The Central Bank of Nigeria (CBN) said it would blacklist bank directors with loans that remain non-performing for more than 12 months.
This was contained in the new corporate governance guidelines for commercial banks, financial holding Companies (FHCs), merchant banks, non-interest and payment service banks, released on Friday by the apex bank.
The circular signed by Chibuzo Efobi, CBN’s director, financial policy and regulation said the guidelines will take effect August 1, 2023.
Accordung to the guidelines, “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.”
The CBN stated that no loan/advance and interest thereon to a director of an FHC by the banking subsidiary shall be written-off without its (CBN) prior approval.
The apex regulator further stated that a subsidiary of the FHC, which renders services to the FHC may extend similar services to other entities within the Group that so desire, on the same terms and conditions, the guidelines stated.
It also stated that all intra-group transactions shall be conducted at arm’s length and in compliance with the extant laws and regulations guiding the operations of the entities.
The CBN also directed 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.
Under protection of shareholders right, 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.
According to the guidelines, except with the prior written approval of the CBN, no FHC or any of its director, shareholder 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 percent or more in the FHC.
The CBN said its prior approval and 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 circular said the new guidelines supersedes all previous codes, circulars, and related directive on corporate governance issued by the CBN.
It added: “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 Financial Reporting Council (FRC) of Nigeria in 2019 issued the Nigerian Code of Corporate Governance (hereinafter referred to as “NCCG 2018”) as the single Corporate Governance Code for the country.
The NCCG 2018 replaced all sectoral codes in Nigeria including the extant Code of Corporate Governance for Banks and Discount Houses in Nigeria issued by the Central Bank of Nigeria (CBN) in May 2014.
Sequel to the FRC’s pronouncement for sector regulators to issue sector-specific guidelines on corporate governance for institutions under their regulatory purview, the CBN said it has adapted the Principles and Recommended Practices of NCCG 2018 in developing this Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks (hereinafter referred to as “bank(s)”), taking into account, the peculiarities of the sub-sectors.
“The CBN, 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), hereby issues this regulation to be cited as the “Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks in Nigeria.
The guidelines stated that the 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”, the CBN added.