CBN To Blacklist Bank Directors With Bad Loans

In continuation of financial reforms introduced since the inauguration of President Bola Ahmed Tinubu, the Central Bank of Nigeria (CBN) has said it would sanction and blacklist bank directors with loans that remain non-performing for more than one year.

The CBN had earlier abolished the multiple exchange rate regime  In a circular it released last month, it said all segments of the forex market had been collapsed into the Investors and Exporters (I&E) window.

In the recent reforms, the apex bank also revised the Cash Reserve Ratio (CRR) of merchant banks to 10 per cent from 32.5 per cent.

CBN director, banking supervision,  Haruna Mustafa disclosed this in a letter to all Merchant banks dated July 14, 2023.

The CRR is the share of a bank’s total customer deposit that must be deposited with the central bank.

The new fresh cut reverses significantly, the increase in the CRR by the Monetary Policy Committee (MPC) last September from 27.5 percent to 32.5 per cent to tame inflationary pressure.

Meanwhile, a new corporate governance guideline for commercial banks, financial holding Companies (FHCs), merchant banks, non-interest and payment service banks was released on Friday by the CBN.

“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 guidelines stated.

The CBN said no loan/advance and interest thereon to a director of an FHC by the banking subsidiary shall be written-off without its prior approval.

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 says 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 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.

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.

It says 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 per cent 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.

In a circular signed by Chibuzo Efobi, CBN’s director, financial policy and regulation, the apex bank said the guidelines take effect August 1, 2023.

The circular said the new guidelines supersedes all previous codes, circulars, and related directive 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 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.

Following the pronouncement of the FRC, 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 CBN said.

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.”