The State Bank of Pakistan (SBP) has restricted banks/DFIs from appointing chairman of the board as a member of the specialised committees formed to share the workload. Issuing Prudential Regulations for corporate/commercial banking in June last year, the SBP had asked banks and DFIs for formation of specialised committees with well-defined objectives, authorities and tenure to share the load of activities.
As per regulations, these committees, comprising at least one non-executive board member, will oversee areas such as audit, risk management, credit, and recruitment, remuneration and nomination. Earlier, the SBP didn't impose any restriction related to appointment of members for these committees; however, the SBP last week made some amendments to prudential regulations for corporate/commercial banking and as per the amendment, the chairman of the board will not be member of these committees.
According to SBP, based on the review of prudential regulations in line with international best practices, some (two) amendments have been made to Regulation G-1 including Para 10 of Section B of Responsibilities of the Board of Directors and Para 2 Section C (Management).
Para 10 of Section "B" Responsibilities of the Board of Directors is being replaced as "To share the load of activities, the Board may form specialised committees with well-defined objectives, authorities and tenure. These committees, comprising at least one non-executive board member, shall oversee areas such as audit, risk management, credit, and recruitment, remuneration & nomination. The chairman of the Board shall not be member of the aforementioned committees. Further, the audit committee of the board shall invariably be chaired by an Independent Director. These committees of the board should neither indulge in day-to-day affairs/operations of the bank nor enjoy any credit approval authority for transaction/limits. These committees should apprise the board of their activities and achievements on a regular basis."
Similarly, under the second amendment to prudential regulations of corporate/commercial banking, the SBP has told banks/DFIs that the administrative expenses pertaining to the office, staff and security allocated to the chairman of the board should be determined rationally. According to SBP BPRD Circular No 09 of 2015, Para 2 of Section C is being replaced as "The banks/DFIs during a calendar year may pay a reasonable and appropriate remuneration for attending the board or its committee(s) meeting(s), to their non-executive directors and chairman. The scale of remuneration to be paid to the non-executive directors and chairman for attending the Board and/or committee meetings shall be approved by the shareholders on a pre or post facto basis in the Annual General Meeting (AGM). However, no such remuneration shall be paid to the executive directors except usual TA/DA as per banks/DFIs standard rules and regulations. No consultancy or allied work will be awarded to the directors or to the firms/institutions/companies, etc, in which they hold substantial interest. Further, the administrative expenses pertaining to the office, staff and security allocated to the chairman of the board should be determined rationally." These amendments are applicable with immediate effect on all banks; however, DFIs may adhere to the above instructions wherever feasible and appropriate, the SBP concluded.