Nigerian Banks Corporate Governance Brief

Transcription

1 Nigerian Banks Corporate Governance Brief 2018 Innocent Unah Uju Ikedionu

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3 BusinessDay Research & Intelligence Unit (BRIU) is a Strategic Business Unit (SBU) within the BusinessDay Group, publishers of Nigeria s leading business & financial newspaper. BRIU operates as an independent department within the organisation. The Unit s products and services comprise: Cutting-edge business intelligence and market research studies Industry analysis & reports Feasibility studies & business plans Client-specific research projects and strategic planning Polling and surveys covering industries and business segments Our areas of focus include market and industry research, data mining, and economic and financial analysis. BRIU seeks to provide you with rare insights from our robust economic forecasting models and analytics. We serve clients from such diverse corporate sectors as banking, insurance, financial services, manufacturing, healthcare, ICT. BRIU also consults for state and federal government ministries, agencies and departments. Our team of research analysts is committed to providing you with the latest insights and perceptions on current trends and developments in your sector, and providing you with intelligence on the Nigerian and global economies. 3

4 BRIU, , Point Road, G.R.A., Apapa, Lagos This document has been prepared in good faith on the basis of information available at the date of publication. BusinessDay Research & Intelligence Unit (BRIU) does not warrant the accuracy, reliability or completeness of the information in this report for the purpose of making any investment decision. Readers are advised to assess the relevance and accuracy of the content of this publication against the limitations noted herein. The opinions/conclusions and suggestions in this report do not represent investment or other advice and should therefore not be construed as such. This publication is a copyright. Apart from any use as permitted under Copyright Act 1968, Nigeria, no part contained herein may be reproduced, copied or duplicated in any form without prior written consent of BRIU. BRIU will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication. Designed by: Peter Ehigiator Senior Creative Artist Tel.: peter.ehigiator@businessdayonline.com 4

5 Contents Page Executive Summary 6-7 Objective 7 Background 7 Criteria 8 Size of Board 9 Board System (Unitary or two-tier Board system) 10 Proportion of Women on Board 11 Board Composition Board Meeting Risk and Audit Board Committee Size 15 Risk and Audit Board Committee Attendance (%) 16 Summary of Findings 17 Limitations 18 Conclusion 18 References 19 Appendix 19 5

6 Executive Summary A well-functioning corporate governance practice provides a structure that protects the interest of investors, customers, and other corporate stakeholders by ensuring high standards of transparency, accountability and efficiency in the boards of institutions. A fragile corporate governance practice, on the other hand, hinders corporate effectiveness and often leads to corporate failures. At various times in the past, managers carried out activities that were inconsistent with wealth-maximising objectives of investors, leading to a number of corporate failures. In order to arrest the incidence of corporate failures, moderate the conflict of interest between managers and shareholders, and ensure efficient and effective use of corporate assets for the interest of investors and other stakeholders, regulators across the globe (including Nigeria) have evolved measures to enthrone good governance in organisations. These measures, often captured in the Code of Corporate Governance of various institutions, constitute the parameters upon which companies can be evaluated by analysts and investors for the purpose of determining their overall health. This study examined the compliance level of 14 Nigerian banks in 2016, to the code of corporate governance of the Central Bank of Nigeria (CBN). The study evaluated the corporate governance practices of the banks based on a number of criteria including: Size of the board Whether the bank operates a unitary or twotier Board system Proportion of women on the board Percentage of non-executive directors on the 6 In the past, managers carried out activities that were inconsistent with wealth-maximising objectives of investors, leading to a number of corporate failures board Level of attendance of board meeting by members Percentage of independent directors at board meetings Size of Risk and Audit Committees Level of attendance at Risk and Audit Committees meetings The study relied on data from the banks financial report and other sources and found that: All the banks met the minimum standard of the Central Bank of Nigeria (CBN s) code of corporate governance (CCG), having at least 5 members on their respective boards. None of the banks exceeded the maximum number of board members (20) as stipulated by the CBN. Even though all the banks boards achieved a weighted average board attendance of at least 67 per cent as required by the CBN, some individual board members attended board

