’s 300,000
SMEs, as well as a select group of larger companies with whom relationships
have been built up over the years based on good service, prompt response
and attention to customer needs.
SMEs require consistent support and flexible facilities
to sustain their operations. Many are sole proprietor
operations whose owner has invested all his resources
and who devotes every waking hour to achieving sales.
IBA has a long history of serving these customer s,
providing working capital, trade finance , equipment
financing, funds for the purchase of of f ice and
production space, and cash management. Clients are
involved in manufacturing of garments, toys, plastic
products, electronic and electr ic goods, moulds and
machining equipment; tr ading of consumer and
industr ia l products ; print ing and publ icat ions ;
enter tainment and cater ing; proper ty development; logistics; and
transpor tation services and utility operations.
IBA Credit, the bank’s wholly owned hire purchase and leasing subsidiary,
has achieved a leading position in providing equipment and vehicle finance,
garnering 10-12% and 5% market share, respectively. Equipment ranges
from machiner y, metal working and plastic production equipment to
construction equipment and barges. IBA credit also finances light and
heavy trucks, buses and taxis and private cars. Business is sourced through
dealers, direct marketing and referrals from other business divisions.
Contracts range from 2 years upwards, and include both fixed and floating
interest r ates. Outstandings rose by 24% over the year, an impressive
performance when the monthly amortization of existing contracts is taken
into account.
Serving the middle market
Leading position in hirepurchase and leasing
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Annual Repor t 2001 International Bank of Asia Limited 28
The Corporate Banking Division concentrates on working capital and trade
finance, along with term loans. IBA has also participated in a limited number
of multi-bank transactions for leading Hong Kong companies. The division
is organized into five teams to address differing segments such as SMEs,
transnational companies and stockbrokers. Customer turnover ranges from
HK$15 million to HK$1.5 billion, with the majority generating sales of
HK$100 to HK$250 million. Personalized service and strong support from
the Operations Division allows IBA to meet customer needs. IBA works
closely with owners and financial directors to formulate facilities that match
the trading patterns of the company, increasing cashflow and supporting
seasonal needs. Relying on expertise from the Treasury Division and the
Bills Department, the Bank helps to address key issues relating to
international trade, currency movements and collection of sales proceeds.
In addition to the normal corporate financing listed above, IBA provides
individually designed employee packages encompassing mor tgage finance,
deposit and credit card facilities and investment advice, as well as Mandatory
Provident Fund ser vices.
During 2001 IBA wrapped up the last major delinquencies in its PRC
portfolio. The strenuous effor ts paid off, with recoveries exceeding the
provisions previously made, resulting in writebacks over the year. A number
of well-managed PRC customers have been retained, providing the basis
for a renewed por tfolio. China’s entr y into WTO will bring major changes
to the landscape in the next few years, and additional needs for financial
support. IBA is pursuing a meticulous and conservative strategy.
INVESTMENT BANKING AND TREASURY
The Hong Kong public has undergone a fundamental
change in the manner in which they manage their assets.
Previously, property ownership created the opportunity
to accumulate wealth. With the onset of the Asian financial
crisis, real assets have declined in value , with residential
property values down by an estimated 60% from their
1997 peaks, and ver y limited prospects for r apid
appreciation in values. The stock market provides one
alternative avenue for personal investment, but it has been
subject to volatility, and more cautious individual investors
have periodically reduced their purchases. IBA has
recognized these trends, and deepened the scope of
wealth management products offered to clients to address risk appetite. The
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Hang Seng Index Chart
Comprehensive corporatebanking facilities
International Bank of Asia Limited Annual Repor t 200129
REVIEW OF OPERATIONS
Investment Banking Division has expanded its outreach through Wealth
Management Centers, and intensified its collaboration with the Treasury
Division to provide true value added services. At the same time, having
accumulated a substantial investment por tfolio as the Bank’s deposit base
has grown, it was incumbent upon management to actively manage the highly
liquid bond holdings in concer t with the steep downward movement in
interest rates over the course of the year, and the inevitable reversal of this
trend at some point in 2002.
Investment Banking provides highl y personalized services to select
individuals through Ambassador Pr ivileged Banking. IBA Securities, our
wholly owned secur ities brokerage company, is also an operating arm of
the division. Investment Banking also coordinates unit trust and insurance
product mar keting, working in conjunction with Retail and Corporate
Banking as with external par tner s.
The IBA Ambassadors off er a complete portfolio of banking and
investment ser vices to VIP customer s. Dur ing 2001 the Ambassador
Professional Package, formulated to meet the needs of accountants,
lawyers, doctors, dentists and architects, was introduced, taking into
account the difficulty these individuals have in finding time to visit their
bankers. The Ambassadors make appointments to meet their clients in
their offices or outside regular business hours to handle their financial
transactions.
