KARACHI: Family holdings in the board of directors of commercial banks and Non-Banking Financial Companies (NBFCs) have been restricted to 25 per cent, according to new Corporate Banking Prudential Regulations of State Bank of Pakistan (SBP).
These Prudential Regulations were issued during the last month and would be effective from next month.
Bank sources said, “After Habib Bank’s impending privatisation, 80 per cent of the banking assets in Pakistan will be owned and managed by the private sector.”
The sources said before the nationalisation of the banking industry in mid seventies the family representation on the boards were almost restricted to 100 per cent, directors drawn from the families of the owners of the bank.
The sources said now the remaining 75 per cent directors had to draw from non-family members.
The sources further said the central bank was enhancing its regulatory role or grip over the affairs of the banking industry through checking and monitoring the reports of external auditors of the commercial bank and in this regard external audit firms have been screened, categorised and rated for the purpose of auditing the financial institutions.
They said two top audit firms of the country had been blacklisted and this had sent a strong message to the audit community for upgrading the quality of audit.
The SBP has already issued detailed guidelines to stop the “Conflict of interest” of members of board, “barring those having any potential conflict from becoming involved in the management and oversight of banks”.
They said the supervision techniques of the central bank had been aligned with the best practices of the other central banks in the world and central bank since 2001 CAMELs rating system using to assess the financial ratios of the banks.
Within the Banking Policy Department a banking desk responsible for monitoring a few banks is continuously reviews the available data and flags early warning in cases where prompt corrective actions are required.
The central bank, sources said, had now established ‘Enforcement Unit’ which moves and gets the remedial action implemented as reported and suggested by the concerned banking desk.
The sources claimed that due to stringent measures taken during the last two years at present only 5 per cent of loans disbursed have become non-performing indicating an overall improvement in the quality of banking assets in Pakistan.
At present, the largest automation project is being implemented in the SBP. This technology up-gradation programme will cost more than US$24 million.