October 22, 2012/ CIBN/NASS - For the Records
MEMORANDUM SUBMITTED BY THE CHARTERED INSTITUTE OF BANKERS OF NIGERIA (CIBN) TO THE HOUSE OF REPRESENTATIVES JOINT COMMITTEE ON BANKING & CURRENCY AND JUSTICE ON A BILL FOR AN ACT TO AMEND THE CENTRAL BANK OF NIGERIA ACT, 2007 NO. 7 TO APPOINT A PERSON OTHER THAN THE GOVERNOR AS THE CHAIRMAN OF THE BOARD OF THE BANK, EXCLUDE DEPUTY GOVERNORS AND DIRECTORS AS MEMBERS OF THE BOARD, DIVEST THE BOARD OF THE POWER OF CONSIDERATION AND APPROVAL OF THE ANNUAL BUDGET OF THE BANK: AND FOR OTHER RELATED MATTERS, 2O12 (HB.276)
The Chartered Institute of Bankers of Nigeria (CIBN) is delighted about the invitation sent to it by the House Joint Committee on Banking and Currency and Justice to the Public Hearing on a Bill for an Act to amend the Central Bank of Nigeria Act, 2007 NO.7 (with details above).
The CIBN is a self – regulatory and umbrella banking professional organisation promoting banking and finance education, ethics and professionalism consistent with global best practices in Nigeria.
One of its core statutory responsibilities is to ensure the furtherance, maintenance and observance of ethical standards and professionalism among practitioners of banking profession in Nigeria, who are individuals and corporate bodies, including all deposit money banks, Micro-finance banks, Mortgage Institutions, Development banks, Nigeria Deposit Insurance Corporation and Central Bank of Nigeria.
CIBN is a self-regulatory organisation established under CIBN Act No. 5 of 2007 and it is not regulated by the Central Bank or any regulatory agency.
1. Composition Of The Board and Related Governance Matters -S. 6(2) CBN Act 2007
Section 2 (1) of the Bill seeks to amend Section 6 (2) of the Act, which relates to the composition of the Board of Directors of the Central Bank of Nigeria by:
a) Changing the current position where the Governor of the CBN is the Chairman of the Board.
b) Excluding the Deputy Governors and other Directors of CBN from membership of the Board.
The Bill seeks to constitute Membership of the CBN Board as follows:
a.) A Chairman, who will be a former Governor of CBN or a former Chairman of a Bank or a former Managing Director of a Bank.
b.) The Governor.
c.) The Permanent Secretary Ministry of Finance.
d.) The Accountant General of the Federation.
e.) The Permanent Secretary National Planning Commission.
f.) A Representative of the Federal Inland Revenue Service not below the rank of Director; and
g.) A Representative of the Nigeria Deposit Insurance Corporation not below the rank of Director
Our Observations and Comments:
i) The Membership composition of the CBN Board proposed by the Bill, effectively reduces the impact of the CBN’s Management on the Board’s decisions , as it gives rise to a situation where only one member of its Management, the Governor, sits on the CBN’s seven (7) man Board. This differs from the current situation where five (5) members of the Management of CBN, that is, the Governor and Deputy Governors, sit on a twelve (12) -man Board. This does not augur well for good governance and management succession.
ii) The Board composition proposed by the Bill increases the number of direct government officials on the CBN Board from two (2) to five (5) despite the almost fifty per cent reduction in the Board’s size. Consequently the new composition would create the perception of a government majority on the Board. This is capable of undermining the “independence“ of the Central Bank of Nigeria and may lead to unintended consequences.
iii) The situation where the Governor acts as Chairman of the Central Bank’s Board is aligned to international best practice and is designed to support the independence of the Central Bank. Such independence includes the authority of the Central Bank to manage or handle its own operations without excessive involvement of the government. This is what exists in many countries including Australia, Belgium, Canada, Germany, Japan and Netherlands, India, Korea. The same is true of other African Countries like The Gambia, Ghana, Botswana, Zambia, Kenya and South Africa.
A survey of many Central Bank Boards, in countries at various levels of development revealed that, without exception, the Central Bank Governors act as Chairmen of the Boards of Central Banks. It is also pertinent that, in Mexico and South Korea, there are no external Directors, as their Central Banks Boards consist solely the Governor and a number of Deputy Governors.
iv) Many Central Bank laws set out qualifications for Board members that are designed to reduce the risk of conflicts of interest. Board members can come from different backgrounds but they must not be delegates of special interest groups. Some countries have mechanisms which ensure that a wide range of political interests are involved in the appointment process and enhance, the legitimacy of the Board.
v) The ability of the Central Bank to speak out, if needed, and possibly on critical issues with respect to economic and budgetary policies, might also be impaired if the Governor, or the other members of the Board are subjected to restrictive controls and this might be interpreted as political interference.
2. Management of the Bank - Section 7(1) of CBN Act 2007
Section 3 of the Bill seeks to amend Section 7(1) of the CBN Act, such that the Deputy Governor that will act for the Governor in his absence will be the most Senior Deputy Governor, rather than the situation under the subsisting act where it is a Deputy Governor, nominated by the Governor.
Our Observations and Comments:
Our view is that this internal mechanism which borders on delegation of duty should not be a subject for legislation. Besides, what the Bill is proposing does not give good room for manpower development and succession planning.
