BoG reforms to cap directors’ tenure
The Bank of Ghana (BoG) plans to introduce a number of aggressive reforms in the banking sector that will cap the tenure of Chief Executive Officers (CEOs) to a maximum of three terms of five years per term.
The move is aimed at instilling a rigorous Corporate Governance guideline that will ensure financial soundness in the banking sector and improve economic efficiency and growth.
The Second Deputy Governor of BoG, Dr Johnson Asiama, who said this at the Ghana Corporate Governance Programme organised by the International Finance Corporation (IFC) and the BoG noted that the central bank would ban cross directorship of banks.
Non-executive directors would also serve a tenure of three years for not more than two terms, and shall be in the majority on every board to which every bank in the country is expected to have at least two board sub-committees consisting of the audit and risk committees, which shall be chaired by a non-executive director.
Corporate governance breaches
Financial analysts see the move by the BoG as an attempt to seal the recent corporate governance breaches at arguably, one of the country’s biggest banks, GCB Bank.
Concerns over the granting of huge loans by GCB Bank to some clients with diminutive security or without collateral and the chairing of the credit sub-committee by the board chairman almost tarnished the image of the bank.
However, the BoG is confident that assessing the competencies for board membership in accordance with Basel requirements will minimise governance breaches in the banking sector.
The reforms in the banking sector will also include an evaluation of individual director’s performance and collective performance by external agents.
The proposed reforms, when adopted, will also ban foreign banks from appointing one person to hold himself as the managing director and board chair concurrently.
Retiring age of directors
The reforms will also see the size of bank boards limited, as well as the retiring age for directors prescribed by the central bank.
The draft reform has incorporated suggestions from industry, including a review by the IFC, and ‘remains work in progress that would be issued appropriately when completed,’ Dr Asiama said.
He explained that in contemporary banking, sound corporate governance is particularly important as the rapid changes brought about by globalisation, deregulation and technological advances are increasing the risks in banking.
Dr Asiama points to the rapid changing frontiers of the banking industry, which has necessitated the need for the adoption of a sound and effective corporate governance framework for the industry.
He said, “Sound corporate governance practices are key ingredients for a bank’s ability to manage its risks and withstand external shocks. As regulators, we will continue to direct our resources towards ensuring that banks improve their internal controls and risk management systems.”
Rule-based approach
According to Dr Asiama, it was to underscore the importance of corporate governance in the banking industry, which was why the new Banks and Specialised Deposit-taking Institutions (SDI) Bill, which was passed by Parliament, has explicit provisions on corporate governance, which suggests a shift from a principle-based approach to that of rule-based.
“I must say that the Bank of Ghana will adopt a combination of the two approaches in developing a sound and effective corporate governance framework for the industry,” he said.
“The board excellence that we crave for will become an illusion should we fail as stakeholders to recognise our role and duties as directors of banks.”
“We must be upright in our dealings, avoid putting ourselves in conflict of interest situations, exercise due care in our relationships and, as well, have strong oversight over management activities.”
“For we can only prevent corporate failures when our boards are up to speed with developments within the bank and possess the requisite know-how to interrogate management on the day-to-day operations of the institution,” the deputy governor added.