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S&P: MDM Bank Governance Score Affirmed At 'CGS-6+' And 'CGS-6.7' Russia National Scale

February 05, 2008 |

MOSCOW (Standard & Poor's) Jan. 4, 2008--Standard & Poor's Governance Services said today that it affirmed its corporate governance score (CGS) on MDM Bank, one of the largest private banks in Russia, at 'CGS-6+'. At the same time, Standard & Poor's affirmed its Russia national scale CGS on the bank at 'CGS-6.7'.

The CGS on MDM Bank is supported by the commitment of shareholders to develop strong governance processes and structures, on a par with those observed at the international public banks. The fact that Olivant Ltd., and the International Finance Corp. acquired significant minority stakes in 2007, signals a commitment of the incumbent shareholders to tap into international banking expertise and develop a balanced ownership structure.

"There is the potential for a CGS upgrade once the bank's board, substantially renewed in 2007, gains more experience, and assumes a balanced supervisory role with respect to executives," said Standard & Poor's governance analyst Oleg Shvyrkov .

The overall CGS on MDM Bank is the result of four component scores on the global and Russia national scales of 1 (low) to 10 (high). For each component score, the global scale score is shown first below, and the Russia national scale score second:

-- Ownership structure and external influences

-- Shareholder rights and stakeholder relations
6+/6.8(raised from 6/6.3)

-- Transparency, disclosure, and audit
7+/7.5 (raised from 6/6.4)

-- Board structure and effectiveness
6/6.2 (lowered from 6+/6.6)

The main strengths of corporate governance practices at MDM Bank are:

-- The positive role of the majority shareholder, who is not exposed to significant conflicts of interest and promotes strong governance standards at the bank. A board process mediates the shareholder's influence.

-- The positive influence of the bank's strategic minority shareholders, which represent an important source of expertise for the bank. They also effectively balance the influence of the majority owner.

-- A strong board composition. Each of the three minority shareholders has a representative on the seven-seat board, and three seats belong to independent directors. There is a strong skill mix and an independent, prominent finance professional chairs the board.

-- A high level of transparency and a strong audit process. The bank pursues active investor relations policies.

-- A strong executive compensation plan, in which key performance indicators are based on targets defined in the strategy.

Standard & Poor's has, however, identified several weaknesses in the bank's governance system, including:

-- A very high level of board activity, which increased in 2007. This may signal that the level of delegation to executives is not yet optimal, and that the shareholders represented on the board maintain a greater level of involvement in day-to-day decisions than what is common for mature governance structures at public companies and banks.

-- The short tenure of most directors. Five of the seven current directors joined the board in 2007.

-- The moderate size of the board, which restricts the board from forming committees composed entirely of board members.

-- The bank does not disclose the individual breakdown of directors and executives' compensation.

Company: B&N Bank

Full company nameB&N Bank (Public Joint-Stock Company)
Country of riskRussia
Country of registrationRussia


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