With the shift from the simple purchase of property and
riding market appreciation to more differentiated and
complex investment products, Hong Kong families have
faced two problems: how to gain an understanding of
these new instruments, and how to find the time to assess
their appropriateness. If the decision-maker in the family
is a housewife, it is not convenient to travel to the central
business district to obtain information and execute
transactions, and if the decision-maker works in an office,
they do not have time to get information during daytime
hours. IBA has addressed these two issues by opening
Treasury products andAmbassador Privileged Banking
Mei Foo Wealth Management Center
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Annual Repor t 2001 International Bank of Asia Limited 30
Wealth Management Centers in convenient locations
around Hong Kong. Clients have access to share price
information, market recommendations, and can place
their orders in the center s which are electronically
linked with the IBA Dealing Room in Central. Clients
can also choose from equity linked notes (notes issued
against an option on the price of shares comprising
the Hang Seng Index), high-grade fixed income bonds
such as Hong Kong Mortgage Corporation Mass Transit
Railway Corporation paper, unit trusts managed by
leading firms such as Schroders, Jardine Fleming and Templeton, or
insurance investment products. In order to provide clients with an
understanding of these products, more than 40 investment seminars were
conducted dur ing the year, f eatur ing exper ts from leading fund
management houses as well as IBA staff.
While stock market turnover declined by 35% in 2001 resulting in a 31%
decline in securities brokerage, the sale of equity linked notes, a proxy for
investing in the stock market, helped to offset some of the decline.
Guaranteed funds proved to be especially popular in 2001, contr ibuting
to a 15-fold increase in unit trust commissions. IBA is in par tnership with
Credit Suisse Insurance, enabling Bank clients to enjoy whole life and
investment products underwritten by this leading insurance firm. As deposit
rates declined in Hong Kong, bonds became an attractive alternative in
the second half of 2001, carrying over to the fir st part of 2002 as well.
Sales of these quality bonds to clients have surged, providing a new source
of revenues.
IBA practices relationship banking. Our aim is to provide value to
customers, and generate repeat sales. We have therefore been offering
investment advice based on customer needs rather than simply promoting
a product regardless of risk. We have designed a simple questionnaire to
assess individual customer risk appetite, and then outlined a portfolio
structure which matches the risk profile. IBA only partners with the most
respected and capable financial par tners, and ensures that IBA staff who
advise clients are properly qualified. 89% of the division’s marketing staff
took and passed the requisite examinations designated by the Securities
and Futures Commission and the Insurance Commissioner, one of the
highest success rates in the industr y. Individuals who have not passed the
exams are not permitted to market products, and all staff receive
continuous professional training during the year.
Range of wealth managementproducts
Professionally qualified staff
International Bank of Asia Limited Annual Repor t 200131
REVIEW OF OPERATIONS
The Treasur y Division functions as the Bank’s banker
as well as product specialist in foreign exchange and
bond products. In addition to the daily quoting of
deposit rates and the management of liquidity and cash
flows, Treasur y played a key role in the r aising of HK$1.1
billion in medium term funds. IBA completed a very
successful HK$800 million three-year FRCD in May
funded by 9 banks and rated BBB by Standard & Poor’s,
and received HK$260 million in private placements. The
A-3 shor t-term, BBB long-term ratings from S&P, and
the upgrade in the outlook to stable , reflect IBA’s strong capital base, the
diver sity of revenues, the quality of the portfolio, and IBA’s ability to
compete in the newly deregulated environment.
Treasur y provides foreign exchange services for corporate customers
who wish to hedge their currency exposure or settle trade transactions.
Individual clients are also able to enter into leveraged foreign exchange
contracts as an investment vehicle.
IBA’s investment portfolio has grown from HK$766 million in 1996 to
HK$3.4 billion in 2001. As interest r ates declined over the course of the
year, IBA was able to realize the increase in value of those investments,
generating the HK$132 million profit reported in the income statement.
The securities sold were replaced with investments of shor ter duration
or floating rate instruments, reducing the future impact of an upward
swing in rates. Going forward, the size of the investment por tfolio clearly
requires active management. By recruiting a highly respected Treasurer,
acquiring the leading Value At Risk (VAR) software and the current upgrade
of systems, IBA has positioned itself to generate added value in Treasury
operations, taking advantage of customer transaction flows and holding
in Exchange Fund paper. This rounds out IBA’s product offerings, fur ther
reducing dependence on loan bookings in any particular business segment.
RISK MANAGEMENT
The weakening of the Hong Kong economy, increased competition, the rise
in personal bankruptcies, industr y and interest rate deregulation and the
volatility of markets, all occurring at the same time could have been a
prescription for deterioration in the risk profile of the Bank. The temptation
exists to enter new areas of business activity without first installing the
necessary management systems, and to emphasize asset growth to counter
the effects of margin squeeze. However, by focusing on basic principles of
banking, nurturing a strong credit culture and relying on a multi-layer approach
to risk management, IBA actually improved the quality of its portfolio, reducing
the percentage of non-performing loans from 6.54% to 5.01%.
