On the 13th of July 2023, the Central Bank of Nigeria issued a circular containing corporate governance guidelines applicable to the organizations under its purview including commercial, merchant, non-interest, payment service banks, and financial HoldCos. According to the circular, the Central Bank of Nigeria’s newly implemented corporate governance guidelines will take precedence over all previously issued codes, circulars, and directives related to corporate governance by the CBN.
Let us review five of the key takeaways from these guidelines.
1. No investor will acquire up to a 5% stake in any Nigerian Bank without CBN’s approval
According to Section 20.2 of the guideline, it will be necessary for any investor interested in acquiring a stake of up to 5% in a Nigerian bank to obtain prior approval and a “no objection” clearance from the central bank.
Subsection B states “CBN’s prior approval and No Objection shall be sought and obtained before any acquisition of shares of a bank (including through the capital market), that would result in equity holding of five per cent (5%) and above, by any investor.”
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The introduction of this guideline sparks discussions, particularly in light of recent events within the Nigerian banking industry, such as Oba Otudeko’s acquisition of a 13% stake in First Bank through a cross-deal.
2. Bank MD/CEOs cannot spend more than 12 years at the position.
According to Section 3.2, the Managing Director or Chief Executive Officer of a bank is subject to a tenure limit of twelve years. The section states,
“The tenure of the MD/CEO of a bank shall be by the terms of engagement with the bank but subject to a maximum period of twelve (12) years.”
Section 3.3 of the Guideline speaks of the tenure limit for Deputy Managing Directors (DMD) and Executive Directors (ED) of banks. It is noted that DMDs and EDs of banks are subject to a tenure limit of 12 years, and if an ED becomes a DMD, they are subject to a cumulative tenure limit of 12 years. However, if a DMD or an ED becomes the MD/CEO, their previous tenure as DMD/ED will not be considered when calculating their tenure as MD/CEO.
Under the updated guidelines, the cumulative tenure limit for banking executives who transition from Deputy Managing Directors (DMDs) or Executive Directors (EDs) to assume the role of Managing Director/Chief Executive Officer (MD/CEO) has been extended to 24 years. As stated in Sections 8.1 and 8.2 of the Guidelines,
“The cumulative tenure limit of directors (ED, DMD, MD and NEDs) on the Board of the same bank is twenty-four (24) years.
“The cumulative period is calculated from the date of first appointment to the Board of the bank.”
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The Central Bank of Nigeria made an announcement in February of this year regarding a revision in the tenure limit for executive management and non-executive directors of banks and financial institutions. As per that review, executives were limited to a cumulative tenure of 20 years across the banking industry, 10 years as either DMDs or EDs and 10 years as MD/CEO.
3. No entity can own controlling interests in more than one bank
A controlling interest is obtained when an individual or entity possesses a majority of the voting rights or shares in a bank, typically exceeding 50% of the company’s voting shares. This majority ownership provides the entity with a decisive influence during shareholders’ meetings, granting them a significant say in the bank’s affairs and decision-making processes.
Section 20.2 (a) states, “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 bank.”
4. The Government’s stake in a bank cannot be more than 10%.
Section 20.2 (d) states, “Government’s direct and indirect equity holding in a bank shall not be more than ten per cent (10%), which shall be divested to private investors within a maximum period of five years from the date of investment.”
In Nigeria, the government’s equity holdings in banks are usually achieved through the Asset Management Corporation of Nigeria (AMCON). AMCON is the government agency tasked with the responsibility of acquiring banks that are bogged down with non-performing loans.
Instances of the government assuming control of banks can be traced back to 2011, when the Central Bank of Nigeria, led by Sanusi Lamido Sanusi, initiated banking reforms in Nigeria. These reforms resulted in the closure of certain banks, while others underwent recapitalization and were subsequently taken over by the government. One such bank was Keystone Bank which was held by AMCON between 2011 and 2017.
5. More than two members of a family cannot sit on the board of a bank
According to Section 1.12, “Not more than two members of an extended family shall be on the Board of a bank.”
The guidelines also state that the term “extended family” encompasses various familial relationships, including the director’s spouse, parents, children, siblings, cousins, uncles, aunts, nephews, nieces, in-laws, and any other relationship that may be interpreted as such, as determined by the CBN.
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Also, only one member of an extended family can hold the positions of Managing Director/Chief Executive Officer (MD/CEO), Chairman, or Executive Director (ED).
It is noted that these guidelines would kick in from the 1st of August, 2023.
