By John Danjuma Omachonu
There is no doubt that the recently introduced tenure policy for chief executives of deposit money banks, (DMBs) by the Central Bank of Nigeria, (CBN) has the potential of creating room for seamless succession plans in the industry.
Also, some analysts see the policy as a positive development as it would also bring about injection of younger blood, outside the family circles, into the institutions, reduce the over bloated top level of the banking industry and meddlesomeness of family members in the day to day running of the banks, among others.
However, the adoption of the Holding Company (HoldCo) structure by some banking institutions may have equally provided an alibi for perpetuity and self-succession of some owner directors in the offices, thereby defeating the purpose for the introduction of the tenure limits by CBN in the first instance.
This is because the policy may have fallen short of checkmating ‘sit tight’ owners and as well taken away the responsibility of monitoring and controlling their appointments from CBN and conferring it on the shareholders of the affected banks.
In fact, Nigeria’s financial HoldCos run businesses ranging from banking and finance to trading in equities and fixed income assets and investments in fintech, agritech, insure tech, Information Communications Technology (ICT), and alternative asset finance.
Consequently, some analysts have flawed the lumping together limits on the tenure of the Chief executives of the banks with their parent or holding companies of banks with their subsidiaries as over stepping their boundaries.
This is because, according to them, although the banking institutions may be the cash cow, generating larger share of the revenue, the holding companies engage in businesses well beyond banking and deposit taking, that are outside the immediate purview of CBN.
They further argue that, indeed, their regulatory oversight goes beyond CBN, but to include other activities that fall under the Securities and Exchange Commission (SEC), National Communications Commission (NCC), and some Self-Regulatory Organisations (SROs) such as the Nigerian Exchange Group (NGX), FMDQ, AFEX, NASD, and the Lagos State Commodities and Futures Exchange (LCFE).
Therefore, they further contend that CBN’s attempt at regulating the tenure of bank executives alongside the HoldCos without the agreement of other financial market and communication regulators, represents an overreach of power and responsibility.
Metrobusinessnews, (MBN) interactions with some people From The Street, (FTS) showed that the decision of some banks to adopt HoldCo structures may have technically insulated the Chief executives of one if the subsidiaries, banks, from the latest tenure policy from the industry regulator and have further consolidated the powers and influences of the ‘grandmasters’ within the institutions and consequently their continued dominance in the economy.
CBN introduced the Holding Company structure which allows banks to retain non-core banking businesses by evolving into a non-operating Holding Company (HoldCo) structure in December 2011 via a circular to all banks.
Since its introduction, banks in Nigeria have increasingly embraced and adopted the HoldCo structure due to the numerous advantages it offers, like multiple income streams, consolidation of grips by the owners on the major contributor to the group.
Following the introduction, FBN Holdings, Stanbic IBTC Holdings, and FCMB Group became the first three banks to transit to the HoldCo structure, until in 2021 and 2022, when Guaranty Trust Bank and Access Bank Plc, joined the HoldCo structure foray respectively.
It is argued in some quarters that adopting the HoldCo structure allows long-standing bank MDs/CEOs to remain in power even after exceeding their tenure limits, and by retaining control of the core banking entity at the group level, executives may seek to circumvent regulatory requirements and corporate governance practices.
Consequently, bank executives such as Tony Elumelu of United Bank for Africa Plc, Jim Ovia of Zenith Bank, Segun Agbaje of GTBank, and Herbert Wigwe of Access Bank, who were aftected by the policy when it was introduced by the then Governor of CBN, Sanusi Lamido Sanusi and equally being affected now are however, technically exempt due to the HoldCo structure under which their organisations operate.
The banking public believes that CBN will have to further issue circular to clarify on the new policy so as to know the fate of some bank chairmen and group executive officers.
Bedide the senior, considered the ‘doyen’ of the industry, others who were not bank chief executives at the time of the 2005 consolidation, but whose influence had contributed in one way or the other to the survival of their institutions include Segun Agbaje of GTBank and Herbert Wigwe of Access Bank Plc.
For instance, Ovia was the chief executive of Zenith Bank, which he founded in 1990. He retired from the bank in 2010 following a similar policy of CBN, which limited the tenure of banks’ chief executive officers (CEOs) to a maximum of 10 years. However, the billionaire was later appointed as board chairman and non-executive director of the bank in 2014.
About two weeks ago, Zenith bank revealed that it is restructuring into a Holding Company, (HoldCo) after receiving Approva-in principle from CBN.
In a statement sent to the Nigerian Exchange Limited (NGX) on March 3, 2023, the bank said it is in the process of establishing Zenith Holdco Plc.
The bank said CBN also approved the appointment of its current chairman, Ovia, as the Chairman of Zenith Holdco Plc.
However, pending the completion of the financial holding company, CBN approved Ovia to remain in his position as the Chairman of Zenith Bank Plc.
