CBN Moves to Curb Brain Drain with New Tenure Limits for Banks’ Executives

•Says policy will halt migration to Europe, Canada 

•Allow shareholders determine tenure limits, firm tells apex bank

Obinna Chima

The Central Bank of Nigeria (CBN) has said its recently released revised regulatory requirements for the tenure of executive management and Non-executive Directors (NEDs) of deposit money banks (DMB) and financial holding companies (HoldCos) was expected to help address brain drain in the banking sector.

A top central bank official who disclosed this in response to THISDAY’s enquiry, added that the new policy would help check migration of young bankers to Europe and Canada.

The new regulation, according to the CBN official who pleaded to remain anonymous, would also pave way for young bankers to aspire to get to executive levels, knowing fully well that those occupying such positions would not stay there forever.

“This will force people at Executive Directors (EDs), Deputy Managing Directors (DMDs) and Managing Directors (MDs) to leave early so that younger people can aspire to be at these positions instead of migrating to Canada,” the central bank official added.

Several bank workers had been exiting the country due to the ‘japa syndrome’ worsening the country’s brain drain crisis. This, had risen the cost of training in the banking sector as the financial institutions strive to maintain the quality of their services.

The central bank disclosed in the circular dated February 24, 2023, titled: “Re: Review of Tenure of Executive Management and Non-Executive Directors of Deposit Money Banks in Nigeria,” that the new regulation was in line with the Code of Corporate for Banks and Discount Houses (Ref: FPR/DIR/CIR/GEN/01/004).

The letter was signed by the Director, Financial Policy and Regulation Department, CBN, Mr. Chibuzo Efobi. According to the new regulation, the cumulative tenure limits of EDs/DMDs/MDs and NEDs across the banking industry would be 20 years.

According to the CBN, the tenure of Executive Directors (EDs), Deputy Managing Directors (DMD) and Managing Directors (MDs), shall be in accordance with 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 where an executive, who is a DMD becomes the MD/CEO of a bank, or any other DMB before the end of his or her maximum tenure, the cumulative tenure of such executive shall not exceed 12 years.

It added: “However, for an executive (ED), who becomes a DMD of a bank, or any other DMB, his or her cumulative tenure as ED and DMD shall not exceed 10 years. NEDs, with the exception of Independent Non-executive Directors (INEDs), shall serve for a maximum period of 12 years in a bank broken into three terms of four years each.

“EDs, DMDs and MDs who exit from the board of a bank either upon or prior to the expiration of his or her maximum tenure, shall serve out a cooling off period of one year before being eligible for appointment as a NED to the board of directors.

“NEDs who exits from the board of a bank either upon or prior to the expiration of his or her maximum tenure of 12 years (three terms of four years each), shall serve out a cooling off period of one-year before being eligible for appointment to the board of directors of any other DMB.”

Meanwhile, analysts at Proshare, a Lagos-based research and information platform, argued that in the attempt to put limits on the tenure of bank executives, the CBN lumped the parent or Holding companies of banks with their subsidiaries, describing it as a “flawed move as local financial holding companies engage in businesses well beyond banking note observers.”

In a report made available to THISDAY, it pointed out that Nigeria’s financial Holdcos run businesses ranging from banking and finance to trading in equities and Fixed Income assets, and investments in fintech, agritech, insuretech, Information Communication Technology (ICT), and alternative asset finance.

According to Proshare, the regulatory oversight for a few of these activities come under the Securities and Exchange Commission (SEC), the 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, the CBN’s attempt at regulating the tenure of bank executives and that of their financial Holdcos without the agreement of other financial market and communication regulators, according to analysts, represents a ham-fisted overreach of power and responsibility.

“Indeed, the CBN circular has prompted the need for a review of Nigeria’s financial system governance architecture to streamline regulatory roles and responsibilities. The CBN’s grizzly clutch at greater regulatory control of the Nigerian financial markets raises the need for protecting the system from overambitious regulatory institutions or overreaching regulatory officials,” it argued.

Furthermore, the Lagos-based firmed recommended that the central bank should allow bank executive officers’ tenures to be determined by their shareholders, adding that banks are private businesses similar to bakeries selling cupcakes and bread.

“Admittedly the relationship between the broad economy and the business of banking is different from that of pastries but both are legitimate private businesses, and both should rely on the wisdom, or otherwise, of shareholders.

“In the case of the banking business, the CBN should set the rules for bank operations, monitor compliance and apply sanctions where necessary. Caps on executive tenure achieve very little to improve governance quality. The CBN’s desire to see upward mobility amongst Nigeria’s banking rank and file is admirable but is not a requirement for good corporate governance.

“Given that a growing number of banks have opted for a Holdco structure most of them have found ample room to sashay around the tenure limitation which has achieved little, if anything, in the last half-decade. The only CEO caught by the ten-year rule in recent times has been Mr. Ifie Sekibo of Heritage Bank.

“The notion that bankers like Mr. Herbert Wigwe former CEO of Access Bank, Mr. Segun Agbaje, former CEO of GT Bank, and Mr. Jim Ovia, former CEO of Zenith Bank would be caught by CBN’s new tenure arrangement is wrong. The gentlemen manage Holdcos of which the aforementioned banks are subsidiaries. Their executive positions at the Holdcos are not subject to the CBN tenure restrictions as Holdcos are not banks but constellations of different financial and technology-related businesses.

“The different lines of Holdco businesses have separate regulators, meaning that the CBN cannot unilaterally impose tenure limits on their executives.

“As Proshare analysts have previously noted in an earlier commentary, the answer to a throbbing headache is not the removal of the head. The problem of governance is not the length of service of executives but the nature of their character, their competence, and capacity,” the firm added.