KARACHI, June 26: The State Bank of Pakistan is apparently all set to give another lease of life, beyond June 30, to the stock brokers, either nominated or elected, on the board of directors of the banks and the financial institutions.
Repeated efforts to reach State Bank Governor and senior officials to know fate of all such stock brokers on the board of directors of the banks and DFIs after June 30 proved futile. One of the State Bank official indicated that a fresh circular on this issue is due in a day or two. Indications are that the State Bank will give another extension to all stock brokers for serving the board of banks and the financial institutions.
On March 21 the State Bank of Pakistan had last extended the term of stock brokers when a circular was issued. According to this circular the tenure of stock brokers on the boards of banks and DFIs was extended from March 30 to June 30.
Earlier on January 1 this year, the State Bank 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 had said.
The circular had then advised those banks and DFIs which have such persons on their boards to regularise 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 gave a new lease of life to the stock brokers who were directors on the board of banks and DFIs including Pakistan Industrial Credit and Investment Corporation (PICIC). It gave an opportunity to stock brokers to seek fresh elections on the PICIC’s Board in May. At present five directors on PICIC’s Board are from the Karachi Stock Exchange.
They are Yasin Lakhani, Jehangir Siddiqui, Bashir Jan Mohammad and Javed Umar Vohra. Kamal Afsar is the Chief Executive of Pakistan Insurance Corporation and Chairman of the Investment Committee of the Karachi Stock Exchange and also a director on PICIC’s board.
The conflict of interest between these stock brokers and their directorship is very conspicuous in PICIC. PICIC is also one of the bidder for the National Investment Trust. One of the directors on the Board of PICIC, sponsor of an investment bank and a financial company is also in the run for acquiring the control of NIT. Sitting on the Board of PICIC it gives him all the opportunities to have access to information about his competing institution.
The SBP is holding back the information about how many banks and DFIs have people from stock exchanges, money changers and brokerage houses on their boards.
Interestingly, the SBP has come out very recently with a fresh set of guidelines and principles of good governance for the banks and the DFIs. It pointed out all dos and donts for the management as well as for the policymakers of the institutions.
Any fresh extension of tenure of directorship to the stock brokers on the boards of banks and DFIs would look clumsy and in total conflict with the principles spelt out loudly in the SBP circular issued on January 1.
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.
It is worth recalling now that way back in 1993 the Mohtasib Aala (Ombudsman) in a detailed report has criticised the SBP for failing to check the growth of bad loans portfolio in the banks and the DFIs. The Ombudsman has found that SBP has all the authority to intervene in the affairs of banks and DFIs to protect the public money. The SBP, on occasions, did intervene, but to uphold the fidelity clause and protect the interests of the loan defaulters.