May 23, 2002	Thursday	Rabi-ul-Awwal 10,1423

KARACHI, May 22: As the date for the election of 15 directors on the Board of Pakistan Industrial Credit and Investment Corporation (PICIC) draws closer, corporate circles are abuzz with all sort of rumours on emerging scenario of financial sector in Pakistan.

Next Wednesday (May 29), the shareholders of PICIC are set to elect 15 directors on the Board out of 25 persons who are in the run. This election has come to acquire special significance as PICIC has already expressed interest to acquire the control of National Investment Trust (NIT) and Investment Corporation of Pakistan (ICP). PICIC has been short listed with three other business groups for NIT and with 11 other groups for ICP privatization transaction.

Management control of NIT will give an opportunity to the successful bidder access to the boards of at least 200 companies of Pakistan. The new managers of NIT are bound to enjoy immense clout in the business and corporate world of Pakistan.

There are lurking fears of monopolies and financial monsters emerging if well knit business groups are allowed to take over one bank after the other bank and given control on financial institutions. Privatization process since 1991 has already created monopolies in the country which seem to be gaining strength with every passing day.

Observers note that out of 25 in the run on PICIC board, five are active stock exchange brokers and four are members of the same powerful business family. About half a dozen are directly or indirectly related to the financial institutions.

Note that there was never any stock broker on the board of PICIC or other bank or financial institution but the State Bank of Pakistan had realized the clash of business interest in such an event.

On January 1 this year, the State Bank has set March 30 a cut off date for all the members of stock exchanges, broker houses and money changers who are on the board of banks and DFIs to quit.

“Considering the potential of conflict of interest in their business and with the business of banking and to ensure integrity of the banking business, it has been decided that money changers, members of stock exchanges or brokerage houses or companies owned or controlled by them or persons directly or indirectly associated with the business of stock exchange or money changer shall not be eligible to become director including nominee director on the board of a bank or DFI”, the SBP circular on January 1 has said.

The circular had then advised those banks and DFIs which have such persons on their boards to regularize their positions by March 30.

When many banks and DFIs were in process of regularizing their positions on the boards and say good bye to the stock brokers, the State Bank came out abruptly and rather surprisingly on March 21 with another circular that extended the deadline from March 30 to June 30.

This extension has given a new lease of life to the stock brokers who are directors on the board of banks and DFIs including PICIC has given an opportunity to them to seek fresh elections. Many of them are confident of extending this limit beyond June 30.

The State Bank had also taken note of family controls on the banks and in November last year issued a circular expressing concern on practice of some of the banks that have 50 per cent of their sponsor directors from same family. “With the passage of time it has been observed that sometimes the key investor put four of his family members as directors while raising the number of directors to eight by including the Chief Executive or some technical person on the board and thus takes control of bank’s management.

The State Bank had then decided to reduce the number of same family directors on the board of all banks as well as NBFIs from 50 per cent to 25 per cent. The family member has been defined in section 5 (f) of the Banking Companies Ordinance 1962.

Corporate circles say that four members of one family and two members of another family are in the run for director on the Board of PICIC. Assuming all of them get elected then one-third of the board of PICIC will come under control of two business families.