New NRB circular to promote good corporate governance in BFIs
KATHMANDU, DEC 26 -
In a bid to promote good corporate governance practices in banks and financial institutions (BFIs), the Nepal Rastra Bank (NRB) has introduce a new circular, under which BFIs’ subcommittees should be headed by non-executive board members.
The latest central bank move comes in the wake of a number of incidents in which FIs landed in trouble due to board members involvement in irregularities.
The central bank has already barred BFIs from forming more than three subcommittees— risk management, audit and staff management. The new circular says each of these committees should be led by non-executive board members; the chairman of the board cannot get involved in them; and the coordinator of a panel cannot head another.
NRB Spokesperson Bhasker Mani Gnawali said a majority of BFIs have formed such committees and the directive was issued in order to streamline them. “However, we respect the autonomy of individual institutions and that they are also allowed to form subcommittees other than the prescribed in special cases for a certain period,” he said.
As per the NRB directive, a risk management subcommittee should consist of the operation department head of the BFI concerned as member and credit department chief or risk management unit chief as member secretary.
This panel will be responsible for identifying risk, analysing strategies for its mitigation, developing new methodologies if the existing ones fail to manage risk properly, and providing necessary suggestions to the board.
The team is also entrusted with the responsibility to hold discussions on risk assessment, evaluation and monitoring, capital adequacy ratio, Internal Capital Adequacy Assessment Process (ICAAP) and the maximum risk the institution can handle. The committee should suggest the board on developing policies in line with the central bank policies on risk management.
In case of commercial banks and national-level development banks, such a committee should regularly conduct ‘stress tests’, analyse results, and make suggestions to the board.
As far as the audit committee is concerned, it should have the internal audit department head as its member secretary. The committee should analyse remarks of external auditor regarding financial status of the BFI concerned and direct the management to carry out reforms.
It is also required to review whether the remarks and suggestions made by NRB’s supervision report have been executed and inform the board about the matter. It should prepare a detailed action plan about the internal audit process and should ensure its implementation.
In case of the staff management subcommittee, it should include the audit department chief as member and human resource department chief as member secretary.
The panel’s tasks include assessing whether the chief executive officer or other staff members are paid remuneration in violation of the existing law and policies, and make necessary recommendations to the board. The panel is also responsible for drafting staff policy, review the structure of employees, prepare succession plans and recommend them to the board for approval.
Source: Kantipur
