Circulars/Notifications - Banking Policy & Regulations Department

BPRD Circular No. 02 of 2016 March 02, 2016

The Presidents / Chief Executive Officers,

All Banks/DFIs

Dear Sirs /Madams,

Guidelines and Disclosures on Governance and Remuneration Practices

Please refer to the BSD Circular No. 3 of 2007 titled ‘Policy Framework in Banks /
DFIs’ and BSD Circular No. 04 of 2006 titled ‘Revised Forms of Annual Financial
Statements’.
2. Keeping in view the ever expanding risk profiles and the direct link of risk taking
behaviour with remuneration, there is a need to align the remuneration practices
with internationally adopted best principles and standards. Therefore, in order to
provide banks/DFIs with detailed policy guidance on the subject, State Bank of
Pakistan has developed ‘Guidelines on Remuneration Practices’ and minimum
benchmarks for ‘Additional Disclosures on Governance and Remuneration’.
The central idea of these guidelines is to make the Board and senior management
of banks / DFIs more accountable and responsible, and to align their compensation
with risk adjusted performance. The accountability of Board and senior
management also require that the remuneration policies of the institutions and
compensation of their Directors and Executives be disclosed in a fair, transparent
and timely manner.

3. The banks should prepare a comprehensive, transparent and fair remuneration

policy and remuneration setting mechanism in accordance with the guidelines
annexed with this Circular latest by June 30, 2016 and shall report the compliance
of the same to the SBP. For this purpose, the banks shall submit their
remuneration policy, duly approved by their Board, to SBP for information, within
15 days of the deadline. The ultimate responsibility for the compliance with these
guidelines rests with Board of Directors of a Bank and top management.

4. DFIs may appropriately comply with the requirements of these guidelines in

accordance with their size, nature of business and complexities of their
operations. The DFIs shall also submit a copy of their remuneration policy, duly
approved by their Board, to SBP for information, within 15 days of June 30, 2016.

5. The banks/DFIs will be required to disclose the remuneration related matters in

accordance with ‘Additional Disclosures on Governance and
Remuneration’ (attached as Annexure-A to the subject guidelines) on annual
basis. These disclosures requirements shall become effective from December 31,
 2016.

6. In accordance with the new disclosures, the Note No. 39 of existing Forms of
Disclosures, prescribed through BSD Circular No. 04 of 2006, stands replaced with
Tables 3 and 4 as given in the ‘Additional Disclosures on Governance and
Remuneration’. Further, suitable amendments shall be made in the contents
under Note No. 30 i.e., ‘Administrative Expenses’ as prescribed in Table-4 of new
Forms of Disclosures. The banks/DFIs shall provide the information about items
enlisted under the ‘Qualitative Disclosures’ in a separate section related to
Corporate Governance in Chairman’s Report.

7. The banks/DFIs are expected to follow the guidelines on remuneration practices

and provide meaningful and detailed disclosures, in letter and spirit.

Please acknowledge receipt.

Encls: Guidelines & Disclosures (Annexure-A) .

Yours truly,

-sd-

(Shaukat Zaman)
Director