After a successful round up of banks recapitalisation which started in 2024 and ended in March 31,2026, the Central Bank of Nigeria(CBN) has shifted focus and emphasis to corporate governance in banks for further reinforcement of stability and investor confidence in the banking system.
Recently, at the Chartered Institute of Directors, Nigeria’s induction in Lagos, CBN Governor, Olayemi Cardoso noted that CBN had shifted focus from raising capital to ensuring discipline in bank boards and management with the aim of matching stronger balance sheets with stricter governance.
The Governor who was represented by the Director, Banking Supervision, Olubukola Akinwumi highlited the role of bank directors which he said had become more critical in the new phase, and that their stewardship must now be exercised with sharper focus on consolidation, confidence and stability.
Also, CBN re-emphasised the importance of corporate governance and cautioned non- interest financial institutions at the recent Annual Interactive Session between the CBN Financial Regulation Advisory Council of Experts and the Advisory Committees of Experts of Non-Interest Financial Institutions, in Abuja.
The Deputy Governor, Financial System Stability, Phillip Ikeazor alerted non-interest financial institutions on the need to properly manage non- compliance risks, operational vulnerabilities and governance challenges they faced as the industry continued to witness rapid expansion.
Mr Ikeazor who was represented by the Director, Financial Policy and Regulation Department, Dr. Rita Sike warned that if the governance challenges and other such risks were not managed they could undermine public confidence, financial stability and the overall credibility of the non- interest finance system.
Corporate governance is defined as a set of rules, practices and processes by which a company is directed and controlled and held accountable to ensure fairness, transparency and long-term sustainability.
Good corporate governance entails ethical leadership which defines corporate culture, values and ethical standards.
Poor corporate governance manifests unethical leadership, lack of board independence and concentration of ownership, conflict of interests where board members and management prioritise personal interests over banks interests, taking excessive risks with depositors’ funds etc
For instance, after the first banks recapitalisation in 2004, some of the banks infiltrated the stock market and created a bubble in the market.
The banks were not lending to the real sector and instead they advanced collosal margin loans to some stockbrokers for speculative trading and to purchase their own( banks) shares in order to push up their share prices.
Margin trading is a normal stock market practice but it is highly regulated because it is extremely risky and can destroy stock markets if things become awry and which was what later happened.
CBN suddenly banned banks from granting margin loans to stockbrokers for speculative trading and it resulted in a panic and massive dumping of shares in a typical demonstration of the stock market ‘herd mentality’ and share prices fell rapidly and uncontrollably and resulted in great losses.
To ensure good corporate governance in banks, directors play key roles. They hold fiduciary duties and set strategic directions and act in the best interest of the banks.
They are expected to put banks interests above personal interests and which underscores the need to have quality directors and who are nominated through proper processes.
CBN Governor, Olayemi Cardoso had noted that the responsibilities of bank directors extended beyond boardrooms and that the choices they made would shape the future of Nigeria’s economy.
In 2024, CBN dissolved the boards of three banks, namely, Union Bank, Keystone Bank and Polaris Bank, allegedly for breaches which included regulatory non- compliance, threats to financial stability under the Banks and Other Financial Institutions Act BOFIA 2020.
Cardoso noted that the measure was not punitive but enabling, and that it provided directors with the framework to exercise stewardship with discipline, foresight and confidence.
The public was assured of the safety and security of depositors’ funds and that the banking system remains strong and resilient.
Over the years, CBN has shown strong commitment to balanced regulation of the banking system and all financial institutions under its regulatory purview to ensure market stability and consumer protection and the maintenance of robust frameworks for early warning signals and risk- based supervision.
Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com Tel 08033021230.
