BANK Negara Malaysia says its new corporate governance rules for financial institutions, including a requirement that the chairmen of such entities should not have served as the CEO in the previous five years, will not be applied retrospectively.

Financial institutions will be given a transition period of three to five years to comply in order to be fair to those caught out by the new rules, governor Datuk Muhammad Ibrahim told reporters.

Muhammad had been asked to clear the air on whether incumbent chairmen caught out by the new rule, including CIMB Group Holdings Bhd’s Datuk Seri Nazir Razak, Public Bank Bhd’s Tan Sri Teh Hong Piow and AMMB Holdings Bhd’s Tan Sri Azman Hashim, would be forced to vacate their seat.

“We don’t comment on specific cases. But like I said, we will give banking institutions time to transition towards the new requirements,” he said at a press briefing on the country’s second-quarter economic performance last Friday.

“What’s important is that we don’t do this retrospectively. This is not applicable to corporate governance matters only but also applies to many other policies ... to be fair to the incumbent. At the same time, we don’t want to disturb the stability of the banking institutions, so we give them time to adjust.”

The banking industry had been buzzing with talk that Nazir, Teh and Azman may be nudged to voluntarily step down after the central bank came up with its new rules and guidelines pertaining to corporate governance in a policy document issued on Aug 3.

One of the rules in the document states that a chairman of a board must not be an executive of the financial institution and must not have served as its CEO in the previous five years. This is so that there is a clear separation between the roles of the chairman and the CEO and to ensure “an appropriate balance of role, responsibility, authority and accountability”.

Nazir was CIMB Group’s CEO for close to seven years from November 2007 to August 2014, and upon his resignation, he became its non-executive chairman on Sept 1, 2014. He took over from Tan Sri Md Nor Yusof, who retired. His position as director comes up for renewal next year.

Many years ago, Teh and Azman also became the chairmen of their respective banks after having been the CEO. Teh, who is the founder and major shareholder of Public Bank, became the non-executive chairman in July 2002.

Azman, a major shareholder of AMMB, was appointed the group’s non-executive chairman in August 1991.

Bank Negara’s policy document on corporate governance does not specify the maximum tenure that a chairman can have. It does, however, state that independent directors must generally not hold on to their roles for longer than nine years, at most.

It also requires financial institutions to have the majority of independent directors on their respective boards by Aug 3, 2021. As it stands, most of the country’s eight domestic banks already comply on this front.

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