Corporate Structure of Banking Companies in Pakistan

Working of subsidiary with holding companies/NBFI

Hold of SBP on subsidiary and holding

Enables SBP to ask shareholders of banks to divest their share of FHC == needs modification in BCO.

If FHC introduced in law, how it will be defined, ideally it should be non functional and should not have holdings in any non financial concerns.

Changes in Companies Ordinance, BCO to shift to FHC form of structure keeping in view that at least supervision of FHC should vest in SBP, particularly with regard to disclosure requirements, capital, adequacy, fit and proper criteria for BOD.

Privatization open new corporate structures.

Terms:            Banka surance, universal banking,  financial conglomerates (any group of companies under common control)

Types of corporate structures:       integrated (composite), configuration (arrangement of parts), synergies (combined effort being greater than part), contagion (spread of risk)

FHC                                                     Financial Holding Company

Types of Corporate Structure

Universal Bank Approach (BHC)     All financial operations are conducted within single corporate entity. It includes commercial, investment, securities and insurance banking

Bank or Insurer Parent                    variation of financial conglomerates in which parent company is a bank or an insurer. Parent owns one or more subsidiaries than offer other financial services and seperately capitalized.  It includes investment banking activities, insurance activities and other financial activities.

Holding Company Arrangement     

Model activities are conducted in legally distinct entities each with different management and capital but all owned by single financial it includes: FHC (Bank, investment bank, others)

It is easy to monitor fire works to ensure corporate separates. It possess all benefits of present subsidiary mode.

SBP Bank + Share Holding Company +   subsidiary + central depository is a company formed to establish/operate a system for central holding of securities, whether or not listed on stock exchange but it is slightly expensive to implement; regulatory and legal framework will require change, additional costs.

Bank Holding Company Model

For purpose of this Ordinance, a company or body corporate shall be deemed to be subsidiary if:

That other company directly or indirectly controls, beneficially owns or holds more than 5% of voting securities or otherwise has power to elect and appoint more than 50% of its directors.

First mentioned is a subsidiary of any company which is that other’s subsidiary.

Provided that where central depository holds more than 50% of the voting

securities of a company,

such company shall not be deemed to be subsidiary of central depository save where such voting securities are held beneficially by central depository in its own behalf.

A company shall be another’s holding company      

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