KARACHI: State Bank of Pakistan Governor Dr Reza Baqir on Tuesday said in a seminar that concentration of banks’ shareholding to a few families and their nominees on the boards is against good governance practices and may adversely impact the effectiveness of the board.

During his inaugural address in a seminar on “Emerging Trends in Good Governance of Banking Sector” in South Asian Association for Regional Coop­eration (Saarc) countries highlighted the importance of efficient and robust governance structure in banking for sustainable economic growth.

The seminar was also attended by delegates from Afghanistan, Bangladesh, Bhutan, Sri Lanka and Nepal.

Baqir said that independent directors play an important role in banks by exercising their neural judgment and protect the interest of minority shareholders. He also mentioned that corporate governance practices in public sector banks are generally weak and less transparent due to likely political intervention in internal affairs.

“There is a need to rationalise the shareholding structure of these banks to minimise the undesirable role of governments in their affairs,” said the governor.

He emphasised that boards with fem­ale representatives and diversified experience in the fields of IT, risk management, finance and economics can play a more effective role in achieving the organisation’s overall strategic objectives.

Baqir said that corporate governance is cornerstone for the success of any business entity. However, for financial institutions, its importance becomes even more critical as banks are highly leveraged entities facing a wide range of risks in their day-to-day operations.

The scope and approach to banks’ corporate governance requires a different and specific regulatory framework not only because of their leveraged business model but also due to diverse ownership and group structure, he said.

In his closing remarks, he suggested that Terms of reference (ToRs) of Saarc Finance network may be revisited to align the same with emerging challenges faced by central banks in the region.

He said that expanding business arenas, globalisation of financial activities, emergence of new products and increased level of competition have not only opened up opportunities but also increased the potential risks from such developments.

Published in Dawn, December 25th, 2019