In a bid to enhance transparency, accountability, and corporate governance in Nepal’s banking sector, Nepal Rastra Bank (NRB) has introduced new limits on the salaries and benefits of chief executive officers (CEOs) of banks and financial institutions (BFIs).
The new provisions, issued through a guideline on Friday, aim to address concerns over hefty remuneration packages granted to top executives despite growing pressure on banks to improve efficiency, governance, and financial performance.
Under the revised framework, CEOs’ salaries and allowances will be linked to the size of the institution and its employee-related expenses, with different ceilings set for various categories of BFIs.
For commercial banks, annual salary and allowances for CEOs cannot exceed 0.015 percent of the institution’s total assets of the previous fiscal year or two percent of the average employee expenses of the past three fiscal years, whichever is lower.
Similarly:
- National-level development banks may pay up to 0.020 percent of total assets or three percent of average employee expenses.
- National-level finance companies may offer up to 0.050 percent of total assets or three percent of average employee expenses.
- Microfinance institutions are permitted to provide up to 0.10 percent of total assets or three percent of average employee expenses.
While placing limits on fixed compensation, the central bank has allowed performance-based incentives. However, such incentives cannot exceed 20 percent of the CEO’s annual salary and allowances.
According to the guideline, performance assessments should take into account factors including:
- Return on assets;
- Return on capital;
- Profitability;
- Capital adequacy;
- Non-performing loan levels;
- Liquidity management;
- Risk management;
- Regulatory compliance;
- Customer satisfaction; and
- Service quality.
The NRB has also tightened regulations regarding non-salary benefits. Expenses related to professional memberships, telephone and internet services, newspapers, and similar facilities must not exceed 0.50 percent of a CEO’s salary and allowances.
In addition, the central bank 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 forms part of the NRB’s broader efforts to strengthen corporate governance standards and ensure that executive compensation is more closely aligned with institutional size, performance, and accountability.