Profitable investment portfolio
Strong credit culture
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Annual Repor t 2001 International Bank of Asia Limited 32
By analyzing the impact of the Asian financial crisis on both individual and
corporate borrowers, IBA was able to identify valuable indicators and to
refine credit analysis to address the potential impact of an economic
slowdown. The focus of our credit proposals has shifted from an
examination of past performance to analysis of projected cash flows. The
Credit Administration Division has also acted proactively to detect ear ly
warning signs of troubled credits. Immediately after 11 September a
complete review of corporate borrowings which were not ful ly
collateralized was conducted, followed by revaluation of collater al to
ensure that risk parameters remained within acceptable levels.
Risk management requires timely receipt of data and clear analysis to
determine any required action. During the cour se of 2001, IBA broadened
the scope of automated reports and compilation of regulator y information.
The completion of the data warehouse in 2002 will further enhance this
capability. IBA also adopted an online property valuation procedure for
popular estates, expediting the approval process and permitting regular
reassessment of underlying proper ty collateral. In order to improve the
effectiveness of collection effor ts, a centr alized team was created to handle
housing loan and corporate loan delinquencies. This resulted in a reduction
of overdue loans, giving a unified and eff icient approach to customers
facing difficulties.
Credit Administration has no revenue responsibilities, and therefore acts
as an objective and independent assessor of credit proposals. A second
layer of protection is provided by the Internal Control Unit, staffed by
experienced auditors and repor ting directly to the Audit Committee of
the Board of Directors. The Audit Committee is comprised solely of
independent directors of the Bank and excludes al l members of
management. It ensures management recommendations are subject to
independent assessment. Each meeting of the committee is attended by
KPMG, our external auditors. Internal Control conducted 24 major branch
and department audits during the year, issuing detailed reports which require
a full response from each audited unit. Remedial action must be implemented
immediately, and Internal Control will confirm if the remedial action has
properly addressed their findings, ensuring that any necessary rectif ication
steps are completed. Internal Control also performed a review of more
than 2,600 loan accounts, again issuing a detailed report that requires any
deficiencies to be addressed. An internal audit committee, comprised of
senior management and internal auditors, meets on a quar terly basis to
discuss the findings of the internal audits to propose any changes to
procedures or training to prevent recurrence of the deficiencies. The Audit
Committee of the Board of Directors reviews all audit findings and confirms
Faster access to data
Multi-layer management ofcredit risk
International Bank of Asia Limited Annual Repor t 200133
REVIEW OF OPERATIONS
that adequate action has been taken to address any deficiencies. The Head
of Internal Control and the Head of Credit Administration are members of
the Managing Director’s Office, and actively participate in the daily morning
briefing. Through this mechanism they are able to relay their concerns
immediately and directly to business department heads, and to be apprised
of all activities in the Bank.
Internal Control becomes involved in the formulation of new policies
and procedures and the development of new products at an early stage .
Through this process, appropr iate risk management measures are
incorporated in procedures and product design from the outset, minimizing
the possibility of unexpected results. Internal Control collaborates with
the Corporate Governance and Compliance Department in its work
outlined below.
The Corporate Governance and Compliance Department was established
in 2000 to coordinate compliance with regulatory requirements and
internal policies. The depar tment also has the responsibility for updating
existing and drafting new procedures manuals. The depar tment head
or iginally served as head of Internal Control and subsequently head of
Credit Administration, and thus brings an unusual level of experience to
this position. With the added importance of corporate governance , The
Compliance Off icer has taken on the added duties of Corporate
Governance Officer, outlined in a separate section of this repor t. The
Corporate Governance and Compliance Department oversees all training
in the prevention of money laundering, continuous professional training
mandated under SFC, Insurance Commissioner and HKMA regulations,
and special programs such as preparation for the forthcoming Basel II
Accords.
It was noted in the Investment Banking and Treasury section that IBA
acquired VAR software to assist in managing our investment por tfolio.
We have also introduced a new unit in Treasury, the Risk Management
and Control Department, repor ting directly to the Chief Financial Officer.
This depar tment will be headed by the former head of Treasury, ensuring
that a fully experienced individual is maintaining independent oversight
on defined limits, and conducting scenario analysis to assist the Treasurer
and Asset and Liability Committee in assessing r isk and refining policy.
The Legal Affairs Depar tment straddles functions, like so many activities
in the Bank. The depar tment reviews all standard documentation used by
the bank to ensure that our interests are properl y protected. The
depar tment also prepares facility letter templates and simple loan
Developing new proceduresand products
Ensuring compliance andexercising good corporategovernance
Value at Risk Software installed
REVIEW OF OPERATIONS
Annual Repor t 2001 International Bank of Asia Limited 34
agreements, while wor king with outside counsel on more complex
agreements. Legal Affairs also oversees cases in the cour t system. The
opinion of the Legal Affairs Department, as well as the Internal Control
Department, Corporate Governance and Compliance Depar tment and
and external auditors, will overrule any proposal by a business depar tment.
Legal Affairs also fulfills the Company Secretary function of the Bank.
OPERATIONS, SUPPORT ANDINFORMATION TECHNOLOGY
Behind the scenes all of our marketing effor ts are sustained by the effor ts
of a highly professional team that ensures that transactions are processed,
business units are staffed, accounts are maintained, and our physical plant
is in proper condition.
