The Bank of Ghana (BoG) has set in motion a directive that seeks to overhaul the governance structure of rural and community banks (RCBs).

The revised directive, which takes effect from March next year, is part of a comprehensive strategy to make the tier two lenders more responsive to the needs of their customers and the changing times.

Known as the Corporate Governance Directive for RCBs, the document was issued by the central bank this month and, among other things, bars foreigners from taking stakes in the lenders, limits the amount of stakes an individual investor can hold in a RCB and caps the tenure of chief executive officers (CEOs), directors and external auditors for the lenders.

It also tasked the RCBs to develop and operationalize business strategies and board charters as well as ensure separation of powers between the board chairman and the CEO.

It further directed rural banks to develop and implement success plans that would cultivate and nurture a pool of talents to replace retiring managers.

Implications

While majority of the requirements were already in existence, it is expected that the issuance of the final directive on corporate governance will herald strict compliance by RCBs similar to what is happening in the commercial banking space.

A source at BoG, who was part of the team that developed the initiatives, said the directive on the capping of the tenure of CEOs, directors and auditors would result in a “massive shake up” in the executive management of the banks.

It explained that although CEOs and directors of RCBs were enjoined to hold office for a maximum of 12 years and nine years, respectively, majority of the institutions were “abusing it.”
“A lot overstayed and so this directive is meant to get them to comply,” the source, who was not authorized to speak on record, said.

The directive said board chairs, CEOs, directors and auditors of rural banks that had served their mandatory tenures “prior to the coming into force of this directive shall not be eligible for another term in office.”

Unlike CEOs and directors that are barred from reappointment after serving their mandatory tenures, the directive said external auditors could serve a term of six years and afterwards be “eligible for re-appointment after a cooling-off period of not less than five years.”

“BoG may, where it deems appropriate, appoint a qualified auditor to be the external auditor of an RCB for such period as it deems fit if the RCB fails to appoint one or if it considers it desirable that another external auditor should act with or in place of an existing auditor, and on terms as may be determined,” it said.

General objective

The central bank said the directive aimed to, among other things, get RCBs to adopt sound corporate governance principles and best practices to enable them to undertake their licensed business in a sustainable manner.

It also sought to promote the interest of depositors and other stakeholders by enhancing corporate performance and accountability of RCBs as well as engineering public trust and confidence in RCBs by prescribing sound corporate governance standards which were critical to the proper functioning of the RCBs.

Ultimately, BoG said it expected compliance to the directives to result in the maximization of shareholders’ value and interest.

Prior approval

Beyond capping the tenure of top management members, BoG directed the RCBs to seek approval from the regulator for persons appointed to the positions of CEOs and board of directors.