How CBN countered First Bank coup

The changes that swept through First Bank of Nigeria Limited and FBN Holdings Plc penultimate Wednesday and Thursday took many by surprise.

The removal and reinstatement of FirstBank CEO Sola Adeduntan and subsequent sack of the entire board and management of the two institutions, spoke volumes of the Central Bank of Nigeria (CBN’s) regulatory powers as contained in the Bank and Other Financial institutions Act 2020.

Adeduntan reveals that he has since resumed at his desk in line with the directives of the apex bank and looks set to reinvent itself, writes Collins Nweze

Nobody saw two leadership changes in First Bank of Nigeria Limited and FBN Holdings Plc within 48 hours coming.

But when they finally occurred, they set precedents that regulatory powers could be activated where corporate governance practices are breached.

The first change in leadership saw the six-year tenure of FirstBank Managing Director/CEO Sola Adeduntan brought to sudden end, eight months to its expiration.

The Board of First Bank of Nigeria Limited at its meeting Wednesday had approved the appointment of Gbenga Shobo, Deputy Managing Director, as the Managing Director/CEO designate of the bank sending Adeduntan to early retirement.

Also appointed were Abdullahi Ibrahim as Deputy Managing Director, while Ini Ebong, Segun Alebiosu, Seyi Oyefeso and Mrs. Bashirat Odunewu, were also appointed as Executive Directors.

The following day, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, reversed the appointments and sacked the entire Board of FirstBank and FBN Holdings Plc.

Emefiele immediately announced the appointment of new Board and Management for First Bank of Nigeria Limited and FBN Holdings Plc.

The total management and board reshuffle saw Adeduntan returned as the Managing Director/CEO of First Bank of Nigeria.  Emefiele said he was satisfied working with Adeduntan on the bank’s stabilisation plan since 2016. Shobo was also returned to his former position as Deputy Managing Director/CEO for the bank.

Emefiele said the Management of the CBN acted in line with its powers under Bank and Other Financial Institutions Act (BOFIA) 2020.

In the new appointments, Remi Babalola was appointed the new Chairman, FBN Holdings. He replaced Oba Otudeko, the former Chairman.

The new directors are Dr. Fatade Abiodun Oluwole, Kofo Dosekun, Remi Lasaki, Dr Alimi Abdulrasaq, Ahmed Modibbo, Khalifa Imam, Sir Peter Aliogo and UK Eke – Managing Director.

The CBN also named Tunde Hassan-Odukale as Chairman, First Bank of Nigeria Limited.  He replaced Mrs. Ibukun Awosika.  The new directors of the bank are Tokunbo Martins, Uche Nwokedi, Adekunle Sonola, Isioma Ogodazi, Ebenezer Olufowose, Ishaya Elijah B. Dodo. Remi Oni was appointed Executive Director and Abdullahi Ibrahim also appointed as Executive Director.

The apex bank has also reassured the depositors, creditors and other stakeholders of the bank of its commitment to ensure the stability of the financial system.

“There is therefore no cause for panic amongst the banking public, given that the actions being taken are meant to strengthen the bank and position it as a banking industry giant,” the apex bank said.

According to Emefiele, the board is vested with the authority to make changes in the management team subject to CBN approval.

However, the CBN considers itself a key stakeholder in management changes involving FBN due to the forbearances and close monitoring by the bank over the last five years aimed at stemming the slide in the going concern status of the bank.

“It was therefore surprising for the CBN to learn through media reports that the board of directors of FBN, a systemically important bank under regulatory forbearance regime had effected sweeping changes in executive management without engagement and/or prior notice to the regulatory authorities,” Emefiele said.

He said the action by the board of FBN sends a negative signal to the market on the stability of leadership on the board and management and it is in light of the foregoing that the CBN queried the board of directors on the unfortunate developments at the bank.

FBN is one of the systemically important banks in the Nigerian banking sector given its historical significance, balance sheet size, large customer base and high level of interconnectedness with other financial service providers, amongst others.

He said FBN has over 31 million customers, with deposit base of N4.2 trillion, shareholders’ funds of N618 billion and NIBSS instant payment (NIP) processing capacity of 22 per cent of the industry.

Emefiele said it is imperative to protect the minority shareholders that have no voice to air their views, also important, is the protection of the over 31 million customers of the bank who see FBN as a safe haven for their hard-earned savings.

