ISLAMABAD: Objecting to recent high-profile and allegedly political inductions, the State Bank of Pakistan (SBP) has restricted the management of the country’s largest bank from hiring or promoting senior executives, group heads and other senior officers without its prior clearance.

The rare expression of mistrust on the management of the National Bank of Pakistan (NBP) has come with a clear warning that the central bank could exercise its extreme powers to sack the management or directors in the event of future violations.

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The SBP said it had taken note of serious governance related issues in the NBP and violations of regulatory instructions and prudential regulations. Under these rules, even senior executives in private banks have to pass fit and proper test (FPT) of the central bank to ensure integrity and public trust in the banking industry while board members of financial institutions having government stakes also have to clear the FPT.

Informed sources said that this followed induction of around 65-70 senior executives in the NBP who have no relevant or even banking experience at all. According to them, some of these executives had reputation issues, under investigations by the National Accountability Bureau (NAB) or other investigation agencies or faced court cases while some others had been inducted due to political influence from Lahore, Peshawar and Islamabad.

In an order to NBP President and CEO Syed Iqbal Ashraf, the central bank said: “Keeping in view the governance related issues being faced by NBP, it has been decided that apart from complying with the existing regulatory instructions and Prudential Regulations G-1 and other applicable laws, rules and regulations, NBP is hereby required, with immediate effect, to seek prior approval/clearance of the SBP while appointing, reappointing, hiring any key executives/group heads and SEVP (senior executive vice presidents).”

This shall apply to the promotions and postings of bank’s officials to the level of key executives, group heads and SEVPs, and renewal of the contracts of existing officers in these cadres. The central bank has also made it clear that officials concerned will not be allowed to assume charge of the respective position or office before SBP’s clearance in writing.

The SBP asked the NBP to conduct a detailed assessment of incumbents’ suitability and ability to take up their responsibilities in a strategically important and complex institution and furnish fit and proper test documents along with undertaking (Annexure IV) and its specific recommendations to SBP for prior clearance.

The orders issued by the banking sector regulator directed the NBP management to ensure ‘immediate compliance of these instructions’. “Non compliance shall attract action under the relevant provisions of the Banking Companies Ordinance, 1962, particularly under Section 41A thereof,” the SBP said.

An SBP official explained that as specifically mentioned, the central bank under Section 41A of BCO, 1962, had the powers to remove directors or other managerial persons from office in the public interest or if SBP is satisfied that the association of any chairman or director or chief executive, or other officer of a banking company, not being lower in rank than a branch manager, is or is likely to be detrimental to the interests of the banking company or its depositors or otherwise undesirable.

The said law also empowered the SBP to prevent the affairs of a banking company being conducted in a manner detrimental to the interest of its depositors or in a manner prejudicial to the interests of the banking company; or to secure the proper management of any banking company; it is necessary so to do, the State Bank may, for reasons to be recorded in writing, by order, remove from office, with effect from such date as may be specified in the order.

The SBP official said that the central bank was required to first give a reasonable opportunity of making a presentation against the proposed removal order of the chairman or director or chief executive or other officer, but if the central bank was of the opinion that delay would be detrimental to the interest of the public, bank or the depositors it could order that such officers would not perform his duty which in any way, whether directly or indirectly, be concerned with, or take part in the management of the banking company.

In that case, any person authorised by the SBP would act as chairman or director or chief executive of the banking company. No person removed from the office under this section is entitled to claim any compensation for the loss or termination of office.

Published in Dawn, December 2nd, 2015