Bank CEOs’ worry over term limit

Tuesday July 26 2016

Central Bank of Kenya Governor Patrick Njoroge speaks during a media briefing at his office on June 21, 2016. CBK had set June 30 as the deadline for FTI Consulting to conclude an audit into Imperial Bank. PHOTO | SALATON NJAU | NATION MEDIA GROUP

Central Bank Governor Patrick Njoroge speaks during a media briefing at his office on June 21, 2016. PHOTO | SALATON NJAU | NATION MEDIA GROUP 

By DAVID HERBLING [email protected]

Chief executives of Kenyan banks are apprehensive over a proposal to cap their tenure as part of efforts to enhance corporate governance and inject new blood into lenders’ leadership.

Central Bank of Kenya Governor Patrick Njoroge has revealed plans to set a term limit for the CEOs, a move that may send home more than half of the current bosses.

When contacted, only half of the occupants of the banks’ corner offices were willing to comment on the issue.

“This is the kind of matter where I need to get a quick alignment with my board before I can be quoted,” said Mr Titus Karanja, CEO of Sidian Bank, formerly K-Rep.

Mr Karanja has served in the small lender for one year having joined in July 2015.

Barclays Bank said “it is too early for us to have a definitive view” in the absence of concrete recommendations from the regulator.

“We believe that the regulator will work closely and consult widely with industry players in order to arrive at the best possible solution for the industry and other stakeholders,” Barclays said in response to our queries. 

Mr Jeremy Awori is now in his fourth year at the helm of Barclays, having joined the lender in February 2013. Independent non-executive directors must apply for re-election every three years and cannot serve on the board for more than nine years, Barclays said.

All managing directors of Ecobank affiliates enjoy a five-year term limit while non-executive directors’ tenure is pegged at nine years, and board chairmen six years.

Tight-lipped
Long-serving bank bosses remained tight-lipped, including Mr James Mwangi, who has been steering Equity Bank since 2004 when it acquired a commercial licence. Co-op Bank’s Gideon Muriuki who took over the lender in 2001 could not comment on the matter too.

Mr Mwangi had earlier served for a decade at the helm of the union which was then known as Equity Building Society.
Mr Isaac Awuondo, who has been heading Commercial Bank of Africa since 1998, also declined to comment.

KCB, Kenya’s largest lender by assets, said it does not have a term limit policy in place for CEOs, but caps independent directors’ tenure to eight years and five years for the chairman.

“For the chief executive officer and the chief financial officer who are executive directors, their terms are limited in their contracts,” the lender said in a statement.

Mr Joshua Oigara was appointed KCB Group CEO in January 2013, replacing Mr Martin Oduor-Otieno who served for nearly six years.
Analysts reckon that limiting the terms for CEOs is a mixed bag; while it helps in injecting new ideas it may also be detrimental in some aspects.

“My view is that term limit works better for large tier 1 banks. No mature market has term limits formally on CEO,” said Mr Deepak Dave of Riverside Capital, a risk management firm.

“Having policies on rotating the board and auditors and giving both these groups real powers to scrutinise and demand change will be far better at keeping CEOs in line.”

Dr Njoroge last week announced that CBK will in a month’s time issue prudential guidelines proposing to cap the tenure of bank chief executives and non-executive directors of Kenyan banks.

“Unlimited tenure may breed complacency. The person may not embody new thinking,” the governor told a stakeholder briefing on Wednesday last week.

The proposals come after the collapse of three lenders in less than a year over claims of underhand dealings by veteran CEOs. These banks are Dubai Bank, Imperial Bank and Chase Bank.

Imperial Bank’s long-serving MD Abdulmalek Janmohamed is alleged to have fraudulently transferred a total of Sh34 billion of depositors’ cash to his entities and bank accounts between 2002 and September 15, 2015 when he died, according to court filings.

Chase Bank’s ousted chairman Zafrullah Khan and suspended managing director Duncan Kabui connived to use the lender’s Islamic window to conceal their scheme to siphon Sh7.9 billion from the bank to entities they co-owned, Deloitte told lawmakers in June.

Dubai Bank collapsed under the weight of reckless lending to Moi-era powerbrokers which were not repaid in time, says a report by audit firm Crowe Horwath East Africa.

“Term limits have been debated widely in other jurisdictions. We’re putting it on the table for a robust debate,” said Dr Njoroge.

Terms for CEOs of Kenya’s State-owned commercial corporations are capped at two, three-year terms, meaning one can only serve as boss for a maximum of six years. They include listed firms such as Kenya Power, KenGen, and East African Portland Cement.

CBK’s exact proposals on CEOs and directors’ term limits, rotations, and succession planning for banks will only be public once the regulator tables its paper.

The Central Bank of Egypt in March set a nine-year term limit for bank CEOs, a move that effectively sent home eight chief executives who had served for more than a decade. However, an administrative court suspended the directive in June, after it was challenged by bankers.

In 2010, Mr Lamido Sanusi, Nigeria’s then Central Bank governor, imposed a 10-year limit on the tenure of chief executives.

Mr Kunal Ajmera, chief operating officer at consultancy firm Grant Thornton, said term limits are good but expressed fears that banks may find it difficult to get highly qualified persons to serve as CEOs if forced to implement such a system.

“From the governance point of view this may sound like a good initiative,” said Mr Ajmera.

“Financial sector is extremely competitive and when you have a successful CEO any corporate entity will not accept the law-enforcing rotation,” he said in an interview.

NIC Bank Group Managing Director John Gachora said: “We support any positive attempts to improve corporate governance in the country.”
He has been heading the mid-sized lender since September 2013.

Mr Dhiren Rana, CEO of Middle East Bank said he supports term limits although his bank does not have a policy on tenure of executives. “I support term limits for CEOs and top executive management,” he said in an interview.