State Bank of Pakistan (SBP) has directed all local banks to repatriate 50 percent of their profit from overseas operations to their headquarter based in Pakistan.
This profit repatriation by local banks shall be subject to the laws and regulations of the host country, which will be calculated by banks after meeting the minimum capital requirements prescribed by the regulator of the host country.
The bank should maintain Return on Equity (ROE – profit after tax/total capital) at par with private banks of the host countries.
Late but right, the central bank has come up with the Governance Framework for Banks’ Overseas Operations after a few of the local banks encountered severe regulatory issues in maintaining their overseas operations. Habib Bank Limited’s branch in New York was shut down with heavy penalty, United Bank Limited and National Bank of Pakistan also face similar observations from the foreign regulators for not complying the rules and laws of the host country.
The framework is aimed at strengthening banks’ capacity to understand, identify and manage various risks posed by its foreign operations.
According to SBP, the bank shall, within three months of issuance of this framework, formulate a country-wise board-approved strategic plan, as part of its overall strategy or separately, with well-defined and measurable deliverables. The implementation of strategy and achievement of deliverables shall be monitored periodically at senior management and board level.
The bank shall ensure that all correspondent banking relationships by bank’s overseas branch operations are established after prior approval of the relevant approving authority at the headquarter. The bank shall implement the concept of global treasury whereby all treasuries operating in different jurisdictions shall functionally report to the head of global treasury at head office.
Business Continuity Plan
The bank shall prepare a Business Continuity Plan (BCP) for its operations in all overseas jurisdictions in line with the host country regulatory requirements. In cases where there is no such host country regulatory requirement, the bank may follow SBP guidelines/instructions for developing a BCP.
The culture of accountability shall prevail in the bank at all levels and responsibility shall be fixed on individuals for not complying with the host country regulatory instructions as and when such instances are identified. There shall be a zero tolerance towards regulatory non-compliance.
The bank with overseas operations assets of over USD 1 billion, shall consider forming a separate sub-committee of the board to oversee its overseas operations (the oversight function can also be assigned to an appropriate existing committee).
Besides, all high-risk internal/external audit observations and supervisory concerns of overseas operations shall invariably be reported to the Board Audit Committee (BAC).
The banks are advised to ensure strict compliance of the framework in letter and spirit and within the given timelines.