The Loan Administrat ion Depar tment, Bi l ls Depar tment, Cash,
Communications and Clearing, and Treasur y Settlements service all the
business units of the Bank, and also interface with IBA customers. Their
timely execution of tr ansactions is par t of our pledge to satisfy our
customers. In an effort to achieve greater efficiency and increase the
amount of time available for business promotion in branches, overseas
funds transfers have been centralized in operations, easing a heavy burden
on branch staff. Branch Operations has responsibility to ensure that staffing,
systems, forms and repor ting as well as the physical condition of branches
are all handled smoothly.
Operational efficiency has become ever more impor tant as loan demand
has stagnated and margins have come under pressure. It is vital to reduce
costs in this environment. Two initiatives were taken in 2001 to increase
efficiency. Cross training and pooling of operations staff has provided more
flexibility in meeting changes in transaction volume. Under this new system
it is not necessary to hire temporar y staff or new permanent staff; rather,
personnel are redeployed from other depar tments which are not
experiencing the increased volume at that time. The second initiative was
the engagement of PWC to review transaction processing in branches,
credit processing and Operations Depar tment procedures. (IBA is
cognizant of the conflict of interest in asking external auditors to act as
consultants when the same firm wil l evaluate the suitabi l i ty of
recommendations of the consultant). This sur vey identified a number of
areas which could result in reduced costs. A Process Engineering Execution
Committee has been formed to oversee the implementation of the
recommendations. Going forward, this committee will have the authority
to approve changes in procedures in conjunction with Internal Control
Department and Corporate Governance and Compliance Depar tment.
The committee will also have leading role in proposals to increase
headcount in the future.
Timely execution oftransactions
Increasing operating efficiency
International Bank of Asia Limited Annual Repor t 200135
REVIEW OF OPERATIONS
The Human Resources Department is charged with recruitment, selection,
retention, compensation and evaluation policies. In reviewing therequirements of banking in the new economy and thepersonnel who will implement our retur ns drivenstrategy, the Bank concluded that an entirely newevaluation system was necessary. Patterned after theVitality Curve concept developed by Jack Welch aschairman of GE, the system focuses on Energy, Execution,Energizing and Edge, rating all staff on a standard bellcurve. The top 10% of staff are rated 1, the second 15%rated 2, the middle 50% rated 3, the next 15% rated 4and the bottom 10% rated 5. The Ones will receivesubstantial rewards through a combination of payincreases, bonuses, shadow stock options and additional
leave. Twos and Threes will selectively receive such awards. The Fives willbe given a specified period to meet performance standards, failing whichthey will be replaced. This r igorous process provides all staff with a clearset of goals and an unambiguous measure of their performance. Managersand employees are stimulated to perform, and compensation is directlyrelated to increasing shareholder value.
An Employee Relations Officer acts as a conduit for employee commentson var ious issues within the Bank. This officer also provides professionaladvice not only on career matters but also family issues such as developinga healthy relationship with teenage children. This concern for the welfareof the staff is appreciated. Another aspect of this staff suppor t program isthe IBA Fitness Center, a fully equipped training room in which professionalstaff advise employees on health matters and design training programs toimprove physical and mental health. A staff bulletin, IBA Care , providesinformation on nutritional and emotional issues.
The Bank has a responsibility to provide each employeewith the tools to do his or her job. This is not limited to
equipment or forms, but also to the skills necessary toexcel. The Training Depar tment conducts in-houseprograms and coordinates par ticipation in exter nalcourses offered by the Institute of Bankers and theVocational Training Council, as well as other institutions.In 2001 this totaled 3,133 man-days, an average of 5.4man -day s pe r emp loyee . I B A con t i nued i t sgroundbreaking partnership with DePaul University,offering both MBA and BA degrees to staff and to thepublic. The MBA program consists of 16 courses in
marketing and finance conducted over a 24-month period, each cour selasting 4 weeks with 11 hours of class per week. The BA program extendsover a period of approximately 30 months, covering a r ange of courses inbusiness, science and the humanities. A joint graduation ceremony of thesecond MBA program and the first BA program was held in May.
Vitality Curve performanceassessment
Caring for staff
10% 15% 50% 15% 10%
54321
70%
60%
50%
40%
30%
20%
10%
0%
Performance Distribution
Ideal Performance Rank
Dis
trib
utio
n
REVIEW OF OPERATIONS
Annual Repor t 2001 International Bank of Asia Limited 36
In November a special ceremony was held at the IBA/DePaul Auditorium in the IBA Headquarters to present
an Honorary Doctorate of Humane Letters to theHonorable George Bush, 41st President of the United
States, in recognition of his record of service to peoplearound the wor ld. President Bush requested that the
degree be presented at IBA because of his strong
support for this program which enhances internationalunderstanding as well as providing tremendous career
opportunities for each graduate . A third MBA programand second BA progr am are underway. The intellectual
skills and the self-confidence gained by the staff throughthese programs hav e t rans la ted in to greater
contributions to the bank and a highly motivated staff.
