By Ademola Alawiye

Thursday, 17 Feb 2011

The Central Bank of Nigeria said on Wednesday that it would review the procedure for the appointment of directors in the banking sector.

The Deputy Governor, Financial System Stability, CBN, Dr. Kingsley Moghalu, disclosed this at a conference, titled, ‘Risk Governance for Boards of Directors and Senior Managers’, in Lagos on Wednesday.

Moghalu said, “The CBN will look into the appointment of bank directors with a view to reviewing it. We are also going to review the Banks and Other Financial Institutions Decree. We are going to look at the qualifications of bank directors because every director must be an expert in finance. To be a director is more than attending four meetings in the year.”

He noted that there was nothing wrong with a director borrowing from the bank as far as the loan was disclosed, performing and followed due process.

Moghalu added that the board of directors had a pivotal role to play in building trust in their institutions and in building a sustainable future for them.

He said, “The era of considering risk governance as the elusive preserve of the senior management is over. Boards of directors of companies, particularly financial institutions, now have no option than to be actively involved in risk governance and ensure that risks are evaluated in the appropriate strategic context.

“Studies have shown that countries, whose financial institutions performed much better and maintained greater resilience through the global financial crisis, have robust risk governance practices, supported by strong regulation and supervision.

He said this implied that good risk governance and corporate behaviour should be complemented with effective supervision and regulation. According to him, effective governance is the foundation upon which effective supervision can be built.

Moghalu stressed that that if institutions could get their governance practices right, the chances that an institution would be pressured into taking on risks that were not well evaluated and understood would considerably decrease.

Speaking on the perceived inflation from election spending, he said the apex body had directed banks not to give out loans for political purposes.

He said, “We have made it clear that banks are not to lend for political purposes. When you lend someone money for political reasons, what will be the projected rate of return on the investment?”

He added, “Banks don’t have to lend to their favourite customers only. There are other sectors that the banks can lend to so as to grow the real sector. If the real sector is not developed, then the banks cannot be sustained.”

Source: Punch