CODE OF CORPORATE GOVERNANCE FOR BANKS AND OTHER FINANCIAL INSTITUTIONS IN NIGERIA, 2003

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CENTRAL BANK OF NIGERIA

CODE OF CORPORATE GOVERNANCE FOR BANKS AND OTHER FINANCIAL INSTITUTIONS IN NIGERIA, 2003

(A Document of Bankers’ Committee)

AUGUST 26, 2003

CODE OF CORPORATE GOVERNANCE

FOR BANKS AND OTHER FINANCIAL INSTITUTIONS IN NIGERIA

MEMBERS OF THE BANKERS’ SUB-COMMITTEE ON CORPORATE GOVERNANCE

UNITED BANK FOR AFRICA PLC                                                           CHAIRMAN

CENTRAL BANK OF NIGERIA                                                               MEMBER

NIGERIA DEPOSIT INSURANCE CORPORATION                                    MEMBER

FINANCIAL INSTITUTIONS TRAINING CENTRE                                     MEMBER

KAKAWA DISCOUNT HOUSE LIMITED                                                  MEMBER

PLATINUM BANK LIMITED                                                                             MEMBER

NATIONAL BANK OF NIGERIA LIMITED                                                          MEMBER

FORTUNE BANK PLC                                                                           MEMBER

FIRST ATLANTIC BANK LIMITED                                                          MEMBER

MONEY MARKET ASSOCIATION                                                           MEMBER

UTO UKPANAH (MRS)                                                                         SECRETARY

INTRODUCTION

The issue of corporate governance has recently been given a great deal of attention in various national and International forays. This is in recognition of the critical role of corporate governance in the success or failure of companies. Corporate governance refers to the processes and structures by which the business and affairs of an institution are directed and managed. In order to improve long-term shareholder value by enhancing corporate performance and accountability, while taking into account the interest of other stakeholders.

Corporate governance is therefore about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that would Foster good corporate performance.

The strategy for addressing the challenges of corporate governance has taken various forms at both the national and International levels and have culminated in initiatives such as: the OECD Code; the Cadbury Report; the Basel Committee Guidelines on Corporate Governance; the King’s Report of South Africa etc.

In Nigeria, the Securities and Exchange Commission (SEC) set up the Peterside Committee on Corporate Governance in Public Companies, which has since submitted its Report, incorporating a Code of Best Practices.

CORPORATE GOVERNANCE IN THE FINANCIAL SECTOR IN NIGERIA

Financial Institutions constitute a critical sector of ant economy. Since the aftermath of the financial crisis in the early 90’s, the stability of the financial system has assumed a greater focus as a key objective of economic policy in Nigeria.

Poor corporate governance has been identified as one of the major factors in virtually all known instances of financial sector distress. It is therefore crucial that financial Institutions observe a strong corporate governance ethos.

In addressing the issue of corporate governance in the financial sector, the Bankers’ Committee set up the Sub-Committee on Corporate Governance to make recommendations and propose a draft Code for adoption by financial institutions. This was in realization of the need to amplify the Report of the Peterside Committee on Corporate Governance to address the peculiarities of the financial sector.

THE CODE OF CORPORATE GOVERNANCE FOR BANKS AND OTHER FINANCIAL INSTITUTIONS

The Code of Corporate Governance for banks and Other Financial Institutions in Nigeria are explicit in its recommendations on best practice, including constituting an effective board and identifying the principal responsibilities of the Board, remuneration of Directors, Board performance assessment and the Audit Committee. The Code also considers factors relevant to depositor and investor confidence given the importance of these stakeholders to the stability of the financial sector.

The Code should not be regarded as threat to entrepreneurial drive and spirit. A system that combines enterprise with integrity will promote good corporate governance without stifling initiative and creativity.

It should be emphasized that good corporate governance rests ultimately with the Board of Directors. In identifying that good corporate governance hinges on Board competence and integrity, it should be realized that standards of probity and fiduciary responsibility in the wider business environment is equally critical. All these help to promote sound corporate governance.

BOARD OF DIRECTORS

1.       Responsibilities of The Board of Directors    

Principle: The Board should exercise responsibility, leadership, enterprise, integrity and judgment in directing the Institution so as to achieve continuing prosperity for the Institution and act in its best interest, in a manner based on transparency, accountability and equity. Every Institution should be headed by an effective Board that can lead and control the Institution.

1.1     Without prejudice to the statutory duties of directors, the functions of the Boards of financial Institutions should include but not be limited to the following:

i. Approving and reviewing corporate strategy, plans of action, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and approving major capital expenditures, acquisitions and divestments.

ii. Ensuring that the institution has adequate systems of internal controls both operational and financial.

iii. The selection, performance appraisal and compensation of senior executives.

iv. Reviewing key executive and board remuneration and ensuring a formal and transparent board nomination process.

v. Ensuring the integrity of the institution’s accounting and financial reporting system.

vi. Ensuring that ethical standards are maintained and that the institution complies with applicable laws and regulations.

vii. Ensuring adequate disclosure and communications.

viii. Succession planning. ix. Setting out an acceptable risk management guideline.

LAWS OF LAGOS STATE

LAWS OF THE FEDERAL REPUBLIC OF NIGERIA