CEM REPORT, FINANCE | Henceforth, bank directors with loans that remain non-performing for more than one year would be sanctioned by the Central Bank of Nigeria (CBN).
This is as the CBN increased the tenure of the Managing Director/Chief Executive of banks to a maximum of 12 years from 10 years.
According to a new guideline by the apex bank, no loan/advance and interest thereon to a director of a Financial Holding Company (FHC) by the banking subsidiary shall be written off without its prior approval.
This is according to the new corporate governance guidelines for commercial banks, financial holding Companies (FHCs), merchant banks, and non-interest and payment service banks, released by the CBN.
The new regulation which spells out blacklisting as sanction for directors with non-performing loans takes effect August 1, 2023.
“Any director whose credit facility or that of his/her related interests remains non-performing in the banking subsidiary of an FHC, for more than one year, shall cease to be on the Board of the Financial Holding Company (FHC) shall be blacklisted from sitting on the Board of such banking subsidiary or that of any other financial institution under the purview of the CBN.”
A circular signed by Chibuzo Efobi, CBN’s director, of financial policy and regulation, stated that the new guidelines supersede all previous codes, circulars, and related directives on corporate governance issued by the CBN.
“Banks and financial holding companies are invited to note the responsibilities imposed on their boards by these guidelines and especially on the executive compliance officers (where applicable)”, the circular stated.
The CBN’s new guidelines stipulate a maximum 12-year tenure for Managing Director/Chief Executive of banks from 10 years.
The apex bank also increased the tenure of Deputy Managing Director (DMD/Executive Director (ED) of a bank to a maximum period of 12 years.
The apex bank’s guideline also prescribed that all services between an FHC and its subsidiaries will be guided by Service Level Agreements (SLAs) and/or shared services arrangements in line with the CBN Guidelines for Shared Services Arrangements for Banks and Other Financial Institutions.
Furthermore, the guidelines stated that except where prior approval of the CBN is granted, no individual, group of individuals, their proxies or corporate entities shall own controlling interest in more than one FHC.
It says except with the prior written approval of the CBN, no FHC or any of its directors, shareholders or agent shall enter into an agreement which results in: a change in the control of the FHC, the transfer of shareholding of 5 per cent and above in the FHC; and/or an increase in shareholding to 5 per cent or more in the FHC.
It added that its prior approval with no objection, shall be sought and obtained, before any acquisition of shares of an FHC by an investor (including through the capital market), that would result in equity holding of five per cent (5%) and above.
The guidelines stated that “government’s direct and indirect equity holding in a bank shall not be more than ten per cent, which shall be divested to private investors within a maximum period of five years from the date of investment.”
The CBN stated that the objectives of the guidelines are to among other things provide additional guidance on the principles, recommended practices, and responsibilities contained in NCCG 2018; outline industry-specific corporate governance standards for banks; and promote high ethical standards amongst operators, while enhancing public confidence.
Also, in line with the Nigeria Code of Corporate Governance (NCCG) 2018, the apex bank further stipulated that no board of a bank shall consist of only one gender.
The apex bank explained that the guidelines followed the pronouncement of the Financial Reporting Council of Nigeria (FRCN) for sector regulators to issue sector-specific guidelines on corporate governance for institutions under their regulatory purview.
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The CBN has, therefore, adopted the principles and recommended practices of NCCG 2018 in developing the new guidelines for affected entities, taking into account, the peculiarities of the sub-sectors.
The central bank said the regulation was issued pursuant to the provisions of Section 2(d) of the CBN Act 2007, and Sections 56(2) and 67(1) of the Banks and Other Financial Institutions Act (BOFIA 2020).
