The Bank of Ghana has issued a new corporate governance directive for Rural and Community Banks (RCBs) operating in the country. According to the Bank, it is issuing the directive under sections 56 and 92 of the Banks and Specialized Deposit-taking Institutions Act, 2016 (Act 930). As such, it shall apply to all Rural and Community Banks.
Meanwhile, the Central Bank has outlined several reasons for issuing the new directive. The BOG stated that the Directive will require RCBs to adopt sound corporate governance principles and best practices. This, the Bank explained, will enable them undertake their licensed business in a sustainable manner.
Also, the new Directive aims to promote the interest of depositors and other stakeholders by enhancing corporate performance and accountability of RCBs. Additionally, it will help promote and maintain public trust and confidence in RCBs. To achieve this, the Central Bank indicated that the Directive will prescribe sound corporate governance standards which are critical to the proper functioning of the RCBs. Last but not least, the Central Bank stated that the new Directive will help RCBs to maximize shareholders’ value and interest.
Eligibility for director or key management position
The 28 paged document has five broad sections with each addressing a particular key issue relating to RCBs. The Bank of Ghana outlined the circumstances under which a person may be deemed unqualified or disqualified from a position of a director or any key management position. These conditions are clearly specified under section 58 of Act, 2016 (Act 930). For a person to hold such positions, that person must be of sound mind and must not have been convicted for any criminal offense.
Meanwhile, per the new Directive, the BOG expects RCBs to serve a notice in the case of changes in Directors and Key Management Personnel. Moreover, such a person will require a written approval from the Bank of Ghana before assumption of duty.
Shareholding and Ownership
Furthermore, the Directive also delved extensively into the ownership and shareholding of RCBs in the country. The Directive stated that the BOG allows only Ghanaians to hold shares in RCBs. Moreover, the document also outlines the shareholding limits that will apply in each of the scenarios.
“Shareholding by any natural person shall not exceed thirty percent (30%) of total shares. Family or related party ownership shall not exceed forty percent (40%) of total shares. Community participation in ownership shall not be less than twenty percent (20%) of total shares. Corporate bodies are restricted to a maximum of fifty percent (50%) of total shares”.
However, the Bank of Ghana notified that it may review the shareholding limits from time to time or as and when it deems fit.
Implementation of a succession plan
Also, the Bank of Ghana mandated all RCBs in the county to implement a succession plan. This, according to the Bank, will ensure that a framework is in place for an effective and orderly succession of Directors and Key Management Personnel.
The Directive gives the Board the power to identify existing, high-potential and qualified personnel who may be suitable for Key Management positions. As a result, it mandates the Board to assess the skills such people require to lead and also provide opportunities for training.
Meanwhile, Directors who have served in that capacity for 9 years or more prior to this Directive are not eligible for another term upon the expiration of the current term. Also, CEOs of RCBs who have served a cumulative term of more than twelve (12) years will also not be eligible for another term after the expiration of the current term.
“The effective date for the implementation of all sections of the Corporate Governance Directive shall be March 31, 2022”.