NBP revamp keeps finance veto

Bank to be governed by three overlapping laws, independent directors in majority

ISLAMABAD:

ISLAMABAD

The government has proposed major amendments to the National Bank of Pakistan (NBP) law to meet an International Monetary Fund (IMF) condition for improving its governance and operations, but has retained veto power over the appointment of the bank's president.

The Cabinet Committee on Legislative Cases, the body responsible for clearing rules and laws for final approval by the cabinet, has approved the draft of the NBP Amendment Act, 2026. Approval of the law by Parliament is a condition of the IMF programme.

The government has made many changes to the 1949 NBP Ordinance to meet the IMF condition. But the proposed changes may further complicate governance, as NBP is now planned to be managed under the NBP Act, the State-Owned Enterprises (SOE) Act and the Pakistan Sovereign Wealth Fund Act, under the regulatory control of the State Bank of Pakistan (SBP), and with one director appointed under the Securities and Exchange Companies Act.

NBP has been classified and declared a strategic state-owned enterprise by the federal government, under the jurisdiction of the Finance Division.

According to the proposal, the NBP president will be appointed, in accordance with Section 18 of the SOE Act, by the federal government, in consultation with the SBP, from among three candidates recommended by the central board of NBP by a three-fourths majority, which shall include the vote of the ex-officio director of the Finance Division.

By adding the condition of a compulsory yes vote by the Finance Division director, the government has undermined the independence of the board in sending three names of its choice to the federal government.

The proposed bill further states that the terms and conditions of the president's appointment will be determined by the board with the approval of the federal government. The president will be appointed for a term of three years on a performance-based contract, extendable by the federal government on demonstration of substantially satisfactory performance.

Wherever conflict arises between the SOE Act and the NBP Act, the SOE Act will take precedence, according to the proposed bill.

The SOE law's sections related to board composition, appointment of the chairman of the board and directors, fit-and-proper criteria, shareholders' responsibility and board meetings will also apply to NBP.

A majority of the board directors will be independent and from the private sector.

A person of eminence and known integrity from the private sector, being a professional banker or a person with relevant financial sector experience, will be appointed by the federal government as chairman. Four independent directors of known integrity and eminence from the private sector will be appointed by the federal government, in consultation with the SBP.

The chairman of the central board shall be appointed by the federal government from among the independent directors, being a person whose name is included in a panel of professional bankers or persons qualified to be chairman, which panel shall be determined, maintained and varied from time to time by the SBP.

The independent directors will be appointed by the federal government on the recommendation of the Board Nominations Committee, according to the proposal.

But the federal government will have the authority to increase or decrease the number of directors of the central board at any time, subject to the independent directors remaining in a majority and the total membership of the central board being not less than six and not more than nine.

No person shall be appointed or elected as, or shall continue to hold the office of, the chairman, a director or the president, if he is not a citizen of Pakistan and is disqualified under Section 11 of the SOE Act, according to the proposal.

A member of the Senate, the National Assembly or a provincial assembly, or an elected member of a local council constituted under any law relating to local councils, cannot be appointed as a director.

The government has proposed that where, and for so long as, the Pakistan Sovereign Wealth Fund established under the Pakistan Sovereign Wealth Fund Act owns or controls the bank, the provisions of the fund act relating to the exercise of ownership rights will also apply to NBP.

However, the SBP's authority would be of paramount importance, and would not be impacted by any laws applicable to NBP.

The proposed bill states that the central board will establish an audit committee whose members shall be financially literate and a majority of whom shall be independent directors. But the chairman of the central board and the president would not be members of the audit committee.

On commencement of the new law, all local boards of the bank, and all local bodies, area boards, regional committees, managing committees and similar bodies for the management of the bank, existing immediately before such commencement, will stand dissolved, and the members of the bodies so dissolved shall cease to hold office as such, without entitlement to any compensation on account of such dissolution or cessation.