Tashkent, Uzbekistan (UzDaily.com) -- Standard & Poor’s Governance Services said it has assigned its governance, accountability, management, metrics, and analysis (GAMMA) score of ‘GAMMA-5’ to the JSC Development Bank of Kazakhstan (DBK), one of Kazakhstan’s development institutions which is wholly owned by “Samruk-Kazyna” Sovereign Wealth Fund of Kazakhstan.

"The shareholder, the board of directors and executives of the bank seek to establish governance structures and processes based on best international practice. Thus, two independent directors were appointed and the board’s authority formalised," said Standard & Poor’s governance analyst Elena Pastoukhova. "We also note a number of weaknesses that currently constrain the GAMMA score. The bank has an explicit role in stimulating the development of the national economy outside the extraction sector, however, the exact forms of support to the economy and strategies are not clearly defined and may not be consistent over time. For example, the bank’s role in tackling the fallout from the global recession could sway the bank’s goals and scope of activities, and as a result distract it from core operations. Other weaknesses comprise a considerable volume of related-party transactions, a lengthy decision-making process at parent level and politicised executive compensation decisions.”

The overall GAMMA score assigned to the DBK is the result of four component scores of 1 (low) to 10 (high).

-- Shareholder influence
4+
-- Shareholder rights
5
-- Transparency, audit and enterprise risk management (ERM)
5+
-- Board effectiveness, strategic process and incentives
5

The strengths of corporate governance practices at the DBK, according to Standard & Poor’s Governance Services, include:

• That Samruk-Kazyna seeks to strengthen governance practices in subsidiaries, including the DBK.
• The board is active, as are two out of three board-level committees, i.e. audit, and nominations & remuneration.
• The audit committee is chaired by an audit expert, while the internal audit department reports to both the committee and the board.
• Transparency is fairly good, in Standard & Poor’s view. Annual IFRS statements with notes are published in a timely manner.
• An enterprise risk management system is in place.

Standard & Poor’s analysis, however, identified several weaknesses it sees in the governance system of the DBK, including:

• The government views the DBK as a tool through which to implement its industrial and innovation development strategy and combat the fallout from the global recession. As a result, the bank’s goals and the specifics of its activity may not be consistent over time.
• The slow decision-making process within the shareholder group of companies could result in significant operational delays for the DBK.
• A lack of checks and balances is seen at board level. Of the six-member board, only two are independent directors.
• Limited independence in establishing strategy.
• Politicised executive compensation decisions. Executive pay is not currently linked to performance. Decision-making relating to the pay of the independent directors lacks clarity.
• Limited disclosure of the shareholder’s resolutions. Quarterly financials comprise only balance sheets and P&L statements. There are some weaknesses seen in ongoing disclosure.