3. Appointment, Qualification & Remuneration of Gov/Dep. Gov –S8(3) CBN Act 2007
Section 4 of the Bill seeks to amend Section 8(3) of the Act which vests the Board with the authority to set the remuneration of the Governor and Deputy Governors, subject to the approval of the President and to replace it with a provision pursuant to which such authority will no longer be vested in the Board but will now be vested in the Revenue Mobilization Allocation and Fiscal Commission, subject to the approval of the President.
Our Observations and Comments:
What the Bill proposes will negate International practice and even expert opinion that, “in order to attract and retain a corps of professionals to do this sophisticated work that is a part of its operations, the Central Bank must be able to offer terms and conditions of employment that are comparable with those available in alternative jobs in both the public and private sectors.”
The use of a government organization to set salaries for the Central Bank of Nigeria would also be in conflict with the requirement for a Central Bank to be independent; and it would create the perception that the government, through that agency, is seeking to gain undue influence over the CBN’s Executive Management.
There should be other ways of harmonising the CBN Act with any other Act with any conflicting provisions.
4. New Section
Section 5 of the Bill proposes the introduction of a new Section 48 pursuant to which CBN’s Board will be required to prepare and submit through the President, the Bank’s Annual Budget to the National Assembly.
Our Observations and Comments:
The proposed Section 48 does not specify that approval to such budget must be obtained from the National Assembly, however, this is implied.
It is pertinent to note that:
· Accountability by the CBN goes much deeper than having its Annual Budget approved by a separate body, like the National Assembly.
The danger in having a separate body approve the budget is that the process is subject becoming highly politicized, approvals may be delayed thus leading to disruption in the operations of CBN and adverse effects on the macroeconomic environment and monetary stability.
· ’’The Central Bank’s right to determine its own budget was a particularly relevant consideration in determining whether a national Central Bank was vulnerable to outside influence.” Malcolm D. Knight of the Central Bank of Brazil, was also of the opinion that:
“A final precondition for the effectiveness of a central bank is its financial autonomy. This must include giving the central bank full responsibility for the formulation and implementation of its own budget. Without this it is much harder for a central bank to sustain the high level of performance that is desirable… The central bank must be able to control the size and composition of its balance sheet in order to engage in the transactions needed to achieve its established monetary policy goals.”
· Even where the Central Bank of Nigeria retains the right to approve its own Budget, the requirements of Section 50 of the Act, will ensure that it is subjected to the requisite level of accountability, given the provision that it should transmit it’s Audited Accounts to the National Assembly and to the President. The audited Annual Report submitted to the National Assembly and President is required to be subsequently gazetted and made available to the general public. These will therefore, ensure that the CBN is held accountable by both the National Assembly, the President and Nigerians.
Given the above, The Chartered Institute of Bankers of Nigeria (CIBN) on behalf of its Members and the Nigerian Banking industry recommends that:
i) It is the Executive that nominates while the Legislature confirms the appointment of the Governor of the Central Bank, Deputy Governors and Board Members. It is necessary that at this point, the two arms of government ensure that very competent, knowledgeable and independent minded people are appointed to these sensitive positions.
ii) The CBN Governor should remain the Chairman of the Board of Directors of the Bank in line with international best practice.
iii) The Deputy Governors should continue to be members of the Board of Directors of the Central Bank of Nigeria, for effective Board deliberations and articulation of well informed and appropriate policies for the economy and financial system. This is also in line with global best practice.
iv) The diversity in the background and experienced members on the Board of the CBN will enhance the robustness of policy decision making process. It is therefore, not necessary to reduce the number of the Board’s members. Furthermore, populating it with Senior Civil Servants as proposed in the Bill, may lead to undue bureaucracy, politicising of the CBN and government interference, which may spell doom for the financial system and ultimately, the economy.
v) The Board of Directors of the CBN should continue to be responsible for the consideration and approval of the Bank’s Annual Budget, while they should be held accountable by the public through periodic rendition of its activities to the President and National Assembly, gazetting and publication of it’s Annual Reports.
vi) Since the CBN is required under the law to transmit reports on its operations to the President and the National Assembly, it remains accountable to the Government and representatives of Nigerian people. Thus, the status quo should be maintained.
vii) A mechanism should be put in place for regular and effective interfacing, interaction and consultation between the Central Bank of Nigeria and the National Assembly on matters that affect the economy and the mandate of the Central Bank.
viii) The Chartered Institute of Bankers of Nigeria is ever willing and ready to make its resources available and intervene between the National Assembly and any of its members or the banking industry in general on legislative matters that will affect the industry.
In conclusion, it is generally agreed that the subsisting CBN Act is a product of several rigorous efforts to align with international best practice. The independence and autonomy of the Central Bank of Nigeria, in order to ensure effective execution of its mandate must be guaranteed.
In this era of globalization, Nigeria cannot afford not to follow well tested and enduring global trends and practices. A truly independent and autonomous Central Bank of Nigeria has become more imperative for the integration of the Nigerian financial and economic systems with the rest of the world, and it is therefore necessary that the independence and autonomy of the Central Bank be strengthened to ensure it effectively, efficiently and successfully executes it’s very important national mandates in the interest of the economy and the citizenry.
We are of the opinion that there are adequate checks and balances in the existing CBN Act. Therefore, we submit that the subsisting CBN Act should be maintained as the proposed review may create more challenges than whatever issues it is aimed at resolving.
Segun Aina, OFR, FCIB
President/Chairman of Council
President/Chairman of Council
The Chartered Institute of Bankers of Nigeria