The Central Bank of Nigeria (CBN) has said it would sanction any bank directors with loans that remain non-performing for more than 12 months.
The warning is contained in a new corporate governance guideline for commercial banks, financial holding Companies (FHCs), merchant banks, and non-interest and payment service banks signed by Director, financial policy and regulation in the CBN, Chibuzo Efobi.
The new guidelines which are expected to take effect on August 1, 2023, will supersede all previous codes, circulars, and related directives on corporate governance issued by the CBN.
The apex stated that 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 a 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’ rights, 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 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 per cent) and above.
“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 guidelines stated that the government’s direct and indirect equity holding in a bank shall not be more than ten percent (10 percent), which shall be divested to private investors within a maximum period of five years from the date of investment.
Get our approval before acquiring a 5% stake in any bank, CBN tells investors
The Central Bank of Nigeria (CBN) has said that any investors planning to acquire a five percent stake in any bank operating in the country will need to obtain prior approval and no objection from the apex bank.
The new Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks released by CBN over the weekend, the apex bank said that no individual or group of individuals or corporate entities shall own controlling interest in more than one bank.
Under the protection of shareholder’s rights provisions, the new regulations attempt to address recent events in the capital market affecting some commercial banks in the country.
The guidelines specifically said, “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 percent and above, by any investor.”
“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,”
The new regulation also states that where the apex bank has an objection to any of the acquisition, the notice of the objection must be communicated to the bank. The bank then has 48 hours to notify.
“Where the CBN has an objection on any acquisition as stated in Section 20.2 notice of the objection shall be communicated to the bank, and the bank shall notify such investor(s) within forty-eight (48) hours.”
For government ownership in the bank the protection of shareholders rights regulation also said “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,” it added.
For existing investments above five years, the central bank said the bank shall within two years from the effective date of this Guideline, comply with the provision.”
The central bank regulation also addresses Financial Holding Companies (FHC), and activities around mergers and acquisitions.
According to the regulation, no director or shareholder can change control of a bank without the prior approval of the bank. It also does not allow the transfer of 5 per cent and above of a bank to any shareholder without the prior approval of the CBN.
No FHC or any of its directors, shareholders, or agents shall enter into an agreement that results in a change of control of the holding.
It said CBN’s 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 percent and above.
