May 30, 2006	Tuesday	Jumadi-ul-Awwal 2, 1427

KARACHI, May 29: State Bank Governor Dr Shamshad Akhtar here on Monday said that different regulatory settings were required to examine, evaluate and analyse banks differently from other corporate entities.

Speaking at a conference on “corporate governance in banks” held at the SBP auditorium, Dr Akhtar stressed the need to adopt a threefold approach for analyzing the banks need.

The conference was jointly organized by the SBP, the International Finance Corporation (IFC) and the Pakistan Institute of Corporate Governance (PICG).

She said there was a need to recognize the merits of adopting a threefold approach that advocated (i) strengthening governance at the enterprise and bank level, (ii) strengthening ability and incentives of investors and depositors to demand and exert governance, and (iii) empowering and equipping regulators to develop and enforce regulations effectively.

Referring to the corporate governance framework being practiced in Pakistan, the SBP governor said since most banks were now listed companies, they fell under the Securities and Exchange Commission of Pakistan’s (SECP) code of corporate governance for listed companies.

“This code is applicable to banks and development and finance institutions (DFIs) governed by the SBP, except for clauses that come in conflict with the directives issued by the central bank. Enhancing this code, the SBP has further defined corporate governance requirements for banks through a set of other legislations and regulations,” she added.

For instance, the Banking Companies Ordinance (BCO), 1962 amplifies further the internal governance requirements. It includes rules for the board of directors’ appointments/dismissal, disclosure of share ownership, dividend policy, appointments of external auditors, etc. Further instructions in these areas are provided in SBP’s prudential regulations.

Most critical in this context was the guidance provided

on the role and responsibilities of directors and fit and pro-

per test criterion prescribed

for chief executive officers, board members and key executives of banks, the SBP chief added.

To ensure compliance with the code and supportive legal and regulatory framework, the SBP had increased communication and dialogue with the management and boards of banks to verify compliance with SBP’s established values and principles of corporate governance and to provide proactive advice on weaknesses and emerging problems entailing systemic repercussions, Dr Akhtar added.

Commenting on the increasing incidence of corporate scandals around the world, she said that a series of bank failures stemming from weaknesses of the financial sector regulation and supervision had manifested themselves in regional financial crises, such as those witnessed in Latin America and more recently in Asia in 1997.

“Efforts made by the State Bank and banking industry have yielded results in bringing about a positive change in banks’ corporate governance practices. Banks are now

managed and run by a better cadre of professionals, and stakeholders now actively participate in the affairs of banks. The boards meet regularly and participate in both setting the strategic direction for their institutions and providing the desired oversight. Senior managements at majority of banks are equipped with professional competence and a high degree of integrity,” the SBP governor added.

Dr Akhtar concluded the opening session of the conference by pointing out that to fully institutionalize corporate governance, additional efforts were warranted.

“Rules can only guide a small number of day-to-day decisions required for the corporate management. The rest is governed by the personal code of values, corporate and board managers bringing to the table. In this context, banks should strive to build a reputation for honest and fair dealing while interacting with their internal as well as external stakeholders.”