NRB to put a cap on bank directors´ pay
KATHMANDU, May 6:
In its bid to strengthen corporate governance of banks and financial institutions, the central bank is mulling over bringing a regulation to cap pays and perks of banks and financial institutions’ board members.
This will be an extension of the regulation that had put a cap on the remuneration of chief executive officers of commercial banks. The recent instances of liquidation of Nepal Bikas Bank and Samjhana Finance have brought to light the reckless decisions of the board of directors that invited the failure of these financial institutions, jeopardising the funds of numerous depositors. Gurkha Development Bank was also declared problematic as the chairman and board members were found to be involved in illegally using the bank’s funds which has affected the financial health of the Class-B financial institution.
“NRB is collecting suggestions from Nepal Bankers Association, Nepal Development Bankers Association and Nepal Finance Company Association before finalising the regulation,” said Bhaskar Mani Gyanwali, spokesperson for the central bank, adding that the central bank is doing homework on how to introduce any such directive to regulate the allowances and facilities being given to the directors.
“If a regulation is introduced then a guideline will be set regarding the payment and facilities for directors of banks and financial institutions so that they are not able to demand any unreasonable perks that might harm the banks and financial institutions’ financial standing,” he added.
Moreover, by regulating the facilities and remuneration of the directors, the central bank also aims at reducing the operation cost of banks and financial institutions. The directors’ pay and perks are directly related to company’s expenses. Higher their pay and perks, lower the return of shareholders as the ‘uncontrolled’ pay and perks eat into the profits.
The monetary policy for fiscal year 2010-11 had mentioned that ‘necessary provisions will be introduced to make compensation of promoters, chief executive officers and other high-class officials of banks and financial institutions compatible and acceptable to the capacity of the financial system of the country and for their complete transparency’. This will be another such attempt at promoting corporate governance in banks and financial institutions.
The guidelines made public in December 2011 had put the cap on the salary and benefits being doled out to the chief executives of commercial banks. The regulation had directed to provide fixed annual compensation not exceeding five per cent of total average expense for all employees over the last three years.
The bankers have widely flayed the salary regulation by the central bank as intervention in the internal matter of a bank and being against the norms of free market economy. The central bank issued the guidelines to curb the high risk taking tendencies among the chief executives in the view of obtaining added perks and benefits that would have eventually pushed the whole financial system to collapse.
Source: THT
In its bid to strengthen corporate governance of banks and financial institutions, the central bank is mulling over bringing a regulation to cap pays and perks of banks and financial institutions’ board members.
This will be an extension of the regulation that had put a cap on the remuneration of chief executive officers of commercial banks. The recent instances of liquidation of Nepal Bikas Bank and Samjhana Finance have brought to light the reckless decisions of the board of directors that invited the failure of these financial institutions, jeopardising the funds of numerous depositors. Gurkha Development Bank was also declared problematic as the chairman and board members were found to be involved in illegally using the bank’s funds which has affected the financial health of the Class-B financial institution.
“NRB is collecting suggestions from Nepal Bankers Association, Nepal Development Bankers Association and Nepal Finance Company Association before finalising the regulation,” said Bhaskar Mani Gyanwali, spokesperson for the central bank, adding that the central bank is doing homework on how to introduce any such directive to regulate the allowances and facilities being given to the directors.
“If a regulation is introduced then a guideline will be set regarding the payment and facilities for directors of banks and financial institutions so that they are not able to demand any unreasonable perks that might harm the banks and financial institutions’ financial standing,” he added.
Moreover, by regulating the facilities and remuneration of the directors, the central bank also aims at reducing the operation cost of banks and financial institutions. The directors’ pay and perks are directly related to company’s expenses. Higher their pay and perks, lower the return of shareholders as the ‘uncontrolled’ pay and perks eat into the profits.
The monetary policy for fiscal year 2010-11 had mentioned that ‘necessary provisions will be introduced to make compensation of promoters, chief executive officers and other high-class officials of banks and financial institutions compatible and acceptable to the capacity of the financial system of the country and for their complete transparency’. This will be another such attempt at promoting corporate governance in banks and financial institutions.
The guidelines made public in December 2011 had put the cap on the salary and benefits being doled out to the chief executives of commercial banks. The regulation had directed to provide fixed annual compensation not exceeding five per cent of total average expense for all employees over the last three years.
The bankers have widely flayed the salary regulation by the central bank as intervention in the internal matter of a bank and being against the norms of free market economy. The central bank issued the guidelines to curb the high risk taking tendencies among the chief executives in the view of obtaining added perks and benefits that would have eventually pushed the whole financial system to collapse.
Source: THT
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