The Accounting and Management Information Systems
Department has responsibility for managing the generalledger, completing regulator y repor ts, preparing
management reports, and payment of invoices. As thevolume of transactions and the scope of business have
grown, the demands on this department have increased.The depar tment is benefiting from the upgrade of
systems, with greater automation assisting in completingtheir tasks.
General Administration has responsibility for maintainingall offices of the Bank, managing vendor relationships,
providing security and all messenger and mail services.Adhering to a strict standard for supplies purchasing and
construction contracts, this department plays a key rolein controlling expenses. General Administration has not limited itself to a
purchasing relationship with vendors, but has taken the initiative to conductjoint calls with business units to obtain lending and deposit business as well
as credit card services. The security aspect of banking has gained additional
prominence as counterfeit currency has increased and individuals attempt toexploit loopholes in bankruptcy regulations to defraud banks. Staff training
and alerts from the Security Depar tment have effectively addressed thesetrends.
Technology has become a driving force in the banking industry, and it functions
in both a business development and business support mode. Thirteen years
ago IBA management concluded that the demands of technology could
outstrip the abilities and financial capacity of a bank our size, and elected to
outsource data processing and IT functions to take advantage of the exper tise
and efficiencies of EDS, perhaps the largest IT service provider in the world.
This decision has proven to be an effective means of both achieving continuous
President George Bush visits IBA
Exploiting technology toenhance business performance
International Bank of Asia Limited Annual Repor t 200137
REVIEW OF OPERATIONS
upgrades of technology and controlling operating costs. Instead of being the
only bank in Hong Kong to outsource, IBA is now one of several institutions
making use of outside providers. IBA’s agreements with EDS fully comply
with the new HKMA guidelines on outsourcing. In 2001 IBA signed a new
extension with EDS, as well as agreements covering the installation of an
advanced call center, data warehouse and customer relationship management
(CRM) system. New terminals were installed in IBA branches in 2001, along
with upgraded software.
The Electronic Banking Team is another example of a
unit which straddles functions. It provides operational
support for the IBA website and IBA’s par ticipation in
Net Alliance , our joint venture with Asia Commercial
Bank, Chekiang Fir st Bank and Liu Chong Hing Bank as
well as iMerchants, an Internet ser vice provider. IBA
delivers Internet banking through the Net Alliance
platform. The Electronic Banking Team participates in
all Net Alliance Working Group meetings, providing
IBA’s input on new product development. The team is
also the interface with EDS on the development of
the Call Center, data warehouse and CRM. The Call
Center is designed to handle incoming calls, but its major function is to
conduct intelligent telemarketing. Linked to the CRM, it will permit highly
effective segmentation of the customer base , with each Call Center
customer service operator provided with predesigned scripts and full
relationship details on their computer screen.
BUSINESS PROMOTION AND PUBLIC
RELATIONS
The Bank serves four constituencies. Shareholders have created the bank,
investing capital and deserve a reasonable return on their investment.
Customers provide the business of the bank, paying interest and fees and
providing funding through their deposits, and deser ve quality services,
fair costs and convenience. Staff deploy the shareholders’ capital and
provide the service create the revenues of the bank; they deser ve fair
compensation and career opportunities. The community provides the
economic environment for the bank’s activity, and deser ves employment,
tax revenues and good corporate citizenship.
Business promotions bring new revenues to the bank. They require thorough
planning to determine the specific target segments for each promotion,
the financial objectives to be attained and the monitoring of progress toward
Call Center
Serving our constituencies
REVIEW OF OPERATIONS
Annual Repor t 2001 International Bank of Asia Limited 38
those objectives. Bank Product Marketing has responsibility for these
functions, working in conjunction with Financial Control. Due to the
specialized nature of its business, the Credit Card and Consumer Finance
Division also has a marketing team to design its promotional activities. Bank
Product Marketing works with advertising agencies and business units to
develop its marketing themes. Promotions include television and radio
commercials, print advertising, direct mail and poster s and pamphlets in
IBA networks. The advent of Internet banking and the Call Center provide
additional channels for promotions.
During 2001 a digital message board and an arena size
LCD screen were installed on the facade of the IBA
Building, providing yet another channel for business
promotions. In addition to promoting IBA products, the
LCD screen displays Bloomberg Television under a
special agreement with the leading financial information
broadcaster. IBA also broadcasts videos advertising
client products, supporting their business through this
highly visible medium. IBA is the only bank in Hong
Kong to utilize this technology to provide information,
promote the bank’s products and assist customers.
IBA places a high value on investor relations. The
Bank’s internal analyst, who analyzes the local banking
industry and benchmarks IBA’s performance against these standards,
provides regular reports that are shared with investors, secur ities analysts
and the public through the media and the IBA website. The analyst also
has responsibility for tracking brokerage repor ts and media ar ticles to
ensure that these reports are accurate, contacting the relevant individuals
to correct error s. Corporate Communications maintains contact with
the media and arranges inter views to provide the public with up-to-
date information on new products and the business direction of the
Bank. This depar tment also works with Financial Control to arrange the
publication of statutory financial repor ts and the printing and distribution
of the annual and interim repor ts.
