CBN Tightens Corporate Governance Rules To Strengthen Banks’ Resilience

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The Central Bank of Nigeria (CBN) has intensified enforcement of corporate governance rules, tightened scrutiny of bank executives and reinforced risk management requirements as part of measures to safeguard the resilience of the banking sector following the ongoing recapitalisation exercise.

The apex bank said it was strengthening oversight of banks to ensure that fresh capital raised through recapitalisation translates into sustainable growth, prudent lending and improved capacity to withstand financial shocks.

Director, Banking Supervision, Dr. Olubukola Akinwunmi made the revelation recently during an annual workshop organized by the apex bank for members of Finance Correspondents Association of Nigeria (FICAN) and Business Editors.

Akinwunmi clarified that restrictions on banks’ investments in offshore subsidiaries were not introduced through a new regulation but were an enforcement of existing provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020, which limits such investments to 10 per cent of shareholders’ funds.

According to him, CBN strict enforcement of the provision had become necessary to prevent excessive exposure to foreign subsidiaries from undermining the financial health of Nigerian banks.

Speaking on the regulatory measures, he said corporate governance remained central to the apex bank’s efforts to maintain financial system stability, noting that experience from banking crises showed that institutional failures were often associated with governance weaknesses, rather than capital inadequacy alone.

According to the Director, excessive risk-taking, insider abuses, weak board oversight, poor credit decisions and ineffective internal controls have frequently contributed to financial distress in the banking industry.

To address these vulnerabilities, he said the Bank was strengthening the implementation of its Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks, as well as Financial Holding Companies in Nigeria.

The guidelines, which became effective on August 1, 2023, were issued pursuant to the CBN Act 2007 and BOFIA 2020, and are designed to improve accountability, transparency, risk management and board oversight across the banking industry. The framework also aligns sector-specific requirements with the Nigerian Code of Corporate Governance 2018.

As part of its strengthened supervisory architecture, the apex bank has established a Compliance Department with responsibilities covering corporate governance and other regulatory concerns, including anti-money laundering and counter-terrorism financing.

The CBN said it was also paying closer attention to the qualifications, competence and integrity of individuals appointed to senior management positions in banks. The official explained that the fitness and propriety of executives ascending to top management positions were critical to the quality of decisions that determine a bank’s long-term viability.

Poor leadership decisions, the official warned, could result in weak risk management, imprudent lending and facilities that eventually erode capital, thereby weakening the resilience of individual banks and the wider financial system.

The apex bank said the governance framework established clear expectations on board composition and independence, risk governance, internal controls, ethical conduct, accountability and the suitability of directors and senior management.

The CBN’s intensified supervision comes as banks adjust to higher capital requirements and seek to expand their operations, including through investments in other African markets.

While acknowledging the importance of expansion, the apex bank said banks must ensure that their investments abroad remain within the prescribed regulatory limits and do not expose their domestic operations to undue risks. The official stressed that the 10 per cent limit on investments in offshore subsidiaries had existed in the law for years but was not consistently enforced.