By Babajide Komolafe
Central Bank of Nigeria (CBN) has defended the reversal of prudential guidelines that require banks to disclose executive compensation and bonuses as well as the limit on credit to shareholders.

Vice President Namadi Sambo (2l) watches as the CBN Governor, Mallam Lamido Sanusi shake hands with the MD Emzor Phamarceuticals, Chief Stella Okoli ,while the Minister of State for Commerce and Industries, Ms. Josephine Tapgun (2r) watches during the official launch of the N500bn Low Interest Funding for the Real Sector at the Banquet Hall, State House, Abuja. Photo by Abayomi Adeshida.

“There are circumstances where these things don’t make sense”, said   Mallam Lamido Sanusi, CBN Governor. Last month, the apex bank  issued a new  prudential guidelines which replaced the one issued in May which mandated banks to disclose in their annual accounts monies paid to executives and staff as compensation, profit-sharing and bonuses.

Also deleted from the new prudential guidelines is the limit on credit to directors and significant shareholders and the general provisioning of one per cent for all loans.

This followed strong opposition by banks to some segments of the prudential guidelines issued in May that they were impracticable. Fielding questions from journalists at the 15th CBN seminar for finance correspondents and business editors, Sanusi defended the decision of the apex bank to backpedal on the contentious segments of the guidelines.

He said, “On the issue of Prudential guidelines, you know the problem with these issues and it is the case of do it  and be damned or don’t do it and you will still be damned. First, we have an exposure draft. Let us explain this, because we have seen it before that the CBN has reversed itself. When we issue guidelines, we issue an exposure draft.

That exposure draft allows you to take feedback from the industry and from stakeholders and from the banks. In fact, the exposure draft contents may not have even been looked at in details by the committee of governors. We then come and say these are the feedback that we got which one should we accept and which should we not?

“I will give you an example of that of the limit on credit to shareholders. The  guideline says that you cannot give more than  five per cent of your portfolio to a  shareholder. Let us say Mike Adenuga.

Would you say because he is major shareholder in ETB, that ETB should not lend money to Glo? Does it make sense? Or if a director of MTN is a director of GTBank, that GTBank should not lend money to MTN? Does it make sense?

“So, when you look at practical issues, you wonder if you should legislate that, because there are circumstances in which it does not make sense. These are companies that every bank will lend to, even on an arms length basis. Every bank is going after them, so why should a bank be precluded from lending to those companies simply because somebody who is a shareholder came to buy shares in the bank?

“So, we took it out, it was reasonable. On incentives and bonuses, the question was: should they be published on the annual reports and accounts or are there other ways of disclosing them? In other dispensations, you come to an AGM and give the total package of how much you pay the management and how much you pay directors and the AGM has to approve it. We have to decide how to bring transparency, and we are dealing with something that has to do with security, and someone says you come out to disclose your salary, the next day, somebody shoots you. So you have to look at that.

“So, we sent an exposure draft, they came back with comments, I look at the comments, some of them I agree with totally, some of them I have issues, but they were not big issues, and I said if this is what is going to make the guidelines go, at least, we have agreed with the major issues, let us go and implement.

“Now, I have simply undone what we decided initially; if I had refused to change, they would have said, Governor Sanusi is very inflexible, he does not listen, he wants everything to be exactly the way he wants it. If you show flexibility, they would say you have reversed yourself, that you are inconsistent, even when you have not issued the final judgement.

“Frankly, the issue of incentives and bonuses, the question for me was the following. It came in largely because this is beginning to be what is the trend, say, in Europe. The bonus system was at the heart of the problem of  investment banks in Europe, but was not really at the heart of the banking crisis in Nigeria. You see, it is not as critical.

People look at a debate in England and they bring it to Nigeria. Bonuses and incentives are critical in investment banks in Europe, our banks were not part of investment banks. So, in terms of what it addresses, it was not relevant to Nigeria.