He said FirstBank maintained healthy operations up until 2016 financial year when the CBN’s target examination revealed that the bank was in grave financial condition with its capital adequacy ratio (CAR) and non-performing loans ratio (NPL) substantially breaching acceptable prudential standards.

He attributed the problems at the bank to bad credit decisions, significant and non-performing insider loans and poor corporate governance practices. The shareholders of the bank and FBN Holding Plc also lacked the capacity to recapitalise the bank to minimum requirements. These conclusions arose from various entreaties by the CBN to them to recapitalise.

Emefiele said the CBN stepped in to stabilise the bank in its quest to maintain financial stability, especially given FBN’s systemic importance as enumerated earlier.

The CBN boss said: “The bank maintained healthy operations up until 2016 financial year when the CBN’s target examination revealed that the bank was in grave financial condition with its capital adequacy ratio (CAR) and non-performing loans ratio (NPL) substantially breaching acceptable prudential standards.

“The problems at the bank were attributed to bad credit decisions, significant and non-performing insider loans and poor corporate governance practices.

“The shareholders of the bank and FBN Holding Plc also lacked the capacity to recapitalise the bank to minimum requirements. These conclusions arose from various entreaties by the CBN to them to recapitalise.”

However the CBN, Emefiele said, stepped in to stabilise FBN with the “appointment of a new Managing Director/Chief Executive Office in January 2016.”

CBN’s interventions to save FirstBank 

Other interventions highlighted by the CBN governor to save FBN from collapse, include granting it “regulatory forbearances to enable the bank work out its non-performing loans through provision for write off of at least N150 billion from its earning for four consecutive years.

“Another is the granting of concession to insider borrower to restructure their non-performing credit facilities under very stringent conditions and the renewal of the forbearances on a yearly basis between 2016 and 2020 following thorough monitoring of progress towards exiting from the forbearance measures.”

Emefiele said he was shocked to hear of the sack Adeduntan from media reports after he had made entreaties that the former FBN Holding chairman should pull the brake.

The CBN governor said an interested party leaked information to him about plans to sack Adeduntan. To stop the move, he said he called Otudeko and “spoke to him that such changes will require CBN approval.”

Emefiele said he pleaded with Otudeko, sent a shareholder to also plead with him not to go ahead with the decision but they went ahead all the same.

He described FBN as a systemically important bank in the Nigerian banking sector “given its historical significance, balance sheet size, large customer base and high level of interconnectedness with other financial service providers, among others.”

Stock movement

The shares of FBN Holdings (FBNH) Plc on Thursday dropped 6.76 per cent to N6.90 per share. There were no changes in the bank’s shares on Friday.

The FBNH began the year with a share price of N7.15 but has since lost 3.5 per cent off that price valuation, ranking it 109th on the Nigeria Stock Exchange in terms of year-to-date performance.

FBN Holdings Plc is the non-operating holding company of First Bank of Nigeria Limited, a commercial bank with operations in 10 countries.

FirstBank speaks on development

In a statement released Friday and signed by Mrs. Folake Ani-Mumuney Group Head, Marketing & Corporate Communications, the bank said: “We refer to the CBN pronouncement on the reconstitution of the Board of Directors of First Bank of Nigeria Limited. Further to the press conference held by the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele on Thursday, 29 April 2021, the Boards of FBN Holdings Plc and First Bank of Nigeria Limited were dissolved and reconstituted, pursuant to its power under Banks and Other Financial Institutions Act (BOFIA) 2020.

ADVERTISEMENT“Adesola Adeduntan has since resumed work as CEO in line with the directives of the CBN. We can confirm that the bank is cooperating with the CBN and other regulators while the operations of the bank are not hampered or hindered in any way and are in fact running smoothly. We further wish to reassure the public, our esteemed customers and stakeholders in the words of the Governor of the Central Bank in concluding his press conference.

“The CBN hereby reassures the depositors, creditors and other stakeholders of the bank of its commitment to ensuring the stability of the financial system. There is therefore no cause for panic amongst the banking public, given that the actions being taken are meant to strengthen the Bank and position it as a banking industry giant,” the bank stated.

Others stakeholders speak

Former President, Chartered Institute of Bankers of Nigeria (CIBN), Okechukwu Unegbu, said FirstBank is systematically important bank, but faced serious crisis emanating from poor corporate governance practices.

He said the leadership changes instituted by the bank’s former boards and management failed to realise the power of the CBN to correct any anomaly instituted by board or management.