7 meetings for less than the number of times stipulated by the CCG. The sizes of board of the referent banks range from 10 to 19 members, with unitary board structure. All the banks studied had higher number of non-executive directors compared to executive directors. Only the boards of Stanbic IBTC Bank, Wema Bank, First Bank, and Access Bank are comprised of at least 40 per cent women. Except Union Bank whose board composition could not be ascertained as at the time of preparing the report, no bank had less than two independent directors on the Board with all banks weighted average attendances of Independent Directors above two third (67%). Every listed bank had board risk and audit committee either as a separate committee or as one committee, with a minimum of four members including the non-executive chairman. Background Corporate governance includes mechanisms, processes and relations by which the interests of a company s stakeholders, (shareholders, managers, board of directors, customers, suppliers, financiers, regulators, the public etc.) are balanced. Objective The thrust of this report is to evaluate the level of compliance of Nigerian banks with the code of corporate governance established by the Central Bank of Nigeria, the primary regulators of the banks. This is to enable stakeholders of the banks and the entire banking sector to determine whether any remedial actions are necessary, and what course of action to take in this regard. Following high-profile cases of collapses of large corporations during , and the financial crisis of the late 2000s, interest in the corporate governance practices of modern corporations has increased, particularly as it relates to accountability. It is no new story that corporate failure in Nigeria has been increasing as a result of poor corporate governance. The Securities and Exchange Commission (SEC) and Central Bank of Nigeria (CBN) have therefore come up with Codes of Corporate Governance in Nigeria that will enable them monitor the actions, policies, practices, and decisions of corporations, their agents, and affected stakeholders and ensure absolute compliance to good corporate governance, especially financial sectors in Nigeria. 1 The CBN s Code of Corporate Governance has detailed explanation of corporate governance; this is our working definition. 7

8 Criteria This report assessed the corporate governance practices of the banks using the following criteria: Size of Board. Board system. Proportion women on Board. Board Composition. Board Meeting. Risk and Audit Board Committee Size. Risk and Audit Board Committee Attendance (%). Banks Governance Snapshot Source: Banks Financials; BRIU Analysis N/B: N/A means not applicable i.e. the bank involved does not have such committee. 8

9 Size of Board Stanbic IBTC Holdings Plc board comprised 10 members; United Bank for Africa Plc (UBA) had 19 board members, while Union Bank of Nigeria Plc had 17 board members. Source: Banks Financials; BRIU Analysis Similarly, Unity Bank Plc and Sterling Bank Plc had 15 board members each; Wema Bank Plc had 12 board members; Ecobank Plc had 13 board members. FBN Holdings Plc and FCMB Group Plc each had 10 board members. Whereas, Diamond Bank Plc and Zenith bank plc had 11 board members each, Guaranty Trust Bank Plc and Access Bank Plc each had 13 board members, while Fidelity Bank Plc had 14 board members. 9

10 Board System (Unitary or two-tier Board system) All the banks reviewed operated a unitary board system as they have only one board of directors. The supervisory board is not distinct from the management board; rather, their functions are fused into one board. One-Tier Model Two-Tier Model Ownership level GM GM Steering and monitoring level Executive level Board Chair CEO Supervisory Board Management Board Source: ICFJ 2 10

11 Proportion of Women on Board Of the banks reviewed, the Board of Access Bank Plc, with per cent of women, had the highest composition of female. Wema Bank board had per cent women, GT Bank board had per cent women, Stanbic IBTC Bank and First Bank boards both had 30 per cent women. Sterling Bank and Unity Bank had per cent women on their board, while Union Bank had per cent of women on its board. The board of Diamond Bank comprised per cent women, while that of UBA comprised per cent women. Women constituted per cent of Ecobank s board as Zenith Bank had 9.09 per cent women on its board. Fidelity Bank s board was composed of per cent women. Of all the banks evaluated, only FCMB had no women on its board. Proportion of Women on Board Banks Women on Board (%) Stanbic IBTC UBA Union Bank Unity Bank Wema Bank Eco Bank FBN FCMB 0.00 Sterling Bank Diamond Bank GT Bank Zenith Bank 9.09 Access Bank Fidelity Bank Board Composition The CCG states that the number of non-executive directors in the banks must be greater than the number of executive directors, and that the board must have at least two of these non-executive directors as independent directors. Our analysis of the annual reports of the banks (as shown in the table below) revealed that all the banks complied with these criteria. Non-executive directors are the members of the board who do not take part in the active management of the Board Composition Banks Non-Executive Directors on Board (% ) Number of Independent Directors UBA Union Bank Unity Bank Wema Bank Eco Bank FBN FCMB Sterling Bank Diamond Bank GT Bank Zenith Bank Access Bank Fidelity Bank

