Corporate governance can't be isolated from politics: Speech of NRB Governor

ShareSansar, September 17:

While talking about the ‘Corporate Governance-Where have we failed?, I have to first define do we have the corporate entity like the legal entity- a truly corporation not only legally incorporated, but also in practices?

Other than in banking where we can see a bit corporate kind of organization, but in many other sectors, it is very limited.

Second, who are we? Is it the regulator, operators, other stakeholders like auditors, reporters, press and borrowers? Who are we? We are all stakeholders including the operators, regulators, directors and managers of the financial institutions while talking about the corporate governance in terms of financial institutions. First we should define-we.

When I talk about the corporate governance in the financial system, I need to talk about broadly the legal, regulatory and political environment under which we perform our governance functions.  

Have we properly drafted and defined the sufficient laws and regulations and the kind of environment for the enforcement of the laws?  This I call a political environment outside the financial industries. This is fundamental because we are the subject of broader socio economic system. We cannot isolate ourselves from these environmental aspects upon us.

In a country where we could not even have these fundamentals, the country which was in the conflict for long time, the country where peoples’ lives were not safe and almost all the state machineries were either getting weak or non-existent.We have been talking corporate governance in such a political regime we have had in the past.

So let’s not be over enthusiastic and over criticizing ourselves.

Thanks to all approaches we had have, we have survived such a long-long conflict and able to manage the transition. Still, we have not let any crisis to appear.

We have seen countries where there were better governance, better political stability and more transparency also suffering from the huge financial crisis.

So I don’t say that it’s not time to go for introspection. We must revisit ourselves; we must go for soul searching, but it is not right that we keep on frustrating ourselves and just ignore the contribution, advantages and the strengths that we have acquired over the time. That means we still have things to be done, things to improve. We have to be a bit more futuristic based on the experiences of our past, not to repeat the mistakes, but to be a forward-looking what could be done by the regulators or other stakeholders.

 In any corporate structure, central bank is very important so far the financial industries are concerned. In Nepal, more than three fourth of the financial industries is the banking. Central bank is the major stakeholder.

While talking about the corporate governance in the financial industry, the role of the central bank, the regulation of the central bank, supervision of the central bank and the enforcement of the central bank including other all actions are important. We are one of the key stakeholders in the governance issue. We need the feedbacks, pointing out the room for us to improve.

But, there are also other several stakeholders who need to get introspection on themselves also. The board of the respective financial institutions and the CEO of the institutions are also equally responsible stakeholders.

How are they appointed or how the staffs of the financial institution are appointed and what kind of HR policy we have, what kind of IT policy we have, what type of auditing, financing reporting standard we have, what kind of internal control and procedures do we have, what are the risk management systems we have, what are the disclosures norms and communication strategy do we have, what are the institutional capacities to better govern, human resources, IT resources, basic physical infrastructures, logical systems and everything.

 If all these are put in place than the good governance with better financial, operational autonomy, better accountability and high transparency can be established. These are the things that we must discuss and feedbacks should be provided to the stakeholders.

EDITED SPEECH OF NRB GOVERNOR DR YUBA RAJ KHATIWADA AT A SEMINAR ENTITLED- ‘Corporate Governance-Where have we failed?’