A Methodology for Assessing the Quality of Corporate Governance in Nigerian Banks

Abstract

Effective corporate governance is becoming central to achieving success in the global business environment. Corporate governance rating entails attaching a measure to the quality of corporate governance mechanisms in organizations. Currently there is no industry-specific rating system in Nigeria which would factor in the peculiarities of the industry and thus bring out more meaningful and comparative ratings. This study designed a corporate governance rating structure for Nigerian banks, as a tool with which banks and other stakeholders can measure bank's corporate governance performance. This designed rating structure is industry (banking) specific, and utilizes a methodology designed majorly around the code of corporate governance for the banking industry issued by the Chartered Institute of Bankers of Nigeria in 2014. It is assumed that the banking industry aside the individual banks share some common culture and context, and as such developing a methodology around this industry would be invaluable. The resulting rating quotient is described as BI-CGQ (Banking Industry-Corporate Governance Quotient). The three pronged approach in this methodology used the following bases and weights in computing the BI-CGQ: Questionnaire Analysis (50%); Corporate Governance Disclosure Index (25%) and Loan Loss Index (25%). Its applicability was demonstrated in this research with the top 5 Nigerian banks which are listed among the leading 1000 Global Banks in 2014. Corporate governance quality was found to be evidently high in these top banks with BI-CGQ of 91.13% (GTB), 87.61% (Zenith), 89.58% (UBA), 91.36% (Access) and 82.62% (FBN). In addition to demonstrating the applicability of this methodology, computing BI-CGQ for these banks enabled the determination of commonalities in the assessed performance of individual banks across the governance areas examined, which illustrated possible common governance challenges in specific areas. Results showed that different standards and expectations are set by board of directors, shareholders and customers. Banks appeared to be more challenged in governance matters relating to charges and interest, the manner customers complaints are attended to, and the clarity of terms and conditions to customers. Inadequate disclosure was found to be more glaring on matters relating to board committees. In spite of the criticisms that trail the use of corporate governance ratings, the system remains a useful guide in assessing quality of governance.