The Presidents/Chief Executives/Country Managers,
All
Banks/DFIs
Dear Sirs/Madam,
PRUDENTIAL REGULATION NO. XXIX –
RESPONSIBILITIES OF BOARD OF DIRECTORS
The State Bank attaches a great importance
to effective corporate governance, clear lines of responsibility,
elaborate mechanism of accountability, and existence of proper
checks and balances in each bank/financial institution. The
corporate governance means the way in which business and affairs
of each institution is directed and managed by their ‘Board
of Directors’ and the ‘Management’. To promote
safe and sound banking practices, it is imperative that the
‘Board of Directors’ assumes its role independent
of the influence of the Management. Members of the Board should
know their responsibilities and powers in clear terms. Further,
it should be ensured that the Board of Directors focus on
policy making and general direction, oversight and supervision
of the affairs and business of the bank/DFI and does not play
any role in the day-to-day operations, as that is the role
of the ‘Management’.
2) In order to improve the prevailing corporate
governance and to make the Board of Directors of banks/DFIs
more effective, the following guidelines are being issued:
i) The Board shall approve and monitor the
objectives, strategies and overall business plans of the institution
and shall oversee that the affairs of the institution are
carried out prudently within the framework of existing laws
and regulations and high business ethics.
ii) All the members of the Board should undertake
and fulfill their duties and responsibilities keeping in view
their legal obligations under all the applicable laws and
regulations.
iii) The Board shall clearly define the authorities
and key responsibilities of both the Directors and the Senior
Management without delegating its policymaking powers to the
Management and shall ensure that the Management is in the
hands of qualified personnel.
iv) The Board shall approve and ensure implementation
of policies, including but not limited to, in areas of Internal
Audit & Control, Compliance, Risk Management, Human Resources,
Credit, Write-offs, Recovery, Rescheduling/Restructuring of
debt, Treasury Management, Investments, Acquisition/Disposal
of fixed assets, Donations/Charities, Prevention of Frauds
& Forgeries and any other operational area which the ‘Board’
and/or the ‘Management’ may deem appropriate from
time to time. The Board shall also be responsible to review
and update existing policies periodically and whenever circumstances
justify.
v) The markets are ever-changing and so are
their requirements. The Board, therefore, is required to ensure
existence of an effective ‘Management Information System’
to remain fully informed of the activities, operating performance
and financial condition of the institution, the environment
in which it operates, the various risks it is exposed to and
to evaluate performance of the Management at regular intervals.
vi) The Board should meet frequently (preferably
on monthly basis, but in any event, not less than once every
quarter) and the individual directors of an institution should
attend at least half of the meetings held in a financial year.
The Board should ensure that it receives sufficient information
from management on the agenda items well in advance of each
meeting to enable it to effectively participate in and contribute
to each meeting. The Board should carry out its responsibilities
in such a way that the external auditors and supervisors can
see and form judgment on the quality of Board’s work
and its contributions through proper and detailed minutes
of the deliberations held and decisions taken during the Board
meetings.
vii) To share the load of activities, the
Board may form specialized committees with well-defined objectives,
authorities and tenure. These committees, preferably comprising
of ‘Non-Executive’ board members, shall oversee
areas like audit, risk management, recruitment, compensation,
credit, etc without indulging in day-to-day operations in
these areas. These committees should apprise the full board
of their activities and achievements on regular basis.
viii) The Board should ensure that it receives
management letter from the external auditors without delay.
It should also be ensured that appropriate action is taken
in consultation with the Audit Committee of the Board to deal
with control or other weaknesses identified in the management
letter. A copy of that letter should be submitted to the SBP
so that it can monitor follow-up actions.
3) The above guidelines are being issued under
the powers vested in the State Bank of Pakistan under the
Banking Companies Ordinance, 1962 and are required to be followed
by banks incorporated in Pakistan and DFIs. They will also
follow the ‘Code of Corporate Governance’ issued
by the SECP so long as any provision thereof does not conflict
with any provision of the Banking Companies Ordinance, 1962,
Prudential Regulations and the instructions/guidelines issued
by the State Bank.
4) The branches of foreign banks operating
in Pakistan shall intimate to the State Bank, within 30 days
from the date of receipt of this Circular, regarding any similar
measures taken or policies introduced by their Head Offices
with regard to above guidelines. They are required to adhere
to these guidelines wherever feasible and applicable. However,
they need not necessarily seek approval of their Board of
Directors, as stipulated above in the case of local banks/DFIs.
5) All banks/DFIs incorporated in Pakistan
are required to place this Circular before their Board of
Directors for meticulous compliance and send a written confirmation,
within 30 days of receipt of this circular, signed by each
board member signifying their understanding of these guidelines.
Please acknowledge receipt.
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