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Financial Services

Why CBN sacked board of First Bank

For years, the CBN has used Adeduntan as a check against attempts by directors of First Bank to secure insider loans, a major source of conflict between the CBN and Oba Otudeko.

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Everything seemed well on the 27th of April 2020 after FBN Holdings completed its Annual General Meeting held at the Oriental Hotel Lekki. Following the AGM, the bank recommended a dividend payment of N16.15 billion out of a profit after tax of N65.9 billion.

The bank also announced the appointment of Mr Seni Adetu, Mrs Julier Anammah and Mr Out Hughes as non-executive directors of the bank. It also re-elected Mr Oye Hassan Odukale, Dr Adesola Adeduntan and Otunba Mrs Debola Osibogun as directors of the bank.

Unbeknownst to investors and most shareholders of the bank, while everything appeared rosy at the AGM, factions in the bank led by Chairman Dr Oba Otudeko and Chairman of the First Bank Ibukun Awosika were hatching out a plan that will change the course of history for Nigeria’s oldest bank aged 127 years.

READ: CBN, First Bank on collision course over removal of MD/CEO

The ill-fated plan culminated in the removal of Dr Adesola Adeduntan as MD/CEO of First Bank Ltd after just appointing him as director of the bank holding company, a position reserved for the Managing Director of the banking subsidiary.

The rubble within the bank appeared to have started after the bank’s chairman Ibukun Awosika received a letter from the Central Bank stating that the bank had not complied with regulatory directives to divest its interest in Honey Well Flour Mills “despite several reminders” to it by the Apex bank.

The CBN also stated in the letter that it was giving the bank within 48 hours to ensure Honeywell repays its obligation to it “failing which the CBN will take appropriate regulatory measures against the insider borrower and the bank.” It also instructed the bank to divest from its holdings in Bharti Airtel Nigeria Ltd and Honeywell Flour Mills within 90 days. These loans are all related to the Chairman of the bank, Oba Otudeko.

READ: CBN issues ultimatum to First Bank of Nigeria on divesting its interest in Honeywell Flour Mills

Sources with knowledge of the matter indicate the letter from the CBN did not go down well with Otudeko leading to the decision to remove Adeduntan. Common knowledge across business circles suggest Adeduntan is very chummy with one of the major shareholders of the bank who is also one of Nigeria’s richest men. He is also a major leverage for the CBN who rely on him to implement some of the initiatives approved by the CBN for the restructuring of the bank. He was also considered a checkmate for Oba Otudeko whom the CBN believes was a major reason for the spate of bad loans in the bank over the years.

For years, the CBN has used Adeduntan as a check against attempts by directors of First Bank to secure insider loans, a major source of conflict between the CBN and Oba Otudeko.

Thus, at the board meeting where Oba Otudeko and some directors of the bank finalized plans to remove Adeduntan, a board member who was not in support of his removal tipped of the CBN Governor Godwin Emefiele about the bank’s plan. Emefiele immediately put a call through to Otudeko and other members of the bank demanding that they rescind their plans. Emefiele also explained that any such decision will require prior approval of the CBN.

READ: These 4 metrics show how GTB has performed under Segun Agbaje

Oba Otudeko however declined to accede to the demands of Emefiele forcing the CBN Governor to reach out to other directors and shareholders of the banks pushing for them to get Oba Otudeko to withdraw the plans to remove Adeduntan. Emefiele also contacted several other stakeholders outside the bank but with ties to Oba Otudeko, however, most of this fell on deaf ears. While all the engagements were ongoing, the CBN issued a query to Ibukun Awosika the Chairman of First Bank demanding that she explain why the decision to remove Adeduntan was taken.

By Wednesday night, Emefiele and some of the governors of the central bank had made up their mind to sack the board of both FBN Holdings and First Bank of Nigeria Ltd. By Thursday morning, calls had been made to key stakeholders in the economy including politicians at the highest level informing them of the decision that was about to be announced. At about 2 pm in the afternoon, the CBN had finalized the selection of members of the new board of the bank. They subsequently informed the media about a press briefing for 4 pm but was later pushed back till about 6 pm as final details for the announcements were concluded.

It will appear that the CBN’s decision to remove Oba Otudeko and the other directors of the bank is mainly due to the apex bank’s regulatory forbearance and support in the corporate restructuring of the bank to protect it from failing. The CBN claimed that because it had played a major intervention role that avoided a collapse of the bank due to bad loans and poor capital adequacy ratios, it had a major stake in how the bank is run.

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The CBN believes the bank may have collapsed were it not for its regulatory forbearance, a financial term for softening some of the strict rules that banks must comply with if they are to avoid being taken over by the CBN. Emefiele in his briefing to the media revealed that the CBN had granted “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.” According to data from Nairalytics, FBNH had recorded a total loan impairment of over N565 billion between 2016 and 2020. About N376.4 billion, more than half the total loans impaired, were provided for in 2016 and 2017 alone.

Another major reason why the CBN moved swiftly to sack the board and reinstate Adeduntan was its inability to control Oba Otudeko and since he did not accede to the demand of Emefiele there was no way he could be allowed to keep running the bank without a check like Adeduntan. According to Emefiele, he cannot allow a Shareholder who will not subject himself to regulatory control and authority to remain a director of the bank.

Oba Otudeko who was the major target of this fiasco is believed to have obtained billions of unpaid loans in First Bank and had to be controlled by the CBN through Adeduntan.

“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 revealed.

Emefiele also explained that he decided to retain MDs of FBNH and First Bank, UK Eke and Sola Adeduntan because they had worked with them since 2016 and also wanted to stamp its authority against the shareholders of the bank whom it blamed for the breakdown of governance and insider abuse.

