Corporate governance weak in public sector banks: SBP

  • Need to rationalize the shareholding structure of banks to minimize the undesirable role of governments in their affairs, says Reza Baqir

ISLAMABAD: State Bank of Pakistan (SBP) Governor Dr Reza Baqir said in a seminar that corporate governance practices in public sector banks are generally weak and less transparent due to likely political intervention in the affairs of these banks.

He also said that there is a need to rationalize the shareholding structure of these banks to minimize the undesirable role of governments in their affairs.

The governor was speaking at a SAARC Seminar hosted by the SBP on “Emerging Trends in Good Governance of Banking Sector in SAARC Region”. Besides Pakistan, the seminar, held at National Institute of Banking and Finance (NIBAF), was attended by delegates from Afghanistan, Bangladesh, Bhutan, Sri Lanka and Nepal.

At the seminar, Dr Baqir also said that corporate governance is the cornerstone for the success of any business entity.

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However, for financial institutions, the importance of corporate governance becomes even more critical as banks are highly leveraged entities facing a wide range of risks in their day-to-day operations.  Therefore, a different and specific regulatory framework is required, due to their leveraged business model, and diverse ownership and group structure.

He added that the concentration of banks’ shareholding to a few families and their nominees on the boards is against good governance practices and may adversely impact the effectiveness of the board.

The governor also emphasized that boards of the banks with more gender diversity or female representatives and diversified experience in the fields of IT, risk management, finance and economics can play a more effective role in achieving the organization’s overall strategic objectives.

In his closing remarks, he suggested that terms of reference of the Saarc Finance network may be revised to align with central banks in the region facing the same challenges.

 

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