Banks with more out-dated corporate governance structures were hit hardest by crisis, according to Fitch statement
Italian banks are too adopt new corporate governance policies in order to improve transparency, limit conflicts of interest and build on capital strengthening. Fitch Ratings has released a statement in which it outlines how financial institutions in the country will build “better governance structures and procedures that foster healthy shareholder participation and enhance management effectiveness” that could support bank ratings.
According to the statement released by the ratings agency, banks most impacted by the global financial crisis were the institutions with the poorest corporate governance practices. The statement specifically singles out cooperative and foundation banks that saw their credit profiles drop suddenly, their decision-making hampered by the dire need for structural reforms.
Fitch’s statement comes hot on the heals of an announcement by Banca Popolare di Milano (BPM) that it will be starting discussions about future corporate governance changes at the bank. BPM is one of the oldest and largest cooperative banks in the country, but reports have suggested it is looking into converting into a joint-stock company, in an attempt to limit the influence of employee shareholders and their unions. The bank was forced to abandon similar plans in May due to union pressures. Fitch suggests that this must not be allowed to happen again: “at BPM, a small group of active current and retired employee shareholders with close links to the unions have at times blocked strategic and restructuring proposals. The bank’s ratings are on ‘Rating Watch Negative’ as we believe they will come under pressure if the bank cannot strengthen corporate governance so it can continue to improve cost efficiency, tighten risk procedures and raise capital.”
BPM’s chairman of the management board, Andrea C Bonomi, has stated that it has been a difficult year for banks like BPM and that corporate governance reform is key to the bank’s future success. “In this difficult phase of the market, BPM has reached significant results thanks to the changes made in the last twenty months to both the bank’s business and its organisation and structure,” he said in a statement. “There is still a lot of work to do in order to reach the definitive relaunch of BPM, to improve the governance and, thus, to start the rights issue and return to our territory its prestigious bank.”
Italy’s central bank has been encouraging banks to review their corporate governance policies ahead of the planned transferring of supervision authority over the sector to the ECB. Fitch has stated in its release that it believes the single supervisory mechanism “should further help spur these banks to adopt stronger structures and procedures.”