Home BUSINESS REAL REASON WHY CENTRAL BANK SACKED ALL FIRST BANK DIRECTORS

REAL REASON WHY CENTRAL BANK SACKED ALL FIRST BANK DIRECTORS

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All directors of the First Bank of Nigeria (FBN) Limited and First Bank of Nigeria (FBN) Holdings Plc have been sacked by the Central Bank of Nigeria (CBN).

CBN Governor, Mr. Godwin Emefiele, announced the sack at a press briefing on Thursday over the removal of the Bank’s Managing Director, Mr Adesola Adeduntan and appointment of Mr. Gbenga Shobo by the board on Wednesday.

Emefiele said the decision was taken to safeguard the financial system, following the crisis that greeted the purported changes at FBN.

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Adeduntan, who was earlier sacked by the board, was however, reinstated by the apex bank.

The Central Bank of Nigeria (CBN) had earlier on Thursday issued a query to the Board of First Bank Ltd, one of Nigeria’s oldest banks over the removal of its CEO.

On Wednesday, the Board of Directors of First Bank of Nigeria Limited revealed it had appointed Gbenga Shobo as its Managing Director/Chief Executive Officer (CEO).

The appointment was disclosed in a statement made by the bank’s Chairman, Ibukun Awosika.

However, in an apparent leak, a letter from the central bank to First Bank revealed a query from the former to the latter expressing concern that the appointment of Shobo was done without the approval of the apex bank.

“The attention of the Central Bank of Nigeria (CBN) has been drawn to media reports that the Board of Directors has approved the removal of the current Managing Director of the bank, Dr. Sola Adeduntan, and appointed a successor to replace him. The CBN notes with concern that the action was taken without due consultation with the regulatory authorities, especially given the systemic importance of First Bank Ltd.”

The CBN also claimed that the tenure of Mr. Adedutan was yet to expire (bank MD’s have a maximum 10 years) and that they were also not aware of any misconduct of the former MD and as such there was no justification for his removal.

“Given that the tenure of Dr. Adeduntan is yet to expire and the CBN was not made aware of any report from the Board indicting the Managing Director of any wrong-doing or misconduct, there appears to be no apparent justification for the precipitate removal.”

Sources within the bank stated that First Bank has a maximum of 6 years tenure for its MDs in line with its succession plans. They also claimed the CBN is meddling in its internal affairs as the removal of the MD is in line with its succession plans and also does not exceed CBNs maximum of 10 years.

First Bank followed its corporate governance framework in its change of leadership and appointment of new executive directors. No Managing Director in the 127 years history of FirstBank has ever attempted a tenure extension. Why now?”

Another senior management staff who preferred to remain anonymous also lamented that “Adeduntan’s term formally ends in June this year after 2 terms of 3 years each. Leaving early is in line with the bank’s succession planning. When he was appointed 6 years ago and a DMD role was created, the erstwhile FirstBank Managing Director knew the DMD would succeed him and this is what has happened. This is corporate governance at its best.”

Expectedly, the CBN ended its query to the bank with a threat to the board if the decision to remove Adeduntan is not reversed.

“In light of the foregoing, you are required to explain why disciplinary action should not be taken against the Board for hastily removing the MD/CEO and failing to give prior notice to the CBN before announcing the management change in the media.”

The Central Bank of Nigeria had earlier directed the Oba Otudeko owned Honeywell Flour Mills to repay a loan to First Bank within 48 hours, according to a memo seen by TechCabal.

In the letter seen by hotjist.com dated April 26, 2021, the CBN stated, “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.”

Insider lending is when a bank makes a loan to one or more of its own officers or directors.

Oba Otudeko serves as the 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. 

While insider borrowing is legal, it is subject to several regulations. One such regulation is that insiders do not get any special treatment, incentive rates, or other benefits not offered to regular bank customers.

But the CBN is alleging that First Bank gave special treatment to Honeywell Flour Mills in restructuring its loan facility.

In the same memo seen by hotjist.com, 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.” 

In simple terms, First Bank does not have a binding document filed with the CBN that will allow it legally claim the collateral if there’s a default on the loan.

One report from 2017 claims that the loan facility is in the region of ₦75 billion and was non-performing before a recent restructuring. Yet, the apex bank is concerned that First Bank may not have performed its due diligence in securing the collateral for the credit facility. 

The apex bank has also asked First Bank to divest its interests in Honeywell Flour Mills Group and Bharti Airtel Nigeria Ltd. Otudeko was named Chairman of Bharti Airtel Nigeria after the Group acquired Zain around 2010. 

