CBN Sets Fresh Limits on Shareholdings, Insider Loans in Banks
The Central Bank of Nigeria (CBN) has raised the bar on banking regulation in reaction to an apparent breakdown in corporate governance in some large balance sheet financial institutions in the country, including smaller ones.
The apex bank’s move to implement the code of corporate governance released by the Financial Reporting Council (FRC) in 2019 was driven by ongoing issues following a large share acquisition by Honeywell Group’s chairman Oba Otudeko.
The erstwhile FBNH chairman was ousted from the board two years ago having large insider loans priced below market rates, a usual practice among deposit money banks in Nigeria.
In what some analysts tagged as a hostile takeover, Otudeko raised shareholding to 14.8% in FBN Holdings Plc to re-assume Chairman’s position in the financial services holdings company.
MarketForces Africa reported that the majority of Nigerian banks’ leadership is rather after insider loans benefit often priced significantly below commercial rates. This has resulted in write-offs without recourse.
In a new circular to commercial, merchant, non-interest, payment services bank and financial holdings company released last week, the apex bank announces a change in the corporate governance code.
The adjustment includes control over related party transactions and insider loans among other pressing issues related to the operation of the payment service banks (PSB)
Based on shareholding structure information, some major Nigerian banks are owned and controlled by a few shareholders due to lapses in the corporate governance code that has persisted for a long time despite serial reaction from the markets.
Though listed, big banks and some tier-2 lenders have been under the control of a few shareholders and their families, owning about 10% of shares outstanding in contravention of global best practices.
The new guideline 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 bank.
It added that 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 per cent (5%) and above, by any investor.
“Where the CBN has an objection on any acquisition, notice of the objection shall be communicated to the bank, and the bank shall notify such investor(s) within forty eight (48) hours.
“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.
“For existing investments above five years, the bank shall comply with the provision within two years from the effective date of this Guidelines,” the circular added.
In relation to related party transactions, the circular stated that any director whose facility or that of his/her related interests remains nonperforming in any financial institution for more than one year shall cease to be on the Board of the bank.
Such a director shall be ostracised from sitting on the Board of such bank and any other financial institution, adding that no director-related loans and/or interest shall be written off without the CBN’s prior approval.
The new update, according to analysts, is expected to bring sanity to banks’ internal parties relationship, insider loans, and trading as well as shareholding structure. #CBN Sets Fresh Limits on Shareholdings, Insider Loans in Banks’ #Nigerian Treasury Bills Yield Rises to 7%
