National Bank of Pakistan revamp keeps finance veto
The government has proposed the National Bank of Pakistan revamp, but it has kept a decisive say for the Finance Division over who leads the bank. The draft law, cleared by the Cabinet Committee on Legislative Cases, is meant to meet a condition of the International Monetary Fund programme for better governance at the state-owned bank.
Approval of the law by Parliament is itself a condition of the IMF programme, according to The Express Tribune, which reported the details of the proposal. The bill would replace parts of the 1949 NBP Ordinance, the law that has governed the bank for decades.
How the president will be picked
Under the proposal, the bank president will be appointed by the federal government, in consultation with the State Bank of Pakistan, from three names recommended by the bank’s central board. The board must back those names by a three-fourths majority.
That majority must include the vote of the Finance Division’s ex-officio director on the board. In practice, the Finance Division can block any shortlist it does not support, since its director’s yes vote is compulsory.
The president will serve a three-year term on a performance-based contract. The federal government can extend the term if performance is substantially satisfactory. The board will set the terms and conditions of the appointment, with federal government approval.
A board with an independent majority
The draft law promises a board with a majority of independent directors from the private sector. A person of eminence and known integrity from the private sector, who is a professional banker or has relevant financial sector experience, will be appointed chairman by the federal government.
Four independent directors of known integrity and eminence from the private sector will be appointed by the federal government, in consultation with the State Bank. The chairman will be chosen from among the independent directors, from a panel maintained by the State Bank.
Independent directors will be appointed on the recommendation of the Board Nominations Committee. The federal government will still be able to increase or decrease the total number of directors at any time, as long as independent directors stay in a majority and the board has between six and nine members.
No member of the Senate, the National Assembly or a provincial assembly, and no elected member of a local council, can be appointed as a director. No one who is not a citizen of Pakistan, or who is disqualified under the State-Owned Enterprises Act, can hold the offices of chairman, director or president.
Three laws, one bank
The proposal may complicate governance rather than simplify it. The bank is now planned to be managed under the NBP Act, the State-Owned Enterprises Act and the Pakistan Sovereign Wealth Fund Act, under the regulatory control of the State Bank, with one director appointed under the Securities and Exchange Companies Act.
Where the State-Owned Enterprises Act and the NBP Act conflict, the enterprises law will take precedence. Its sections on board composition, the appointment of the board chairman and directors, fit-and-proper criteria, shareholders’ responsibility and board meetings will also apply to the bank.
The National Bank of Pakistan revamp and its veto
What happens next
Frequently asked questions
What is the National Bank of Pakistan revamp?
It is a proposed amendment to the law governing the National Bank of Pakistan, cleared by the Cabinet Committee on Legislative Cases, aimed at improving the bank’s governance and operations under an IMF programme condition.
Who will appoint the bank president under the proposal?
The federal government will appoint the president, in consultation with the State Bank of Pakistan, from three names recommended by the bank’s central board by a three-fourths majority that must include the Finance Division director’s vote.
How long will the president serve?
The president will serve a three-year term on a performance-based contract, extendable by the federal government on demonstration of substantially satisfactory performance.
Will independent directors form a majority on the board?
Yes, under the proposal a majority of board directors will be independent and from the private sector, with total board membership between six and nine.
Does Parliament still need to approve the bill?
Yes, approval of the law by Parliament is a condition of the IMF programme, and the bill has so far only been cleared by the Cabinet Committee on Legislative Cases.
