The Central Bank of Nigeria (CBN) has issued a new directive to all Domestic Systemically Important Banks (DSIBs), mandating them to get regulatory approval for the appointment of a successor for their Managing Director/Chief Executive Officer (MD/CEO) at least six months before the incumbent’s tenure ends. The banks are also required to publicly announce the appointment of the successor no less than three months before the outgoing CEO leaves office.
Rationale Behind the New Policy
This new directive is part of the CBN’s broader effort to strengthen corporate governance and ensure stability within the financial sector. According to the CBN, the policy is aimed at:
- Minimizing Disruptions: By requiring early succession planning, the CBN seeks to prevent the kind of uncertainty and potential instability that can arise from abrupt leadership changes.
- Mitigating Risks: The new rule helps to mitigate risks associated with sudden leadership vacuums, which could harm the financial system and the wider economy.
- Preparing Appointees: The six-month window allows the incoming MD/CEO to prepare adequately for their new role, ensuring a smoother transition and continuity in leadership.
- Aligning with Best Practices: This move brings Nigeria’s banking sector more in line with global best practices, where regulators emphasize robust succession planning as a key component of risk management.
Applicability and Context
The circular, signed by the Director of Financial Policy and Regulation, is a direct reinforcement of the provisions outlined in Section 2.14 of the CBN’s 2023 Corporate Governance Guidelines. This section already requires the boards of all commercial, merchant, non-interest, and payment service banks to have a clear succession plan for their top management.
The focus on DSIBs—institutions that are considered “too big to fail” due to their size, complexity, and interconnectedness—underscores their critical role in maintaining the stability of Nigeria’s financial system. The CBN believes that any leadership shake-up at these banks could trigger widespread instability, making proactive and transparent succession planning essential.
