By Osaze Omoragbon
The Central Bank of Nigeria (CBN) has sacked the boards of First Bank Nigeria Plc and FBN holdings while it reinstated Sola Adeduntan, the CEO who was earlier relieved of his appointment in a shocking move that has sent panic through the bank. Governor of the CBN, announced the decision of the apex bank in a press conference on Thursday evening. The regulator, according to Emefiele, took the decision to safeguard the bank and the financial system. Emefiele accused the board of insider abuse and violation of corporate governance ethics.
The CBN, according to Emefiele has been keeping a close tab on First Bank in the last five years and especially after its capital adequacy ratio and non-performing loans breached prudential standards. “The insiders who took loans in the bank, with controlling influence on the board of directors, failed to adhere to the terms for the restructuring of their credit facilities which contributed to the poor financial state of the bank. The CBN’s recent target examination as at December 31, 2020 revealed that insider loans were materially non-compliant with restructure terms (e.g. non perfection of lien on shares/collateral arrangements) for over 3 years despite several regulatory reminders. The bank has not also divested its non-permissible holdings in non-financial entities in line with regulatory directives” Emefiele stated. The apex bank named the new boards in place of the sacked ones.
First Bank Plc has been dealing with huge non-performing loans which is a hangover from the 2016 recession. The bank gave out loans to some directors which went sour and had to restructure them with CBN’s approval. However these loans are not performing and the bank has failed to make provision for the loans in their books, a decision which did not go down well with Sola Adeduntan, who sits on the ethics and corporate governance committee of the bank and reports directly to CBN, a source confirmed to TheEconomyng.com. “Adeduntan was being prevailed upon by the board to soften his stance but didn’t budge because he doesn’t want to take the fall when things go south and that is when they moved against him” says a source at First Bank. It is reported that Oba Otudeko, a director in the bank and the Chairman of Honeywell Flour, has a non-performing loan to the tune of N85 billion and which had to be restructured. The CBN gave regulatory slack to First Bank, which allowed it to write off N150 billion from its earnings for four years and helped improve its earnings.
Experts say the CBN move will send shockwaves through the financial system. Some industry watchers say it is likely that the shares of First Bank will be dumped on friday irrespective of CBN’s attempt to reassure investors. “I think the apex bank by now would have liaised with the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) to place the shares on technical suspension at the resumption of trading tomorrow” says a stock broker who prefers anonymity. The timing of the announcement of the decision by the CBN, he says, was made to coincide with when share trading had closed and also when the bank had closed for business.
A top banker speaking on the condition of anonymity commended the CBN’s decision saying people do not appreciate the position First Bank holds in the banking system. First Bank, he says “is not just the oldest bank but it has the widest reach and a majority of clearing is done by First Bank. In short if there is a hierarchy of banks, after the CBN, First Bank comes next. It could deputize for the CBN, that is how important it is in the financial system” he asserts. The decision of the board to remove Adeduntan, industry watchers believe was done in bad faith and the CBN in their view did the right thing to protect him. “This move is a warning to other banks that may be contemplating doing the same to a CEO that is not interested in violating corporate governance” the banker says. “CEOs are also reassured that the CBN have their backs covered”.
Observers say since CBN took over eight banks in 2009, there have been a lot of regulatory changes that safeguard the financial system including regulations protecting key staff of banks that directly report to CBN on the state of health of the banks. These changes which focus on risk-based supervision and enforcement of corporate governance is what has saved the banking system from abuse and collapse.