Bank CEOs explore options to challenge salary cap

KATHMANDU, Dec 1: Chief executives of banks and financial institutions that were irked over Nepal Rastra Bank´s (NRB´s) move to cap their perks and benefits have decided to explore all options, including legal action, to annul the central bank´s latest instruction.

During a meeting Tuesday, when the top honchos of the banking sector discussed ways to respond to a set of NRB guidelines issued on Friday, many of the bankers argued that the imposition of cap on their salary and incentives by the central bank has infringed the authority of the board of BFIs.

“Going by the existing laws, the board of directors of the banks and financial institutions is the authority to take a decision on such issues. By imposing the cap, NRB has made a mockery of the law,” said a participant of the meeting.

But bankers also assessed that they will need the board´s support to challenge the central bank and have decided to hold discussions with their respective boards in this connection.

Before they explore other options, bankers have decided to first request the central bank to review its decision.

“The central bank´s move clearly goes against its previous understandings in this connection. It will not help address concerns seen in the sector,” said a member of Nepal Bankers´ Association (NBA).

He told Republica that NBA would soon handover a grievance letter to the NRB as well. The bankers have argued that CEO salary was never a matter of concern in Nepal.

“No banks in Nepal have ever faced problems due to the salary of CEO. All its problems so far has to do with weaknesses in corporate governance,” said the NBA member. NBA has also noted that the central bank´s cap goes against the principle of risk management.

The central bank had imposed cap on CEOs perks and benefits on Friday, under which it asked BFIs to limit the annual salary and allowances of chief executives to less than 5 percent of the average employee bill of last three fiscal years or less than 0.015 percent of the company´s total assets, whichever is less.

The guideline was issued after some of the promoters, experts and lawmakers raised concerns over BFIs spending heavy amount on salary and benefits to the CEOs. Currently, the perks and salary of a CEO of a national level commercial bank ranges from Rs 500,000 to Rs 2 million a month.

Although the new rule does not affect existing perks and benefits, some of the CEOs said it could just be a starting point, and if not challenged now, the central bank could enforce it effective from any given date it might prefer.

Others, on the other hand, opined it would block innovation and entry of competent personalities in the industry. “How will a new bank attract competent chief executive with such a cap in place?” said another banker, adding that the move has checked expansion and growth of the industry.

Moreover, bankers said that the provision will hit the chief executives of development banks and finance companies the hardest.

http://www.myrepublica.com/portal/index.php?action=news_details&news_id=25737