Pakistan’s banking sector has entered a new phase of governance reform as the State Bank of Pakistan (SBP) introduces key amendments to its Corporate Governance Regulatory Framework (CGRF). The updated rules redefine how banks and Development Finance Institutions (DFIs) are categorized and, more importantly, how much their board members can be paid for attending meetings.
Issued through a circular by the Banking Policy & Regulations Department, the updated framework aims to bring governance practices in line with institutional size, profitability, and systemic importance while ensuring that governance costs remain justified and transparent.
Why SBP Revised the Corporate Governance Framework
Corporate governance has become a growing focus for regulators worldwide, especially following periods of economic stress, rising compliance costs, and increased scrutiny of board oversight. In Pakistan, the State Bank of Pakistan has been gradually tightening governance norms to ensure that bank boards remain effective, independent, and accountable.
The latest revision addresses a key governance issue: directors’ remuneration for board and committee meetings, which previously lacked standardized caps linked to financial scale.
By introducing objective thresholds and remuneration ceilings, SBP aims to:
- Prevent excessive board compensation
- Align remuneration with financial performance and asset size
- Improve governance consistency across the banking sector
- Protect stakeholder and depositor interests
Revised Bank & DFI Categorization Explained
Under the updated CGRF, banks and DFIs will now be divided into two categories, based on their most recent audited annual accounts.
Category One: Systemically Large or Highly Profitable Institutions
A bank or DFI will be placed in Category One if it meets either of the following conditions:
- Total assets exceeding Rs1 trillion, or
- After-tax profits greater than Rs5 billion
These institutions typically operate at a national or systemic level, with complex operations, larger balance sheets, and heightened regulatory expectations.
Category Two: Mid-Sized and Smaller Institutions
All other banks and DFIs that do not meet the asset or profitability thresholds fall into Category Two. While still subject to strict governance requirements, these institutions operate on a comparatively smaller scale.
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Detailed Overview of Directors’ Remuneration Caps
One of the most impactful changes is the introduction of explicit monetary limits on directors’ meeting fees, applicable to both board meetings and committee meetings.
Maximum Remuneration Per Meeting
- Category One institutions:
- Up to Rs1.2 million per director per meeting
- Category Two institutions:
- Up to Rs750,000 per director per meeting
These caps standardize remuneration practices, reduce ambiguity, and create a level playing field across the industry.
Impact on Bank Boards and Governance Costs
The revised caps are expected to influence several aspects of board governance:
Compensation Structuring
Banks may need to review and adjust board compensation frameworks to ensure compliance with the new limits.
Board Efficiency
With clearer remuneration boundaries, boards may focus more on quality of oversight rather than quantity of meetings.
Transparency and Public Trust
Standardized caps reduce reputational risk and strengthen confidence among investors, regulators, and the general public.
Regulatory Compliance
Banks will need to update internal governance policies and ensure alignment with SBP’s revised framework.
What Has Not Changed in the CGRF
State Bank of Pakistan has emphasized that all other governance requirements remain unchanged, including:
- Board composition and independence criteria
- Fit and proper requirements for directors
- Committee structures and responsibilities
- Disclosure and reporting obligations
This ensures regulatory continuity while addressing a specific governance gap.
Broader Implications for Pakistan’s Financial Sector
The revised Corporate Governance Regulatory Framework reflects SBP’s broader vision of building a resilient, transparent, and well-governed banking system. As economic conditions remain challenging, strong governance at the board level is increasingly seen as a cornerstone of financial stability.
For banks and DFIs, the message is clear:
Governance standards will rise in proportion to size, profitability, and systemic impact.
Institutions that proactively adapt to these changes are likely to benefit from improved regulatory relationships, enhanced investor confidence, and stronger long-term sustainability.
Conclusion: A Step Toward Stronger Governance Discipline
The SBP’s latest amendments may appear technical, but their impact is far-reaching. By clearly defining institutional categories and capping directors’ remuneration, the regulator is reinforcing discipline, accountability, and fairness across Pakistan’s banking sector.
As governance expectations continue to evolve, banks and DFIs must treat compliance not as a regulatory burden, but as a strategic investment in credibility and long-term growth.