12 banks. This means they are usually not part of the executive management team, but are involved in charting the strategic course of the company through policy making and planning. The table below summarises the status of the banks non-executive directors and the independent directors for the 2016 fiscal year. Ecobank s non-executive directors comprised per cent of its total board size; seven of these non-executive directors were independent directors. Stanbic IBTC Bank, FBN and FCMB had 90 per cent nonexecutive directors on their boards with two of the directors each for Stanbic IBTC Bank and FBN, and seven for FCMB as independent directors. Zenith Bank had per cent non-executive directors comprising seven independent directors; Fidelity Bank had per cent non-executive directors that included two independent directors; Unity Bank had per cent with two independent directors. Similarly, Union Bank had per cent non-executive directors, while Diamond Bank and Sterling Bank had per cent and 60 per cent non-executive directors on their boards. Wema Bank s Board comprised per cent non-executive directors with two independent directors, GT Bank, per cent with 4 independent directors, Access Bank, per cent with 2 independent directors, and UBA, per cent with 3 independent directors. Board Meeting The CCG states that the board should meet at least once a quarter and the directors must attend at least two-third (67%) of the board meetings to qualify for reelection to the board. Individual board meeting attendance All the directors of Stanbic IBTC, UBA, Wema Bank, FBN, Diamond Bank, GT Bank, Zenith Bank and Access Bank met the 67 per cent attendance requirement. One director at Unity Bank and Sterling Bank, respectively, violated this requirement, while two directors in each of Union Bank, FCMB and Fidelity Bank did not comply with the requirement. Three of the directors of Ecobank recorded less than the required 67 per cent board meeting attendance. 3 Directors who were appointed or who resigned/retired were also included 12

13 Individual board meeting attendance Banks #Directors with above 67% Attendance #Directors with below 67% Attendance Stanbic IBTC 10 0 UBA 22 0 Union Bank 15 2 Unity Bank 14 1 Wema Bank 12 0 Eco bank 10 3 FBN 10 0 FCMB 8 2 Sterling Bank 14 1 Diamond Bank 12 0 GT Bank 14 0 Zenith Bank 12 0 Access Bank 15 0 Fidelity Bank 16 2 Average board meeting attendance GT Bank Plc had a 100 per cent Board Meeting Attendance, followed by Wema Bank Plc. with per cent. Zenith Bank Plc per cent, UBA had per cent. First Bank Nigeria plc. had per cent, Stanbic IBTC Holdings had per cent, Sterling Bank plc.had per cent, and Unity Bank Plc. had 96 per cent. Fidelity Bank plc. had per cent, Access Bank plc. had per cent, Diamond Bank plc. had per cent, FCMB plc. had 88 per cent, Union Bank plc. had per cent and Ecobank plc per cent which is the minimum per cent of attendance. 13

14 Independent Directors Board Meeting Attendance (%) Our study showed that Stanbic IBTC, Unity Bank, Wema Bank, FBN, Sterling Bank, GT Bank, Access Bank and Fidelity Bank all had 100 per cent independent directors board meeting attendance within the period reviewed. Zenith Bank had per cent attendance; UBA had per cent, Diamond Bank had per cent and Ecobank per cent. Union Bank and FCMBs Independent Directors names were not specified. Independent Directors Board Meeting Attendance (%) Banks Stanbic IBTC UBA Union Bank - Unity Bank Wema Bank Eco bank FBN FCMB - Sterling Bank Diamond Bank GT Bank Zenith Bank Access Bank Fidelity Bank Independent Directors Attendance (%) Number of Board Meetings Our study showed that all the banks reviewed met at least once a quarter (4 times) in 2016 to effectively perform its oversight function and monitor management s performance according to CCG. Number of Board Meetings Banks Board Meeting Stanbic IBTC 6 UBA 7 Union Bank 7 Unity Bank 7 Wema Bank 5 Eco bank 6 FBN 8 FCMB 5 Sterling Bank 4 Diamond Bank 6 GT Bank 4 Zenith Bank 4 Access Bank 10 Fidelity Bank 11 14

