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State Bank guidelines for banks, DFIs to boost good governance

KARACHI (December 01 2002) : The State Bank of Pakistan (SBP) has issued a circular to all banks and DFIs aimed at promoting good corporate governance, and encouraging presidents/chief executives and the board of directors to play an effective role in the capacity-building of their institutions.

Certain guidelines under “Fit and Proper Test” have been formulated separately for the appointment of the president/chief executive and filling the vacancy of the director on the board.

The State Bank, in a circular issued on Saturday, said that to consolidate such instructions, the SBP circular and the circular letter has accordingly been substituted. The revised criteria of “Fit & Proper Test” is enclosed as Annexure-I.

While applying to the SBP for obtaining prior clearance in terms of BPD Circular No. 12 dated June 2, 2000, the financial institution shall ensure that guidelines now given under the revised “Fit & Proper Test” have been complied with. In addition to submission of requisite information about the appointment of the proposed president/chief executive and directors of board, information in a simple pro forma (Annexure-II) shall also be provided by the bank/DFI.

Accordingly, BPD Circular No. 16 dated th June 29, 2002 and BPD Circular Letter No. 27 dated October 14, 2002 shall now stand cancelled.

1. Integrity, Honesty, and Reputation:

-Has not been convicted in any criminal offence, involved in any fraud/forgery, financial crime, etc.

-Has not been subject to any adverse findings or any settlement in civil/criminal proceedings particularly with regard to investments, financial/business, misconduct, fraud, formation or management of a corporate body, etc.

-Has not contravened any of the requirements and standards of regulatory system or the equivalent standards of requirements of other regulatory authorities.

Has not been involved with a company or firm or other organisation that has been refused registration/licence to carry out trade, business, etc.

-Has not been involved with a company/firm whose registration/licence has been revoked or cancelled or gone into liquidation.

Has not been debarred for being chief executive, chairman or director of a company.

2. Experience and Management:

This section shall apply separately for directors and presidents/chief executives as under:

For Directors on the Board of Bank/DFI:

-Must have management/business experience of at least five years at the senior level in an active capacity. In case of lawyers, seven years experience is required provided that they are not practising/involved in any bank(s) or acting as legal counsel/adviser or on payroll of a bank.

-Must have a knowledge of or be familiar with banking field.

-Minimum qualification is graduation. Higher education in the discipline of banking and finance may be an added qualification. However, this condition shall not be applicable on the existing director of the boards of the bank/DFI.

For Presidents/Chief Executive Officers of Banks/DFI:

-Must be a career banker having experience of at least 15 years, including minimum of three years at the senior level viz. SEVP or equivalent ie Group Head or Functional/Business Line Head at Head Office of banks incorporated in Pakistan or at Country Office for foreign banks.

-Minimum qualification is graduation. Higher professional education in the disciplines of banking, finance, economics and related fields may be an added qualification. This condition shall not, however, be applicable to those who have/are already working as president/chief executive of the bank/DFI.

Relaxation in number of years of experience can be considered in case of experience as president/CEO of financial institutions other than banking institutions for a period of not less than three years with a proven track record.

3. Track Record:

-The person must have an impeccable track record in the companies he/she has served either in the capacity of an employee or director/chief executive or as chairman.

-Has not been terminated or dismissed in the capacity of employee, director/chairman of a company.

4. Solvency and Financial Integrity:

-Has not been associated with any illegal activity especially relating to banking business.

-Has not been in default of payment of dues owed to any financial institution and/or default in payment of any taxes individual capacity or as proprietary concern or any partnership firm or in any private unlisted and listed company.

-Has sufficient means to discharge his/her financial obligations.

5. Conflict of Interest:

-Must not be a director of any other financial institution. The term financial institution will include any bank, investment finance company, non-banking finance company, venture capital company, housing finance company, leasing company or Modaraba company.

The Conflict of Interest shall not apply in case of:

(a) Directors nominated by the government.

(b) Managing Directors and other nominated officials of the National Investment Trust (NIT) and the Investment Corporation of Pakistan (ICP) till the privatisation of these two financial institutions.

(c) Nominees of foreign and local investors, provided that they are appointed on the boards of dissimilar financial institutions.

For the sake of clarity, the term “dissimilar” implies as an example, that one person appointed as director on the board of an investment bank may not again be appointed in any other investment bank.

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