Corpor ate Communications also has responsibility for responding to
customer complaints to ensure that an objective examination of the issue
is conducted and customer satisfaction is achieved. It is gratifying that we
also receive frequent letters of praise for service quality. The responsible
staff member receives recognition for these compliments.
Promoting products andgenerating new reverses
IBA Headquarter s
Investors relations and industryanalysis
International Bank of Asia Limited Annual Repor t 200139
REVIEW OF OPERATIONS
Internal communication is an important aspect of management, especially
in a rapidly changing industry. Corporate Communications coordinates
all such communication. This would include ad hoc distribution of memos,
the internal IBA Ambassador bulletin, and special briefings.
IBA enjoys playing a positive role in the community.
The IBA Staff Club arranges participation in pub lic
events. During Chinese New Year IBA staff make visits
to homes for the elder ly to share good cheer. IBA
par ticipated in competition among members of the
Bank Consor tium to raise money for the Community
Chest, and joined in the Po Leung Kok fundraising walk
from Hong Kong Stadium to Aberdeen.
The Regional Advisor y Council , described in the
Retail Banking section, provides another channel to
educate the public not only about IBA’s products and
sound financial state , but also to discuss issues of
impor tance to the comm unity. There was much
confusion about the role of deposit insur ance , a
ser ious shortcoming of the Hong Kong banking
system. IBA provided its advisors with a concise and
informative descr iption of the function of deposit
insurance and the contr ibutions it can mak e to
financ ia l s tab i l i ty. IBA is p leased to of f er such
information to the public so that informed choices
can be made.
FINANCIAL CONTROL AND STRATEGIC PLANNING
IBA is engaged in a wide range of activities and participates in constantly
changing markets. Shareholders have entrusted us with their capital, and
customers have entr usted us with their deposits. Business activities have
to be planned and evaluated, not run on the whim of an individual. Rigorous
financial planning and analysis is absolutely vital to effective management
of the Bank.
The Chief Financial Officer is responsible for repor ting financial results,
both under statutor y regulations and for management planning purposes.
Projections are a critical part of this management reporting process. The
projections serve as the basis for allocating resources. A team of financial
analysts and former auditors, comprising Strategic Planning and Control,
repor t to the Chief Financial Officer. This team was enlarged in 2001 to
Community Chest event (top);
Charity Walk (bottom)
Financial analysis to guidebusiness descisions
REVIEW OF OPERATIONS
Annual Repor t 2001 International Bank of Asia Limited 40
enhance its capabilities and increase the sophistication
of the analytical work.
Daily repor ts on lending activity, cost of funds and loan
yields, and balance sheet statistics are produced and
discussed at the MDO meeting. Mid-month forecasts
of full month results are produced to enable managers
to make rapid adjustments in their business plans. Mid-
year and full year forecasts are prepared and updated
on an ongoing basis. Profitability reports for divisions,
branches, business teams and individual account off icers are used to
measure performance. All business promotion campaigns must have an
approved budget. Daily reports of the progress of the campaigns are
delivered to managers, and a final assessment is prepared by Strategic
Planning and Control to permit planning of future campaigns. All new
products are approved on the basis of a f inancial analysis prepared by
this department.
Stress tests on the balance sheet are prepared biweekly to project the
impact of declines in Prime without a corresponding decrease in funding
costs, and an increase in funding costs without a cor responding increase
in Prime . The results are used by the Asset and Liability Committee to
evaluate alternatives in business plans and to take any recommended
steps to hedge the impact of such changes.
Strategic Planning and Control also prepares ad hoc reports at the request
of business units so that they can have a better understanding of their
business.
MANAGEMENT COMMITTEES
Banking is a complex business made more difficult by the impact of
globalization. Given the complexity of our activities and the r isks inherent
in having a single person make decisions, IBA brings together individuals
with different backgrounds and exper ience to evaluate issues and propose
well considered solutions.
The Managing Director ’s Office (MDO) is comprised of the Chief
Executive, the Executive Vice Presidents and the heads of key depar tments,
currently including Retail banking, Corporate Banking, Investment Banking,
Hire Purchase and Leasing, Credit Card and Consumer Finance,
Operations, Treasur y, Treasur y Risk Management and Control, Internal
Control, Corporate Governance and Compliance, Industr y Analysis and
1.50
1.70
1.90
2.10
2.30
2.50
2.70
2.90
DecNovOctSepAugJulJunMayAprMarFebJan
2001
IBA Share Price (HK$)
Interest rates stress test
Explorting the full range ofmanagerial talent
International Bank of Asia Limited Annual Repor t 200141
REVIEW OF OPERATIONS
Credit Administration. The MDO meets each morning to review activities
and discuss market conditions. This ensures that all senior managers are
aware of the current status of all major depar tments and the immediate
task to be accomplished under our business strategy. This meeting often
cover s broader issues, and may assign these issues to the Str ategy
Committee, a working group of the MDO. Each Saturday the MDO and
assorted other managers meets to discuss strategic issues, and receive
presentations from internal staff and outside experts. This has allowed
the bank to refine its strategy through a group effor t.
