The Presidents/Chief Executive Officers
All Banks/DFIs
Dear Sir/Madam,
Revised Instructions on Independent Directors
Please refer to the Prudential Regulations (PRs) for Corporate/Commercial Banking and the Fit and Proper Test Criteria issued and amended by the State Bank of Pakistan (SBP) from time to time.
2. In this connection, it is advised that the definition of “Independent Director” given in the PRs is amended and be read as under:
Independent Director means a Director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the bank/DFI, its associated companies, subsidiaries, holding company or Directors. The test of independence principally emanates from the fact whether such person can reasonably be perceived as being able to exercise independent business judgment without being subservient to any form of conflict of interest. Provided that without prejudice to the generality of this explanation no Director shall be considered independent if one or more of the following circumstances exist:
a) He/she has been an employee of the bank/DFI, any of its subsidiaries or holding company within the last three years.
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b) He/she has been an employee or affiliate of any present or former external auditor/consultant/legal advisor of Bank/DFI within the last three years.
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c) He/she is or has been the CEO of subsidiaries, associated company, associated undertaking or holding company in the last three years.
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d) He/she has, or has had within the last three years, a material business relationship with the bank/DFI either directly or indirectly as a partner,
major shareholder or Director of a body that has such a relationship with
the bank/DFI. (The term major shareholder has been defined in the PRs.) |
e) He/she has received remuneration in the three years preceding his/her appointment as a Director or receives additional remuneration, excluding retirement benefits from the bank/DFI apart from a Director’s fee or has participated in the bank/DFI’s share option or a performance-related pay scheme. |
f) He/she is a close relative of the bank/DFI’s promoters, Directors or major shareholders. (Close relative means spouse(s), lineal ascendants and descendants and siblings.) |
g) He/she holds cross-directorships or has significant links with other Directors through involvement in other companies or bodies. |
h) He/she has served on the Board for more than three consecutive terms from the date of his first appointment provided that such person shall be deemed “Independent Director” after lapse of one term. |
i) He/she is affiliated with a not-for-profit entity that received contributions from Bank/DFI exceeding Rs. ten (10) million, or two (2) percent of such charitable organization's consolidated gross revenues during the current fiscal year or any of the last three completed fiscal years, whichever is higher. |
j) He/she is nominated by the creditors of the bank/DFI or is in service of Pakistan or any statutory body or any body or institution owned or controlled by the Government. |
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3. Accordingly, aforesaid definition of Independent Director shall be applicable with immediate effect for new appointments of Independent Directors on the Board of Directors of the banks/DFIs.
4. As regards minimum number of Independent Directors, the banks/DFIs are hereby advised to ensure that by March 31, 2018, at least one third of their Board of Directors shall comprise of Independent Directors in line with the revised instructions. Accordingly, Declaration of Independence shall be furnished to SBP in line with the aforesaid definition. However, existing Independent Directors may continue till March 31, 2018 or expiry of their terms whichever is earlier.
5. Further, SBP encourages the enhanced role of Independent Directors in different committees/sub-committees of the Board of Directors of the banks/DFIs and recommends holding of a separate meeting of the Independent Directors at least once in a year.
6. Please acknowledge receipt.
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