This order to divest from the apex bank has its roots in yet another bank loan involving Ecobank, Oba Otudeko and some Airtel shares used as a collateral.

In 2013, a N5.5 billion loan facility given to Oba Otudeko’s Honeywell Flour Mills by Ecobank became the subject of litigation and is in fact still ongoing at the Supreme Court.

According to news reports, Otudeko’s Airtel shares were used as collateral for Honeywell’s Ecobank loan. Yet, in an interesting turn of events, those same Airtel shares as well as some Honeywell assets were also used as collateral for the credit facility from First Bank.

According to one banking insider, “In a round about way, First Bank now owns the assets pledged to Ecobank.”

“So the same asset (Honeywell and Airtel) is allegedly pledged to Ecobank and none of the banks can move in on these assets. First Bank has an equity position while Ecobank has a debt position.”

But Otudeko and Honeywell’s loan are not the only issues at First Bank this week. In a separate memo, the CBN has also taken issues with First Bank over its recent announcement of a new MD/CEO.

FULL TEXT OF THE PRESS BRIEFING BY CENTRAL BANK GOVERNOR, GODWIN EMEFIELE 

GOVERNOR’S STATEMENT ON THE PURPORTED MANAGEMENT CHANGE AT THE FIRST BANK OF NIGERIA LTD

1.0 Good afternoon ladies and gentlemen.

2.0 The media has been awash with commentaries on the purported management changes at First Bank of Nigeria Ltd (FBN) and the related regulatory inquiry by the Central Bank of Nigeria (CBN) to the Board of First Bank of Nigeria Limited. It has therefore become necessary for me to address the public to clear any misconceptions.

3.0 Ordinarily 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 5 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. 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.

4.0 As you may be aware, 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. By our last assessment, FBN has over 31m customers, with deposit base of N4.2trn, shareholders funds of N618bn and NIBSS instant payment (NIP) processing capacity of 22% of the industry. To us at the CBN, not only is it imperative to protect the minority shareholders, that have no voice to air their views, also important, is the protection of the over 31m customers of the bank who see FBN as a safe haven for their hard-earned savings.

5.0 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.

6.0 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 recapitalize the bank to minimum requirements. This conclusions arose from various entreaties by the CBN to them to recapitalize.

7.0 The CBN stepped in to stabilize the bank in its quest to maintain financial stability, especially given FBN’s systemic importance as enumerated earlier. Regulatory action taken by the CBN in this regard included:

i. Change of management team under the CBN’s supervision with the appointment of a new Managing Director/ Chief Executive Office in January 2016.

ii. Grant of the regulatory forbearances to enable the bank work out its non-performing loans through provision for write off of at least N150b from its earning for four consecutive years.

iii. Grant of concession to insider borrower to restructure their non-performing credit facilities under very stringent conditions

iv. Renewal of the forbearances on a yearly basis between 2016 and 2020 following thorough monitoring of progress towards exiting from the forbearance measures

8.0 The measures had yielded the expected results as the financial condition of FBN improved progressively between 2016 when the forbearance was initially granted to the current financial year. For instance, profitability, liquidity and CAR improved whilst NPL reduced significantly.

9.0 Notwithstanding the significant improvement in the bank’s financial condition with positive trajectory of financial soundness indicators, the insider related facilities remained problematic.

10.0 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

11.0 Following further review of the situation and in order to preserve stability of the bank, so as to protect minority shareholders and depositors, the Management of the CBN in line with its powers under BOFIA 2020 has approved and hereby directs:

i. Immediate removal of the all directors of FBN Ltd and FBN Holdings Plc

ii. The appointment of the following persons as directors in FBN Ltd and FBN Holdings Plc

Holdco

1.Chairman – Remi Babalola

2.Dr. Fatade Abiodun Oluwole

3.Kofo Dosekun

4.Remi Lasaki

5.Dr Alimi Abdulrasaq

6.Ahmed Modibbo

7.Khalifa Imam

8.Sir Peter Aliogo

9.UK Eke – Managing Director

Bank

1. Chairman – Tunde Hassan-Odukale

2. Tokunbo Martins

3. Uche Nwokedi

4. Adekunle Sonola

5. Isioma Ogodazi

6. Ebenezer Olufowose

7. Ishaya Elijah B. Dodo

8. Sola Adeduntan – Managing Director

9. Gbenga Shobo – Deputy Managing Director

10. Remi Oni – Executive Director

11. Abdullahi Ibrahim – Executive Director

12.0 The CBN hereby reassures 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.

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