It is unclear how the camp of Oba Otudeko will react to their removal as directors of the bank especially with the burden of having to repay his indebtedness to the bank. The CBN’s 48 hours mandate to repay the loans expired on the 29th of April. His option will likely be to proceed to the court to get an injunction stopping the CBN from removing them as directors of the bank.

Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market.Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.

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    Financial Services

    Ratings agency, Moody’s reveals it is reviewing First Bank’s ratings

    Moody’s explained why it might downgrade First Bank’s ratings.

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    Moody’s Ratings agency said on Thursday that it has put First Bank of Nigeria on review for a downgrade after the central bank sacked the board of directors and replaced them with new directors.

    Moody’s made this statement in a report titled ‘Removal of Non-Executive Board Members Highlights Governance Shortcomings.’

    In a quote, Moody’s said:

    “Moody’s Investors Service, (“Moody’s”) has today placed all long-term ratings and assessments of First Bank of Nigeria Limited (First Bank) on review for downgrade. The review will focus primarily on an assessment of evolving governance considerations at First Bank, specifically corporate governance developments. The rating action follows the dissolution of First Bank’s board by the Central Bank of Nigeria (CBN), the bank’s primary regulator, on 29 April 2021. As a result of this action by the CBN, all the non-executive directors were removed while the executive management remained in place.”

    The Governor of the Central Bank of Nigeria, Godwin Emefiele, had last week announced the sack of the entire board of directors of FBN Holdings Plc and its subsidiary, First Bank of Nigeria Ltd following the initial removal of its MD/CEO Dr Sola Adeduntan. Following his sacking of the board, he set up a new board for the bank holding company and its subsidiary and also reinstated Adeduntan as MD/CEO.

    Moody’s mentioned that the regulatory actions demanded of First Bank by the CBN introduces a clould of uncertainty over the outlook of the bank. For example, the CBN had asked the bank to divest from its holdings in two listed companies while also recovering its loans from one of them.

    “The review for possible downgrade reflects the rating agency’s view that the removal of all non-executive directors of the bank’s board by the regulator demonstrates corporate governance shortcomings and weaknesses in board oversight. The bank also needs to implement regulatory directives concerning the resolutions of loans to, and shareholding in non-banking related parties, which reportedly had not been executed in the recent past.

    Moody’s notes that the outcomes of these developments are uncertain at this point, and the final and long-term governance, reputational and financial implications of the events for First Bank are also unclear.”

    The central bank directive sacking the board of the bank also retained its executive management perhaps suggesting that the CBN had confidence in the ability of the MD and his team to manage the bank. Moody’s also noted this in its briefing.

    “While the bank’s executive management team remained the same, the rating agency believes these developments could distract management’s focus on implementing the bank’s strategic plan and road to recovery. First Bank management’s immediate key target was to reduce nonperforming loans (NPLs) to levels comparable with domestic peers. The rating agency recognises that, in the context of asset risks, the bank took steps to reduce its stock of problem loans, with its reported NPL ratio falling to 7.7% at year-end 2020 from 25.9% in 2018.”

    Will Moody’s downgrade First Bank?

    The rating agency explained that the decision to downgrade will depend on how strong the bank’s corporate governance structure is and whether the CBN will impose additional sanctions. If any of these crystallizes, it could downgrade its ratings.

    “The bank’s long-term deposit ratings can be downgraded if flaws in the bank’s governance systems exist, and if the CBN imposes additional sanctions on the bank, including, but not limited to, conditions to address any vulnerabilities that may be discovered. Financial output that is less than anticipated could also result in a rating downgrade.”

    Moody’s, however, poured water on any optimism around a rating upgrade.

    Given the review for downgrade and the pessimistic outlook on the government of Nigeria, there is a slim chance that First Bank’s ratings will be upgraded. Stronger solvency progress than currently reflected in the ratings, combined with a stabilization of the sovereign outlook, could result in the outlook being stabilized.

    Why is rating important?

    Corporate Organizations desire positive ratings because of the effect it has on their ability to raise capital as well as the cost of capital. A high credit rating typically attracts positive investor sentiments helping organizations tap the debt and equity markets, especially from institutional investors.

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    Business

    Insurance companies paid N4 billion in claims after EndSARS protests – NIA

    The NIA chief assured that some insurance operators were still working to settle genuine claims as most claims from insured businesses had been paid.

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    Insurance companies paid N4 billion in claims after EndSARS protests - NIA

    The Nigerian Insurers Association (NIA) says Insurance companies paid N4 billion in claims to over 2000 businesses affected by the aftermath of the EndSARS protest after hoodlums took to the streets.

    This was disclosed by Mr Ganiyu Musa, Chairman, NIA, on Thursday in Lagos.

    The NIA chief assured that some Insurances operators were still working to settle genuine claims as most claims from insured businesses had been paid.

    READ: Marginal oilfield: Bid winners allowed to make payments in naira – Minister

    “The number of insured businesses that were affected at the last count was about 2,000 insured loss and the industry has settled N4 billion claims out of N4.5 billion in respect of the #EndSARS protests.

    Once they are documented and completed, we have the commitment of our members that the claims will be paid timely,” he said.

    He added that the association would continue ensuring members pay genuine claims to clients.

    What you should know

    Recall Speaker of the House of Representatives, Femi Gbajabiamila disclosed that Lagos State will need about N1 trillion for the reconstruction and repair of the properties and infrastructure that was vandalized and destroyed by hoodlums.

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