The Asset and Liability Committee (ALCO) meets weekly to discuss
specif ic topics related to the balance sheet and earnings statement.
Detailed repor ts are reviewed, and adjustments in the business plan taking
into account changing market conditions are decided upon. ALCO must
approve all new products and campaigns, as well as exceptions to standard
pricing. ALCO also directs Treasury on funding issues, including the raising
of medium term funding.
The Investment Committee administer s the investment portfolio
comprising debt securities, equities, fund investments and direct
investments. Using the VAR repor t and outside commentary on market
trends, it directs Treasury on the execution of purchases and sales.
The Credit Committee meets twice weekly to approve credit proposals.
All credit proposals are fir st vetted by Credit Administration. If they
endorse the proposal, it will be added to the agenda, and any questions
or comments from Credit Administration will be addressed by the account
officer at the Credit Committee meeting. The account officer will also
respond to questions raised by the members of the committee. The Credit
Policy Committee regularl y reviews the credit policy and authorities to
ensure they properly address risk issues, and recommends additions or
amendments. Credit policy issues arising from the introduction of new
products must be approved before the formal launch of any new product.
The Process Engineer ing Execution Committee was set up in 2001 to
expedite the implementation of transaction streamlining. This is a pr iority
in improving the Bank’s cost/income ratio.
The Personnel Management Committee oversees the operations of the
Human Resources Depar tment, and conducts the final review of the top
and bottom rated individuals in the staff performance evaluation program.
It reviews staff expense statistics, overtime , turnover and exit interviews.
It also recommends changes in staff benefit programs and staff policy.
Managing the balance sheetunder changing conditions
Obtaining product investmentreturns within equityparameters
Independent assessment ofcredit proposals
Increasing productivity
Developing human resources
Updating credit policies
REVIEW OF OPERATIONS
Annual Repor t 2001 International Bank of Asia Limited 42
The Technology Committee oversees the status of systems, implementation
of upgrades and installation of new equipment, and staff satisfaction with
the performance of EDS. A subcommittee reviews service requests from
departments to prioritize tasks in a manner consistent with overall Bank
requirements.
The Classified Loans Committee reviews portfolio status and individual
borrowers to ensure that credit quality remains high. Account officers
are quizzed on the status of specific customers. If patterns are detected,
the committee will recommend appropriate action. A subcommittee
comprised only of the Head of Internal Control, the Head of Corporate
Governance and Compliance, the Head of Credit Administration and the
Chief Financial Officer will set provisions on a monthly basis, subject to
approval of the Audit Committee , as well as the external auditor s and
the HKMA.
CORPORATE GOVERNANCE
Corporate governance has gained increasing prominence as Hong Kong
moves to solidify its position as a leading international financial center,
and as events such as the collapse of Enron focus attention on the actions
of directors and management in protecting the r ights of all shareholders.
It is the practice of IBA to ensure that all shareholders are treated fair ly
and equitably. This is especially true in the banking industry because our
one true asset is public trust. IBA has three highly capable independent
directors serving on the Board. In addition, the Bank has taken the initiative
to appoint a Corporate Governance Officer to ensure that we comply
with best practice. Specific aspects of our corporate governance practice
are discussed in the following paragraphs.
All shareholders and potential investors are fully aware of the ownership
structure of IBA through our annual repor t, website and frequent public
announcements which highlight the 55% ownership of ABC, 20%
ownership of China Everbright and 25% freely traded on the Hong Kong
stock exchange. The list of shareholders is available through Central
Registration H.K. Ltd, which serves as share registrar.
As noted above, the holdings of the two major shareholder s are public
knowledge, and no director can own shares in their own name, primar ily
due to the need to insure that 25% of the bank’s shares are in free float
in order to meet the requirements of the stock exchange.
Coordinating technologyactivities
Managing credit quality
Equitable treatment for allshareholders
Transparency of ownership
Concentration andinfluence of ownership
International Bank of Asia Limited Annual Repor t 200143
REVIEW OF OPERATIONS
IBA informs shareholders of upcoming meetings at least 21 days in advance,
with notice of such meetings being sent individually to shareholders and
being posted on the IBA website. Meetings are held in Hong Kong and
hence easily accessible for the minority shareholders, although this requires
representatives of the majority shareholders to travel considerable distance
to attend. All shareholders are entitled to appoint a proxy to attend and
vote at shareholder meetings.
There is a clear ly ar ticulated set of voting procedures at shareholder
meetings. Voting is conducted in a simple, transparent and cheap procedure
for voting by those present or by those unable to attend the meeting but
voting by proxy.
