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Mixed reactions trail CBN banking reforms

BY PETER EGWUATU & MICHAEL EBOH
Mixed reactions are trailing the new regulations  introduced by the Central Bank of Nigeria (CBN) which stipulate that  Managing Directors of banks who have served for 10 years and above should  quit from  July, 2010.

SanusiThe immediate victims of the regulations are: Mr. Tony Elumelu, Managing Director of UBA Plc, Mr. Jim Ovia, Managing Director of Zenith Bank Plc and Mr. Akinsola Akinfemiwa of Skye Bank Plc are already affected.

A cross section of people who spoke to Sunday Vanguard on the issue of 10-year tenure limit for chief executives of banks criticized the decision saying “ It is undue interference by the apex bank to the running of these banks that are privately owned ” while others said “It is a good thing that has happened in the present generation as this would help promote corporate governance in the banking sector.

Chinenyem Anyanwu, Managing Director, Dependable Securities said, “ The tenure limit is good, it is a welcome development. As people overstay they seem to lose focus. It is a welcome development that they have to leave after ten years or having met ten years. Most of them think without them the entity cannot function effectively even when it is obvious that they have outlived their usefulness.”

Continuing, he said, “I don’t think it will have any negative effect on the share price of the banks because the managing directors were affected. When a fresh person is coming to a new place it will take time for the him or her to understand the system before making any meaningful impact.

But if somebody that has been groomed takes over from his or her predecessor it is expected that the person will perform well having known the system.

I am not sure there is a law that says the managing directors that are expected to quit can not be on the Board, or leave the position and become the Chairman. So even though he has contributions he did not make while he was there, he can still put it into practise.” Mr. David Adonri, Managing Director, Lambeth Trust and Investment Limited said,  “Such a change is usually expected to positively impact on the management of those banks and translate into better profit for the shareholders.

To that extent, the policy, I believe, shareholders will welcome, as it is expected to impact positively on the stocks in the market.  It is a risk when new leadership emanates in an organisation, because it is difficult to foretell how such leadership can transform the fortune of the organisation. But if the emerging leaders have developed through the internal systems of the organisation, then, it is expected that they will understand the systems in the organisation very deeply and have good ideas to build on what has been passed over to them.

To that extent, therefore, I think that the leaders that will emerge from these banks will evolve from the banks and will know almost everything about the banks and will be able to take them to higher levels.

“Also, leaders who have serve more than ten years, obviously, they would have already given their best, so there is little or nothing more that shareholders expect from them.

For the fact that new people are coming, fresh blood are being injected, is enough for higher investors’ confidence in these institutions, which will translate, even in the short run, to a positive fate for the stocks of the banks in the market.  When eventually the performances of the new leaders start impacting on the results, either positively or negatively, it will determine the direction of the stock in the market. But, initially, there will be that euphoria about those just coming in, and this will impact on the stocks, thereafter, the result will determine the performance of the stocks and also determine the qualities of the new leaders and evaluation of the stocks in the market.”

Sir. Sunny Nwosu, President, Independent Stockbrokers Association of Nigeria (ISAN), said the decision was unnecessary, arguing that the CBN should concentrate its efforts on reforming the economy, which he said has failed. This is not a right decision at all,

“It is not necessary. These people (bank chieftains) are private entrepreneurs, who set up their investments, and as at the time they did, there was no law that they would vacate their offices after a certain period of time. “If we are talking about free-enterprise, the question of limiting the tenure for chief executives should not be there at all.”

Bismarck Rewane, the Managing Director, Financial Derivatives Company said , “ The problems of the Nigerian banking sector runs deeper than the tenure of CEOs. “If that is the problem, maybe with this move, things will begin to improve.

“Maybe credit will start to flow, power will stabilise and the economy will start to flow, power will stabilise and the economy will start to boom.” He said a better understanding of the situation will unfold in the days ahead.  “Let us wait until we see the official Central Bank statement and see if it is consistent with the laws that have been passed before.

Right now, it will be pre-emptive to make comments,”“You have to make difficult choices in your life, and you just have to be happy with them.” – Lori Laughlin quotes Mr. Olufemi Awoyemi, “Chief Executive Officers, Proshare Nigeria Limited said, So tenure guarantee, as defined in their contracts, is up in the air, and there is nothing the board of the bank can do about it – Memart and Companies and Allied Matters Act( CAMA ) notwithstanding.

Is it any wonder therefore that stakeholders are left wondering whether the CEO’s would surrender their independence under such a ruling by CBN under a democracy and not a military government? As one respected market analyst said to me: “Which was a more profound announcement – the 14/08 sack of rescued bank CEO’s or the 20/01 exit notification of cleared bank CEO’s?”

Continuing he said, “ The nature of the CBN’s directive not only surprised a few but its rhetoric as declared in the seven-point announcement raised the usual concerns that have often plagued the CBN in its good intentions. The role and place of sit-tights founders/CEO’s has always been with us for as long as the history of the country can be recalled and if anything, any discussion on the failing of the country will not be complete without addressing this issue in our public and private firms; not just the banks.

The banks however have been more prominent in the national discourse simply because of the critical role and perhaps overbearing role they play in determining our economic well being. If therefore the case is made about corruption, we cannot engage in this discussion without recognising the role played by these institutions.”

It will be recalled that the new CBN guideline states: In furtherance of the on-going banking reforms, the Central Bank of Nigeria pursuant to the powers conferred on it by Banks and Other Financial Institutions Act (BOFIA), Laws of the Federation of Nigeria, (LFN), 2004 has issued the following guidelines to address some corporate governance issues in the deposit money banks:    *Chief Executive Officers, CEO of banks shall serve a maximum tenure of ten years.
*All CEOs who would have served for ten years by July 31, 2010 shall cease to function in that capacity and shall hand over to their successors.

*Where a bank is a product of merger, acquisition, take-over or any other form of combination, the ten–year period shall include the pre and post combination service years of a CEO provided that the bank in which he previously served as CEO was part of the new bank that emerged after the combination.

* Any person who has served as CEO for the maximum tenure in a bank shall not qualify for appointment in his former bank or subsidiaries in any capacity until after a period of three years after the expiration of his tenure as CEO.
*The Governor/Deputy Governors of the CBN and the Managing Director/CEO and Executive Directors of the Nigeria Deposit Insurance Corporation, NDIC shall not be eligible for appointment in any capacity in banks until after the expiration of five years from the date of their exit from the CBN or NDIC as the case may be.

*The Departmental Directors of the CBN and the NDIC shall not be eligible for appointment in any capacity in banks and their subsidiaries under the supervision of the CBN and NDIC until after the expiration of three years from the date of their exit from the CBN or NDIC as the case may be.

*Henceforth, all banks shall reflect the provisions of these guidelines in the terms of engagement of their CEOs. These guidelines shall apply notwithstanding the terms of any contract of engagement or the provisions of the Memorandum and Articles of Association of any bank.


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