”This is to inform the Nigerian Exchange Limited (NGX) shareholders and the general public that the CBN has granted Approval-In-Principle for Zenith Bank Plc to operate a non-operating Financial Holding Company structure.
“Furthermore, the CBN approved Mr. Jim Ovia as the Chairman of Zenith Holdco Plc (in-formation) and for Mr. Jim Ovia to also continue as the Chairman of Zenith Bank Plc until the commencement of Zenith Holdco Plc,” the bank wrote in the circular.
The essence of Holdco is to enable Zenith Bank to branch into non-banking markets, which will increase the firm’s revenue sources.
Zenith Bank’s rivals, Access Bank, and Guaranty Trust Bank, amongst others, have also restructured into a holding company, expanding their competition to other sectors.
However, before his retirement as the CEO of UBA Plc in 2010 after 13 years in the saddle, when former CBN Governor Sanusi Lamido Sanusi introduced a 10-year tenure policy for bank chiefs, Elumelu bestrode the banking industry with a remarkable performance.
He was appointed chairman of UBA in 2014,
Segun Agbaje, the pioneer staff in 1991 had risen to become executive director in 2000 and deputy managing director in 2002. Agbaje became the substantial MD and CEO of GTBank in June 2011 when Tayo Aderinokun passed on.
In 2021, Agbaje became the group chief executive officer of the bank.
Herbert Wigwe, after over 10 years of service, left GTBank as an ED to co-lead the transformation of Access Bank Plc in March 2002 as DMD.
He was appointed group managing director/CEO effective January 1, 2014, and served in that capacity till May 2022. Wigwe was subsequently appointed a non-executive director of the bank, effective May 2022, following the completion of its scheme of arrangement with all approvals gotten for its holding company (HoldCo) structure,
Herbert Wigwe, was subsequently announced as the Group Managing Director/Chief Executive Officer (GMD/CEO) of Access Holdings Plc in July 2022.
Recently, CBN issued a circular announcing a revision of the regulatory requirements for the tenure of executive management and non-executive directors of DMBs and financial holding companies in the Code of Corporate Governance for Banks and Discount Houses.
Specifically, the rule says bank executive directors (EDs), deputy managing directors (DMDs), managing directors (MDs), and non-executive directors (NEDs) can only serve a cumulative tenure of 20 years across the banking industry.
The regulatory bank said the tenure review was part of measures aimed at strengthening governance practices in the banking industry.
According to the CBN, the tenure of Executive Directors (EDs), Deputy Managing Directors (DMD), and Managing Directors (MDs) shall be, by the terms of their engagement, approved by the board of directors of banks, subject to a maximum tenure of 10 years.
Furthermore, the banking sector regulator stated that when an executive, a DMD, becomes the MD/CEO of a bank or any other DMB before the end of their maximum tenure, the cumulative term of such Executive shall not exceed 12 years.
In fact, while some banks are still studying the new policy, others have commenced its implementation.
But, implementation of the policy has witnessed the emergence and re emergence of the old hands, majorly, founding members taking executive positions in the HoldCos.
Also expected to retire is Ladi Balogun, Group CEO of FCMB Group Plc, who became CEO of First City Monument Bank Limited from 2007 to 2017.
But the policy may have polarized the industry with proponents and opponents emerging, even as some operators in the industry say there was a need for more clarifications from the apex bank.
While some believe that the tenure policy affects all the banks, others argue that executives of HoldCos arrangements are not necessarily impacted.
The development may have once again brought to the fore, the spate of adoption of financial holding companies, which in most cases have seen long-standing powerful bank MD/CEOs remain at the helm of affairs.
But, the question is whether the quest for power alone really the major reason for adopting a HoldCo structure?
The CBN’s guideline defines a HoldCo as a company whose principal object includes the business of a holding company set up for the purpose of making and managing equity investments in two or more companies being its subsidiaries, engaged in the provision of financial services, one of which must be a bank.
According to the CBN, this arrangement seeks to ring-fence depositors’ funds from risks inherent in non-core banking businesses.
However, it has been suggested by some analysts that adopting the HoldCo structure allows long-standing bank MDs/CEOs to remain in power even after exceeding their tenure limits.
However, it is important to note that the HoldCo structure is not designed to facilitate such abuses of power as envisaged by done analysts.
Section 6.1 of the CBN’s guidelines for licensing and regulating Financial Holding Companies in Nigeria require that the HoldCo is a separate legal entity from its subsidiaries and that the boards of directors of the subsidiaries are independent and autonomous.
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Furthermore, the CEOs and other key management positions in the subsidiaries must be separate from those of the HoldCos.
Therefore, it is crucial to ensure that there is adequate oversight and governance in place to prevent abuse of power and ensure that the HoldCo structure is used for its intended purpose of promoting financial stability, diversification, and compliance with regulatory requirements
To what extent CBN is capable and able to achieve these objectives is what observers are watching with keen interests.
But, for now, the analysts believe that the regulatory bank may be chewing far more than it can contain.