Will CBN’s new guidelines on tenure limits result in management modifications at banks?

In information that might have simply slipped beneath the radar final week, Nigeria’s Central Financial institution introduced an essential change within the tenure limits of banking executives and non-executive administrators. Essentially the most vital shift by the CBN is that bankers will now serve a most whole of 20 years as government or non-executive board members. Tenure limits for financial institution executives had been introduced in 2010 by former CBN governor Sanusi Lamido to enhance company governance. The 2010 guidelines set a restrict of two phrases of 5 years every.

These limits led to the ouster of Jim Ovia and Tony Elumelu in July 2010 as CEO of Zenith Financial institution and UBA financial institution, respectively. Per the identical 2010 guidelines, these financial institution executives couldn’t be appointed to different roles on the financial institution (or its subsidiaries) for 3 years. It explains why Tony Elumelu and Jim Ovia grew to become Chairmen of UBA Group and Zenith Financial institution, respectively, in 2014. 

Beneath CBN’s new tenure restrict shared final week, each males must depart subsequent yr, which marks their twentieth yr as high executives. The rule will have an effect on different financial institution executives like Segun Agbaje, who grew to become Warranty Belief HoldCo CEO in August 2021, and Herbert Wigwe who grew to become Entry Holdings Plc CEO in March 2022. Each males have additionally spent over 20 years as high executives at each banks. 

New tenure limits will have an effect on HoldCos 

In 2020, many Nigerian banks started exploring changing their structure to remain aggressive and discover different companies. By regulation, Nigerian banks can not delve into companies unrelated to their core banking capabilities. The change in construction additionally meant that the CEOs nearing their tenure restrict of 10 years may as a substitute grow to be CEOs of the Holding Firm (as within the case of Wigwe and Agbaje). 

Sadly for them, the brand new CBN guidelines additionally apply to the Holding firms of banks, making their exits probably. A number of Nigerian publications declare that the transfer to cap the tenure of executives throughout board in Nigerian banks is to curb mind drain. 

The professionals and cons of the brand new guidelines

Mr. Ijezie, a former banker, instructed TechCabal,”Trade data is a helpful asset that needs to be shared throughout the board, somewhat than retained inside a single group.” Beneath the brand new coverage, executives with 20 years of expertise at one financial institution should transfer to a different financial institution. These sorts of strikes will inadvertently unfold trade data as they are going to apply their experience and experience elsewhere. Different observers argue that “sit-tight” executives have diminished the potential of upward mobility for different employers. They are saying that the brand new guidelines will be sure that extra folks can aspire to high management positions. 

Different analysts disagree, with one author at ProShare calling it  “a careless overreach of energy and duty,” particularly due to the best way the CBN grouped guardian and subsidiary entities. Past this, some query if the CBN ought to power out executives who’ve delivered worth to shareholders. 

In the end, the brand new guidelines will immediate a shakeup of a banking system the place leaders are sometimes nicely entrenched. Whereas some pushback in opposition to the coverage has some advantage, it’s straightforward to know that the CBN is performing to stop abuse of energy by established executives.