NBK rules out board changes on director caps

The National Bank of Kenya has ruled out a boardroom shake-up in the banker’s race to comply with regulations that require lenders to reserve a third of board seats for independent directors.

The bank maintains that its board is well established despite analysts concern that the lender is in breach of the Central Bank of Kenya (CBK) guidelines since its directors are representatives of major shareholders, the NSSF and the Treasury who own 48.05 per cent and 22.5 per cent respectively.

The banking regulator defines an independent director as one who is not a direct or indirect representative of the principal shareholders, has not worked in the bank as an executive for the past five years and has not had any business relationships with the institution in the same period.

READ: CBK cuts independent directors’ quota in banks

Significant suppliers of the lenders or relatives of senior managers and those with a direct or indirect shareholding of more than five per cent in the appointing banks are also not considered independent.

The Central Bank of Kenya (CBK) had asked banks to start complying with the directive from January, but NBK maintains that its board is in compliance with the directive.

“There are only two board members representing Treasury and the NSSF (National Social Security Fund),” Munir Ahmed, the managing director of NBK told the Business Daily.

“The rest are independent directors and they don’t represent the interests of any shareholders. Francis Atwoli does not represent NSSF though he sits on the fund’s board.”

The CBK says the new rules are aimed at reducing the influence of principal shareholders in the boardrooms as well as safeguard the interests of minority investors whose influence in the key decision-making organs has declined.

“It is a fact that NBK remains under tight control of Treasury and the NSSF,” said a source at the Centre for Corporate Governance, pointing out that the dominance of the two, especially that of the fund, is in breach of CBK guidelines.

NBK has a 10-member board made up of three executive directors including the managing director, and his two deputies, Isaiah Mworia and Ali Noor.

Of the seven non-executive directors, two (Tom Odongo, the managing trustee of the NSSF and the head of financial services at the Ministry of Finance, George Omino) directly represent the NSSF and the Treasury respectively.

That leaves NBK without an independent director, following the ouster of long-serving board member Michael Muhindi in June. 

Mr Muhindi lost the vote after he failed to win the NSSF’s support. The fund instead chose to back Wangui Mwaniki, a senior executive at Kenya Railways, further cementing the public pension fund’s growing influence in NBK.

Personal contacts

The other four directors — Sylvia Kitonga, Erastus Mwongera, Mr Atwoli and Mohammed Hassan (now board chair — are on the board courtesy of the NSSF. They were appointed in 2011 following the replacement of Jennifer Riria, Paul Ngumi and Alfred Juma — all said to have been government appointees.

The decision by the fund to tighten its grip on NBK board has returned to haunt it. The rules are said to affect more than half of Kenya’s 44 banks, including some that are listed like Housing Finance.

The majority of directors in Kenyan banks have secured their seats with the help of business associates, personal contacts or friends. In the Housing Finance case, the principal shareholders are Equity Bank, Britam, which both control 46.1 per cent of the mortgage firm, and NSSF with a 6.82 per cent ownership.

It has a board of seven members including the chairman, Mr Steve Mainda, Equity Bank representatives Mr Peter Munga, Mr David Ansel, and Mr Shem Migot-Adholla, while the NSSF is represented by its chairman Mr Adan Mohamed.

The other directors are CEO Frank Ireri, and Benson Wairegi who sits on both Equity and Britam boards. 

Mr Mainda is the only one who qualifies as an independent director based on the CBK definition.

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