Secure ownership rights exist via a transparent and independent registrar
system, with Central Registration H.K. Ltd. acting as share registrar ; Central
Registration H.K. Ltd. has no connection financial or otherwise with
shareholders or management of IBA other than their contractual
obligations as registrar. There is one class of common share that has clearly
ar ticulated rights. The charter clearly establishes the concept of one share,
one vote. At the time of listing the listing prospectus stated the intention
of paying out approximatel y 40% of net earnings as dividends, and that
policy has been adhered to. Dur ing the economic downturn the
percentage of earnings paid out in dividends exceeded 40% because the
directors wished to provide shareholders with a reasonable cash return,
supported by the fact that IBA enjoys a high level of capital adequacy and
therefore could afford to pay out a higher percentage without endangering
the ongoing value of the bank. All declared dividend payments are made
on the dates announced for such payments. There are no anti-takeover
provisions, although it is the stated intention of the two major shareholders
to retain their cur rent ownership percentages, as demonstrated by their
pro-rata participation in each of the capital increases subsequent to the
or iginal listing of the bank.
Regularity of, ease of accessto, and information onshareholders’ meetings
Voting and shareholdermeeting procedures
Ownership rights
Commitment of majorshareholders
REVIEW OF OPERATIONS
Annual Repor t 2001 International Bank of Asia Limited 44
The bank’s financial statements (both annual report and interim repor ts)
are prepared in compliance with the requirements of the Companies
Ordinance, Listing Rules, Statements of Standard Accounting Practices of
the Hong Kong Society of Accountants and the Guideline on Financial
Disclosure by Locally Incorporated Authorized Financial Institutions of
the Hong Kong Monetary Authority. Details of investments and holdings
in subsidiaries are disclosed in adequate detail and there is adequate
disclosure of related party and internal connected party transactions.
Records of all shareholder meetings are properly maintained by the
company secretary and are accessible at IBA headquarters. Shareholders
are notified of all major events through the IBA website, publication of
annual and inter im results in the English and Chinese press along with
press releases to all major newspaper publishers in Hong Kong, and press
conferences from time to time and always after the release of the annual
results. IBA occasionally issues circulars in line with listing requirements
to explain certain issues to shareholder s.
Public repor ts are always filed on time, and public information is available
to shareholders in a timely manner. To this end, IBA will be making greater
use of its website to supplement the normal distribution of statutory
announcements. Publicly filed financial statements are sent to all registered
shareholders. Records of shareholder meetings, and other public and
statutory information are available on request by any shareholder at IBA’s
head office.
The auditor is a reputable and experienced audit company, KPMG, which
audits a significant number of banks operating in Hong Kong. IBA takes
particular pride that the Audit Committee of the Board of Directors is
solely comprised of independent, non-executive directors who are highly
experienced in the review of business operations. KPMG, as external
auditor, attends all Audit Committee meetings.
The Board is comprised of highly capable, exper ienced and well-informed
directors. Three independent directors serve among a total of ten directors.
The Chairman is a non-executive director, and is separate from the Chief
Executive. Only two management executives serve on the Board, ensuring
a healthy basis of independence vis-à-vis the bank ’s management.
Remuneration and Nominating committees have been established.
Quality and content ofpublic disclosure
Timing and access to publicdisclosure
Independence and standingof auditor
Board structure andcomposition
International Bank of Asia Limited Annual Repor t 200145
REVIEW OF OPERATIONS
The Board sets broad policy and delegates authority to implement that
policy to professional management. Monitoring compliance with this policy
is car ried out by the Internal Control Depar tment, headed by an
experienced for mer bank auditor, repor ting directly to the Audit
Committee of the Board of Directors. In addition, the Audit Committee
and the Board of Director s have ful l access to al l reports and
correspondence of the Hong Kong Monetary Authority and the risk asset
review conducted by the internal auditor s of ABC as parent bank. In
addition to quarter ly meetings of the Board, directors receive frequent
written and oral communication about the performance of IBA, trends in
the banking industry and general economic conditions from management.
Credit authority above a specified limit is reserved for the Executive
Committee of the Board, ensuring that significant credit facilities are subject
to proper scrutiny.
All monetar y, financial and commercial relationships between non-
executive directors and IBA are repor ted to the full Board to ensure
there is no conflict of interest. External directorships held by Board
members do not interfere with the quality of their involvement.
Compensation of the Chief Executive and the executive vice presidents
is determined by the Remuneration Committee, and is reported in the
annual report in accord with the relevant regulator y requirements.
Compensation is cash based (and therefore is clearly reflected in the
financial statements) because the requirements for minimum free float of
the bank’s shares prevent the implementation of a true stock option
scheme. A shadow stock option scheme which links a cash payment to
the performance of the bank’s share pr ice has been instituted. Under a
new staff performance evaluation scheme , compensation for senior
executives has been more strictly aligned with the net profit repor ted by
the bank with var iable compensation being a primary component and
increases in basic salary reduced. The senior management structure of
IBA, and the existence of a Managing Director’s Office comprised of the
16 executives is designed to create a team capable of providing the
necessar y leadership irrespective of the presence of any single individual,
and training multiple candidates for the role of chief executive .
Role and effectiveness ofthe Board
Role and independence ofNon-Executive Directors
Board/Executivecompensation, evaluationand succession policies