Corporate governance cornerstone for success of any business entity: Reza Baqir

SBP governor says boards of banks with more diversity can play a more effective role in achieving objectives

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

These remarks were made by State Bank of Pakistan (SBP) Governor Reza Baqir as he highlighted the importance of an efficient and robust governance structure in the banking industry for sustainable economic growth of a country.

Speaking at a seminar on ‘Emerging Trends in Good Governance of Banking Sector’ in Saarc countries, the governor said that 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.

Besides Pakistan, the seminar, held at National Institute of Banking and Finance (NIBAF), was attended by delegates from Afghanistan, Bangladesh, Bhutan, Sri Lanka and Nepal.

Baqir emphasised that boards of the banks with more gender diversity or 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.

He further added that independent directors play an important role in banks by exercising their independent judgement 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 the affairs of these banks. Therefore, there is a need to rationalise the shareholding structure of these banks to minimise the undesirable role of governments in their affairs.

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

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

Published in The Express Tribune, December 25^th, 2019.

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