15 Risk and Audit Board Committee Size Board Risk Committee (BRC) Union Bank s BRC consisted of 10 members. Unity Bank, UBA, Sterling Bank and Access Bank had 8 members in their BRC. Diamond Bank and Zenith Bank had 7 members. Fidelity Bank and GT Banks had 6 members in their BRC. Stanbic IBTC had 5 members, while Ecobank had 4 members. Board Risk Committee Banks Board Meeting Stanbic IBTC 5 UBA 8 Union Bank 10 Unity Bank 8 Eco bank 4 Sterling Bank 8 Diamond Bank 7 GT Bank 6 Zenith Bank 7 Access Bank 8 Fidelity Bank 6 Board Audit Committee (BAC) The CCG requires that the audit board committees of the banks should comprise of at least three members. The study shows that all the banks complied with this requirement. Union Bank and Sterling Bank BAC consisted of 7 members, Stanbic IBTC, UBA and Zenith Bank committees each had 6 members; Unity Bank and Access Bank had 5 members in their committees, while Ecobank, Diamond Bank, GT Bank and Fidelity Bank had 4 members. Board Audit Committee Size Banks Board Meeting Stanbic IBTC 6 UBA 6 Union Bank 7 Unity Bank 5 Eco bank 4 Sterling Bank 7 Diamond Bank 4 GT Bank 4 Zenith Bank 6 Access Bank 5 Fidelity Bank 4 Board Risk and Audit Committee (BRAC) Wema Bank s BRAC consisted of 7 members, FBN consisted of 6 members, and FCMB, Diamond Bank, Zenith Bank and Fidelity Bank consisted of 5 members. Board Risk and Audit Committee Banks Size of Risk & Audit Board Committee Wema Bank 8 FBN 6 FCMB 5 Diamond Bank 5 Zenith Bank 5 Fidelity Bank 5 15

16 Risk and Audit Board Committee Attendance (%) Board Risk Committee (BRC) Stanbic IBTC, Sterling Bank and Zenith Bank all had 100 per cent BRC Meeting attendance; Unity Bank had per cent, while UBA had per cent. Diamond Bank had per cent attendance, GT Bank, per cent, and Fidelity Bank, per cent. Union Bank and Ecobank had per cent and per cent attendance, respectively. Board Risk Committee Attendance Banks Stanbic IBTC UBA Union Bank Unity Bank Eco bank Sterling Bank 100 Diamond Bank GT Bank Zenith Bank Access Bank 100 Fidelity Bank Board Risk Committee Attendance (%) Board Audit Committee (BAC) Ecobank, Fidelity Bank and Zenith Bank had 100 per cent BAC Meeting Attendance, and UBA had per cent attendance. Access Bank achieved per cent board attendance; Stanbic IBTC BAC witnessed per cent attendance, Unity Bank, per cent, and Sterling Bank, per cent. Similarly, Diamond Bank achieved per cent BAC attendance as GT Bank recorded per cent attendance. Union Bank had per cent attendance for its BAC meetings. Board Audit Committee Banks Stanbic IBTC UBA Union Bank Unity Bank Eco bank Sterling Bank Diamond Bank GT Bank Zenith Bank Access Bank Fidelity Bank 100 Board Audit Committee Attendance (%) Board Risk and Audit Committee (BRAC) Fidelity Bank, FBN and Zenith Bank had 100 per cent BRAC Meeting attendance, Wema Bank had per cent, FCMB has 96 per cent and Diamond Bank has per cent. Board Risk and Audit Committee Banks Wema Bank FBN FCMB Diamond Bank Zenith Bank 100 Fidelity Bank 100 Board Risk and Audit Committee Size Attendance % 16

