Central Bank of Nigeria Implements Term Limits for Bank Executives, Aims to Enhance Corporate Governance

The Central Bank of Nigeria (CBN) has announced significant changes to the tenure of bank executives, with a new regulation set to take effect on August 1, 2023. In an effort to improve corporate governance within the banking sector, executives in top positions, including Executive Directors, Deputy Managing Directors (DMDs), and Managing Directors (MDs), will no longer be able to serve for more than 24 years, according to the CBN.

The directive, signed by Chibuzo Efobi, the Director of the Financial Policy and Regulation department, was released in Abuja. The circular, identified as ‘FPR/DIR/PUB/CIR/001/078,’ stated that the regulation was enacted in accordance with the powers vested in the CBN by the Central Bank of Nigeria (CBN) Act 2007 and the Banks and Other Financial Institutions Act 2020.

“The Central Bank of Nigeria (CBN) hereby issues the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Services Banks in Nigeria, and the Corporate Governance Guidelines for Financial Holding Companies in Nigeria,” the circular emphasized. It further explained that these guidelines were developed by adapting relevant principles and recommended practices from the Nigerian Code of Corporate Governance issued by the Financial Reporting Council in 2018, as well as global corporate governance practices and other related codes, circulars, and directives issued by the CBN.

Banks and financial holding companies were urged to take note of the responsibilities imposed on their boards by these guidelines, particularly highlighting the role of Executive Compliance Officers where applicable. The CBN emphasized that these new guidelines supersede all previous codes, circulars, and directives related to corporate governance issued by the CBN.

The circular specifically mentioned the cumulative tenure limit of 24 years, as outlined in Section 8 of the Guidelines. According to Section 8, directors (ED, DMD, MD, and NEDs) on the Board of the same bank are limited to a cumulative tenure of twenty-four (24) years.

Additionally, the new circular introduced a cooling-off period of two years for executive directors after reaching their maximum tenure. They must serve this cooling-off period before becoming eligible for appointment as non-executive directors in the same bank, subject to applicable tenure limits.

Independent non-executive directors will have a maximum tenure of eight years, not exceeding two terms of four years each. The circular stated, “An Executive (ED, DMD, or MD/CEO) who exits from the Board of a bank either upon or before the expiration of his/her maximum tenure shall serve out a cooling period of two (2) years before being eligible for appointment as an NED in the same bank, subject to applicable cumulative tenure limits. Where an Executive (ED, DMD, or MD/CEO) of a bank is appointed to the Board of its FHC in any role, a cooling-off period of two years shall apply.”

Furthermore, according to the new guidelines, non-executive directors can serve a maximum of 12 years, consisting of three terms of four years each. The circular added, “NEDs (excluding INEDs) of a bank shall serve for a maximum of twelve (12) years, comprising three terms of four years. To qualify as an NED in a bank, the proposed NED shall not be an employee of a financial institution unless the bank is promoted by that financial institution and the proposed NED represents the interests of that financial institution. In the case of a commercial bank with a NIB window, at least one NED shall be knowledgeable and/or have experience in the field of Islamic finance or Islamic Commercial Jurisprudence.”

The implementation of these new guidelines aims to enhance corporate governance in Nigeria’s banking sector by ensuring fresh perspectives and preventing the concentration of power among bank executives.