Roundtable Discussion on Corporate Governance Reforms in the Banking Sector in the Region

Date:

Event Name : Recent Events

Date : 25 February, 2007- ,

Description :

The Bangladesh Enterprise Institute (BEI) organized a Roundtable Discussion on Corporate Governance Reforms in the Banking Sector in the Region at the BEI Conference Room on February 25, 2006.

Dr. Salehuddin Ahmed, Governor, Bangladesh Bank, was the Chief Guest at the event, while Mr. Farooq Sobhan, President, BEI chaired the event.

Dr. Ishrat Husain, Former Governor, State Bank of Pakistan and currently, Chairman, National Commission for Government Reforms in Pakistan made a presentation on the corporate governance reforms in the financial sector in Pakistan and the role of the State Bank of Pakistan in implementing the reforms.

Dr. Akbar Ali Khan, Adviser, former Caretaker Government, and Dr. Mohammad Farashuddin, former Governor of Bangladesh Bank were present at the roundtable as special guests.

Dr. Ishrat Husain discussed in details the reforms in the State Bank of Pakistan and the outcomes of the reforms. He led the reform initiative in the State Bank of Pakistan during his as the Governor of the central bank.

Dr. Husain said that instead of following an ad hoc firefighting approach, the Pakistani central bank formulated a set of corporate governance guidelines. He commented that, although South Asian countries have perfect laws and guidelines, problems remain in their implementation. This lack of implementation is the starting point of the collapse of the corporate governance structure.

As reform measures, the State Bank of Pakistan introduced Prudential Regulations specific to and customized for each segment of business in order to respond to the realities that exists on the ground.

As other measures, the central bank prescribed fit and proper criteria for key positions, such as, board members, Chief Executives Officers, Chief Financial Officers, Chief Operating Officers, Risk Managers and Treasurers. Under these criteria, everyone has to be certified on the basis of the data they produce and which is, in turn, verified by the central bank.

Other reforms measures introduced include minimum disclosure requirements for the quarterly reports and the annual reports, representation of family in the board be limited to 25% and the remaining 75% will to be independent, non-executive directors, barring stock brokers, money changers and anyone involved in doing business with the banks from becoming directors of the board because they may have access to very confidential information.

Dr. Husain said that the capacity building of bank officials were crucial to implement good corporate governance practices. A handbook of corporate governance, containing international best practices, the State Bank’s instructions and the code of SEC was published and disseminated. Regular one-day training programmes are organized for board members, CEOs and senior management to keep them up to date with latest developments.

Dr. Husain said that by bringing about and instituting these reforms, the State Bank of Pakistan has been able to create an environment in which the bankers themselves have become very alert and exercise self monitoring. The corporate governance standards in the banking sector of Pakistan are currently very strong. Non Performing Loans (NPL) have gone down on a stock basis to 3% from 25%, and to 2% on a flow basis. Most banks are now listed at the Karachi Stock Exchange and every bank is required to be rated by a credit rating agency and the rating has to be posted on the both the bank’s own website and on that of the central ban. He also mentioned that big banks are now coming into Pakistan and the market capitalization of banks in Pakistan is second only to the oil and gas sector.

Dr. Salehuddin Ahmed encouraged the banking sector in Bangladesh to incorporate good corporate governance principles. During his presentation he highlighted the importance of instituting good corporate governance practices in the financial sector and outlined some of the policy decisions and reforms measures underway at the Bangladesh Bank to ensure good corporate governance.

The policy decisions and reforms measures includes the introduction of Core Risk Management Guidelines on five major risks, restructuring and corporatization of Nationalized Commercial Banks, introduction of monetary policy in Advance through semi-annual monetary policy statement, initiation of Capacity building program for Bangladesh Bank officials, introduction of Service Standards, workflow analysis, performance management system, creation of foreign exchange inspection and vigilance unit, and e-governance.

Mr. Farooq Sobhan recommended that the Bangladesh Bank introduce requirements for board members to go through mandatory corporate governance trainings.

Dr. Akbar Ali Khan said that sometimes implementing corporate governance through the instruments of law becomes costly. At times the enforcement cost is so enormous, that it is difficult to enforce the law, and the cost of regulation exceeds the benefit. Therefore, the best types of laws are the self-enforcing laws and self policing is the best instrument.

Among others, the participants included the heads and representatives of Trust Bank Ltd., Asian Development Bank, Agrani Bank, Bangladesh Bank, Bangladesh Krishi Bank, Bangladesh Shilpa Bank, Bank Asia Limited, Commercial Bank of Ceylon Limited, Commonwealth Business Council, DFID, Eastern Bank Limited, IDLC, IFIC Bank Limited, Jamuna Bank Ltd., Mercantile Bank Limited, National Bank Ltd., National Bank of Pakistan, Prime Bank Ltd., Pubali Bank Limited, IMF, Securities and Exchange Commission, Social Investment Bank Limited, Sonali Bank, The City Bank Ltd. and United Commercial Bank Ltd.

Posted Date : 4 March, 2012

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