17 Summary of Findings The size of board of the banks listed are in line with the Central Bank of Nigeria (CBN) code of corporate governance which states that the size of the Board of any bank or discount house shall be limited to a minimum of five (5) and a maximum of twenty (20). All the banks reviewed had a unitary board structure. All the banks had higher number of non-executive directors than executive directors as stated in the CCG. Stanbic IBTC, FBN and FCMB had 90 per cent non-executive directors in their boards. UBA, with per cent non-executive directors, ranked last in terms of non-executive directors board composition. With respect to the proportion of women on board, Stanbic IBTC, Wema Bank, FBN and Access Bank had a minimum of 30 per cent of women on their boards. FCMB had zero women on board. For the individual board meeting attendance, all the directors of Stanbic IBTC, UBA, Wema Bank, FBN, Diamond Bank, GT Bank, Zenith Bank and Access Bank met the 67 per cent minimum attendance requirement. Two out of 17 directors of Union Bank, one out of 15 directors of Unity Bank, three out of 13 directors of Ecobank, and two out of 10 directors of FCMB listed on the attendance list attended board meetings for less than two-third of the time and thus violated the requirement of the CCG. One out of 15 directors of Sterling Bank and two out of 18 directors of Fidelity Bank was similarly culpable. The CCG states that every director is required to attend all meetings of the Board and Board Committees and that to qualify for re-election, a director must have attended at least two-thirds (67%) of all Board and Board Committee meetings. All the banks reviewed complied with this requirement on an average basis. GT bank had 100 per cent attendance while Ecobank had the least percentage board meeting attendance (78.37 per cent). Our study showed that all the banks reviewed met at least once every quarter (4 times) and above in 2016, in line with the CCG requirement. All banks listed (except Union Bank that had no data on the composition of their board) had at least two independent directors on the board, consistent with the provision of the CCG. FCMB and Ecobank had the highest number of independent directors (seven for each). Most banks listed achieved 100 per cent independent directors attendance at board meetings. Ecobank, Diamond Bank, UBA and Zenith Bank which have 73.79, 83.30, and per cent attendance respectively. All banks listed had risk and audit board committees, either as separate committees or fused into one committee. The CCG states that the Board shall establish a committee responsible for the oversight of risk management and audit functions, which may be carried out by one committee, particularly in small institutions. Wema bank, FBN and FCMB had their Risk and Audit Management Committees merged as one committee. The least size of risk Board Committee, Audit Board Committee and Risk and Audit Board Committee for all banks reviewed was 4 members including the Non-executive chairman and the members. This is in line with the provisions of the CCG. All listed banks had board members achieving more than two-third (66.67 per cent) of relevant board meeting attendances. Only Union Bank, with average attendance of per cent at Audit Board Committee meetings, violated this requirement. 17

18 Limitations We reached out to the banks to get the names of their independent directors (for those without the information on the annual reports) as an input to the calculation of level of independent directors attendance. However, we got minimal response and so had to work with limited information in this regard; only UBA responded favourably to the mail sent to them. Conclusion We assessed the level of corporate governance compliance of selected Nigerian Banks using the criteria stipulated in the CBN s code of corporate governance for banks: size of board, board system (i.e. whether unitary or two-tier board), proportion of women on board, number of non-executive directors on board, board meeting (attendance and number of meetings held), level of independent directors board meeting attendance, the size of the risk and audit board committee and the level of attendance at the committee s meetings. In line with the CCG, all the banks listed had good level of compliance in most of the criteria used in the assessment. However, for the individual board meeting attendance, only the directors of Stanbic IBTC, UBA, Wema Bank, FBN, Diamond Bank, GT Bank, Zenith Bank and Access Bank met the minimum 67 per cent board meeting attendance; the other banks had at least one of their directors that did not meet the requirement. 18

19 References Banks 2016 financial report. Central Bank of Nigeria (CBN) Code of Corporate Governance. ICFJ International Centre for Journalists Appendix 1. List of Abreviations CBN Central Bank of Nigeria CCG CBN s Code of Corporate Governance BAC Board Audit Committee BRC Board Risk Committee BRAC Board Risk and Audit Committee IBTC Investment Banking and Trust Company UBA United Bank for Africa FBN First Bank Nigeria FCMB First City Monument Bank GTB Guaranty Trust Bank 2. Methodology We calculated the percentage of every individual director board meeting attendance. We used weighted average to calculate percentage attendance of the board or committee meetings. For instance, given banks A, B, C, D, Percentage of individual director s attendance at board meeting (α i ) = α 1,α 2,..,α n All individual meetings of directors while on the board (β i ) = β 1,β 2,,β n Total meetings of directors = µ Weighted Average of A = α i βi µ To calculate the attendance, the report considered board members who served in 2016 financial year only. Directors who were appointed or who resigned/retired were also included, taking into consideration their period of appointment, resignation and retirement. Hence, each director s attendance was calculated based on the number of meetings held while he/she was on the Board. Size of board, women on board and non-executive directors on board include directors on board as at 31 December, Directors appointed to assume duties in 2017 were not considered since they didn t make impact in

20 Apologies taken for missing attendances were not considered. Every apology was considered as absent for fairer and more accurate judgement. The financial statements of Union Bank and FCMB did not specify whether the directors listed were independent or not. As such, their independent directors attendances could not be calculated. From our study of the Banks annual reports, risk and audit board committee fell into three categories that vary from one bank to the other: Board Risk Committee (BRC), Board Audit Committee (BAC), Board Risk and Audit Committee (BRAC). 20

21 NIGERIAN BANKS CORPORATE GOVERNANCE BRIEF

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