He said had the CBN not intervened, there could have been a run on the bank, and the high esteem on which the bank is held in the minds of Nigerians meant that it could threaten financial system stability.

He said: “The CBN acted rightly by reversing the leadership change at FirstBank and also letting go of the old board that had been part of the problem of the bank through poor corporate governance practices. The action taken by the CBN will boost foreign investors’ confidence in the economy.”

In the view of President, Bank Customers Association of Nigeria (BCAN) Uju Ogubunka, the challenge facing FirstBank should have been tackled earlier by the CBN, without getting to this level.

“I expect the CBN to be more proactive going forward. The level of insider loan abuses seen in FirstBank was an indication of regulatory negligence. The perpetrators and the directors involved in the insider loan abuse that were in excess of single obligor limit should have been sanctioned before now. Supervisory roles of the regulator should be more proactive going forward,” he maintained.

Also speaking, former Executive Director, Keystone Bank Limited, Richard Obire said the CBN acted rightly in the face of critical corporate governance crisis in the bank.

He said that every institution should be properly governed in the interest of shareholders, employees and customers.

“It seems there are significant governance issues at FirstBank where a director is borrowing so much from the bank that it has come to constitute balance sheet challenges,” he said.

He said the CBN’s action against the former board is justified because he who pays the piper dictates the tune.

He said other banks should wake up and improve their corporate governance practices where there are lapses because safe and sound financial system is dependent on the quality of corporate governance practices.

This, he said, also depends on the quality of the board of directors and their ability to discharge their responsibilities honourably.

CBN tackles insider loans

The Central Bank of Nigeria has directed the Oba Otudeko owned Honeywell Flour Mills to repay a loan to First Bank within 48 hours.

In the letter the CBN said: “Consequently, the company (Honeywell Flour Mills) is required to fully repay its obligations to the bank within 48 hours, failing which the CBN will take appropriate regulatory measures against the insider borrower and the bank.”

Oba Otudeko, former chairman of FBN Holdings Plc, the holding company which owns First Bank. Otudeko also served as Chairman of First Bank until 2010 and is also the Chairman of the Honeywell Group.

The CBN said that it has previously written to First Bank about its interests in the Honeywell Group. One big regulatory concern was Honeywell Flour Mill’s collateral for the loan facility.

According to the memo, “We further noted that in four years, the bank is yet to perfect its lien on the shares of Mr Oba Otudeko in FBN Holdco which collateralised the restructured credit facilities for Honeywell Flour Mills contrary to the conditions precedent for the restructuring of the company’s credit facility.”

The apex bank has also asked First Bank to divest its interests in Honeywell Flour Mills Group and Bharti Airtel Nigeria Ltd within 90 days.

Poor corporate governance practices in banks

The level of insider abuses perpetrated by bank chief executives and other top board members in many of the banks are worrisome.

In one of Emefiele’s presentations at the CBN-Financial Institutions Training Centre (FITC) Continuous Education Programme for Directors of Banks and Other Financial Institutions in Lagos, he expressed the apex bank’s dismay over the level of corporate governance abuses perpetrated by top echelon in banks.

He had promised that the regulator will soon wiled the big sticks and punish offenders.

Emefiele, who spoke on the theme: “The Next Level of Corporate Governance Practice” said fit and proper persons should be appointed into the boards of banks adding that corporate governance is undoubtedly an essential pillar in financial system stability.

He said that failure of banks’ boards in carrying out their oversight functions by checking management excessive risk taking, conflict of interest, undue concentration on short term gains and excessive executive compensation fundamentally affect the ability of financial institution to meet their core mandates.

Emefiele said running an efficient and sound bank is all about strong governance adding that weak governance ensues when shareholders employ inexperienced or unenlightened people to run their banks.

“Weak governance will ensure that liquidity position in banks is eroded. We want to make sure that banks remain strong by ensuring that strong governance exists. It is also about checking your conscience to tell yourself, have you performed your role diligently that you are not only serving your own interest as shareholders but also serving the interest of larger stakeholders?

“It encompasses the protection of minority shareholders, disclosure provisions, the role and structure of the board, complexity on the definition of related parties, compensation structures and much more. Therefore weak corporate governance can undermine financial stability by heightening vulnerability of financial institutions to external shocks,” he said.

For the CBN boss, institutions with sound corporate governance and effective board oversights are more resilient to shocks and operate more profitably.

Hence, now is the time for all banks to follow the path of honour by embracing sound corporate governance practices to achieve sustainable growth and avoid regulatory sanctions.