KATHMANDU, June 20: In a move aimed at bringing greater discipline and transparency to executive compensation in Nepal’s banking sector, Nepal Rastra Bank (NRB) has introduced strict limits on the salaries and benefits of chief executive officers (CEOs) of banks and financial institutions (BFIs).
The new provisions, unveiled through a guideline issued on Friday, seek to address a long-standing issue that has periodically sparked public debate: the large remuneration packages approved for top executives even as banks face mounting pressure to improve efficiency, governance and financial performance.
Under the revised framework, the salary and allowances of CEOs will now be tied to the size of the institution and its employee expenses, with ceilings varying across different categories of BFIs.
Lending slows as banks focus on recovery of loans at fiscal yea...
For commercial banks, annual salary and allowances may not exceed 0.015 percent of the institution’s total assets from the previous fiscal year or two percent of the average employee expenses of the past three fiscal years, whichever amount is lower.
National-level development banks will be allowed to pay up to 0.020 percent of total assets or three percent of average employee expenses, while national-level finance companies can offer up to 0.050 percent of total assets or three percent of average employee expenses. For microfinance institutions, the cap has been fixed at 0.10 percent of total assets or three percent of average employee expenses.
While imposing limits on fixed remuneration, the central bank has also opened the door for performance-based incentives. CEOs may receive additional benefits linked to institutional performance, but such incentives cannot exceed 20 percent of their annual salary and allowances.
According to the guideline, performance evaluations should be based on indicators such as return on assets, return on capital, profitability, capital adequacy, non-performing loans, liquidity management, risk management, regulatory compliance, customer satisfaction and service quality.
The NRB has also tightened rules governing non-salary perks. Expenditures on professional memberships, telephone and internet services, newspapers and similar facilities cannot exceed 0.50 percent of a CEO’s salary and allowances.
In addition, the regulator has specified that CEOs may be provided with only one mobile phone, one laptop, one vehicle and the necessary fuel and driver required for official duties.
The latest directive reflects the central bank’s broader effort to strengthen corporate governance standards in the financial sector by aligning executive compensation more closely with institutional size, performance and accountability.
