SBP faces conflict of interest issue

Board director resigns as he has stake in firm that is seeking digital banking licence

ISLAMABAD:

Nadeem Hussain, a director of the State Bank of Pakistan (SBP) board –has resigned due to the conflict of interest between his stake in a firm that is competing to get a digital banking licence and his position on the board.

Hussain has an equity stake in Planet N Private Limited, which has applied for the digital banking licence from the State Bank. Planet N and Pak-Kuwait Investment Company have formed a consortium that sought the licence.

Hussain’s decision to resign after serving only for four months as the central bank director has set a good precedent for avoiding conflict of interest.

The central bank is the regulator of the banking sector and its policies are set by the board and the Monetary Policy Committee.

Hussain is the husband of Minister for Climate Change Sherry Rehman and had been appointed the SBP board director for five years by the current government in July this year.

“Yes, I have resigned from the position of SBP director on Thursday,” said Hussain while confirming the development to The Express Tribune.

He attended a board meeting on Thursday but resigned after that. In order “to eliminate any perceived potential conflict of interest, I have resigned from the State Bank board”, he added.

The Express Tribune sent questions to the SBP on Wednesday, requesting it to comment on whether it was a conflict of interest that Planet N was an applicant and its partner was sitting on the SBP board.

“The SBP is currently carrying out the assessment of digital bank licences in a systematic and merit-based manner, taking all relevant factors into consideration,” replied SBP’s Chief Spokesman Abid Qamar, without directly commenting on the conflict of interest.

Qamar added that it was expected that decisions would be communicated to the applicants in the near future. “The SBP is of the view that the public disclosure of names or discussion at this stage is not appropriate,” he said.

Hussain is the second board director who has resigned in recent days. Earlier, Tariq Pasha stepped down after the government appointed him as a special assistant to the prime minister on revenue.

However, in violation of the law, the government has not appointed a new director, who should be brought in within 30 days of a seat falling vacant.

The SBP is expected to issue five to seven digital banking licences to promote financial inclusion in the country. It has received 20 applications for Digital Retail Bank (DRB) and Digital Full Bank (DFB) under its Licensing and Regulatory Framework for Digital Banks, including from Planet N.

The central bank is at the final stage of conducting due diligence and evaluating the technical expertise, financial strength, technological infrastructure and risk management frameworks of the applicants.

A senior central bank official said that the licences would be awarded in the current month.

The main objectives of digital banks include promotion of financial inclusion, providing credit to the underserved and encouraging financial technology.

“Yes, I am a stakeholder in Planet N. However, I am not aware of the consortium that Planet N is part of being shortlisted,” replied Hussain to a question about whether his consortium had been shortlisted by the central bank.

Responding to a question on conflict of interest, Hussain stressed that the “award of licences is the management’s prerogative and not a board decision”. According to the SBP law, the governor, deputy governors, board directors and monetary policy committee members will not “act as a representative of any commercial, financial, agricultural, industrial or other interest or receive or accept directions therefrom, in respect of duties to be performed under this Act”.

However, sources told The Express Tribune that the central bank had internally discussed the conflict of interest issue but then decided to accept the bidding documents. The resignation came only after questions about the conflict of interest were sent to the SBP by The Express Tribune.

The Ministry of Finance, which is the appointing authority, had not received the resignation letter till Friday morning, according to the sources.

The SBP law says every director will fully and promptly disclose to the board any interest, whether personal, commercial, financial, agricultural, industrial or other, which he or any dependent member of his family may directly or indirectly hold or be connected with and which becomes the subject of consideration by the board and shall recuse themselves from any board deliberations and voting-related thereto.

Published in The Express Tribune, December 11^th, 2022.

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