The Costly Board Crisis at First Bank

May 2, 2021 But for the timely intervention of the Central Bank for Nigeria in the avoidable board squabbles at First Bank of Nigeria, the relative confidence and stability observed in the banking system in recent times would have been seriously shaken. James Emejo writes It all began with the news that the erstwhile Board of Directors of First Bank of Nigeria Limited, which was chaired by Mrs. Ibukun Awosika, had approved the appointment of Mr. Gbenga Shobo to succeed Mr. Adesola Adeduntan as the new Managing Director/Chief Executive of the bank. Adeduntan was ousted after leading the bank since January 2016, but when still within the term limit of his tenure, which is due to expire in December this year. The appointment of a new chief executive was immediately celebrated by the public and depositors, who thought the move was in tandem with good corporate governance of FBN. But little did anyone know the underbelly issues that led to the change, until the CBN, the apex regulatory institution in the financial industry, interpreted the change as a sort of palace coup to oust him. The apex bank, immediately issued the board a rather damning query over the unpopular leadership manoeuvres. The content of the query apparently deflated the board’s ego and exposed the bank’s frailties. Essentially, the CBN had raised stern objection to the removal of Adeduntan, as his tenure ought to elapse in December – and not getting the requisite approval from the apex bank prior to the board change, further violated laid down rules. In the CBN’s correspondence to the board, it further argued that, given that FBN had been on a sort of life support in term of regulatory forbearances and other sorts of financial and regulatory support since 2016, it was particularly wrong for the former board to attempt any board changes without with the knowledge of the regulatory body. While the board was yet to offer explanation for its action, but rather perceived the inquisition by the CBN as unnecessarily meddling in its internal issues – the apex bank, understanding the consequences of the ensuing development on the financial system- especially as this could cause among other things, a run on FBN, decided to wield the big stick to save the situation. The CBN would not fold its arms and allow things to spiral out of control given that FBN is one of the systemically important banks whose action could rock the boat and destabilise the country’s financial landscape. On Thursday, however, the CBN removed all directors of FBN and those of its parent company, FBN Holdings Plc, with immediate effect, to stave off a boardroom crisis that had led to the retirement of Adeduntan on Wednesday. The CBN Governor, Mr. Godwin Emefiele, at a press conference in Abuja, further announced the reinstatement of Adeduntan. He said the apex bank took the actions in order to preserve the stability of the bank and protect minority shareholders and depositors. He also announced the appointment of a former Minister of State for Finance, Mr. Remi Babalola, who replaced Mr. Oba Otudeko as Chairman of FBN Holdings. Otudeko had been chairman of First Bank for 12 years before assuming the position of Chairman Holdings Company in 2010. Also in the sweeping changes, the CBN also appointed other new directors on the FBN Holdings’ board including Fatade Oluwole, Kofo Dosekun, Remi Lasaki, Alimi Abdulrasaq, Ahmed Modibbo, Khalifa Imam and Peter Aliogo. Mr. UK Eke retains his position as Managing Director of FBN Holdings. First Bank Nigeria Limited now has as Chairman, Tunde Hassan-Odukale, who replaced Mrs. Ibukun Awosika. Other board members are Tokunbo Martins, Uche Nwokedi, Adekunle Sonola, Isioma Ogodazi, Ebenezer Olufowose, Ishaya Elijah B. Dodo and Adeduntan. Gbenga Shobo, deputy managing director; and Remi Oni and Abdullahi Ibrahim, executive directors, are members of the reconstituted board. The CBN had on Wednesday queried the erstwhile board of First Bank Nigeria Limited over the removal of Adeduntan, saying the action was without regulatory approval. The query followed the earlier announcement of the appointment of Shobo as the new managing director/chief executive officer. However, to douse tension generated by the boardroom crisis in the bank, the CBN assured depositors, creditors and other stakeholders of its commitment to safeguard the bank. Emefiele said: “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.” The CBN governor noted that with the changes, the bank must assume its leadership position in the industry, adding that the central bank will be looking into allegations of insider abuse in the bank and will ensure that corporate governance is restored. According to him, the CBN will insist on proper re-capitalisation of the bank to restore its capital adequacy ratio. He stated that the CBN took the action because it considered itself a stakeholder in management changes involving First Bank due to the forbearance and its close monitoring of the bank over the last five years. He added that ordinarily, the board of a bank is vested with the authority to make changes in the management team subject to CBN’s 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 First Bank, 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,” he explained. Emefiele said the board’s action sent a negative signal to the market on the stability of leadership on the board and management. He added that it was in the light of the foregoing that the CBN queried the directors on the change. He described First Bank as one of the systemically important banks in the banking sector given its historical significance, balance sheet size, large customer base and high level of interconnectedness with other financial service providers, amongst others. Emefiele said: “By our last assessment, First Bank has over 31 million customers, with a 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. “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 31 million customers of the bank who see First Bank as a safe haven for their hard-earned savings. “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.” He added that the problems at the bank were attributed to bad credit decisions, significant and non-performing insider loans and poor corporate governance practices. He said shareholders of the bank and FBN Holding also lacked the capacity to recapitalise the bank to minimum requirements, adding that the conclusions arose from various entreaties by the CBN to them to recapitalise. With this, he said the CBN stepped in to stabilise the bank in its quest to maintain financial stability, especially given First Bank’s systemic importance. Emefiele listed regulatory actions taken by the CBN in this regard to include: change of management team under the CBN’s supervision with the appointment of a new managing director/chief executive officer in January 2016; granting of 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; and granting of concession to insider borrower to restructure their non-performing credit facilities under very stringent conditions. Others included 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: “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. “Notwithstanding the significant improvement in the bank’s financial condition with positive trajectory of financial soundness indicators, the insider related facilities remained problematic. 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 three years despite several regulatory reminders. “The bank has not also divested its non-permissible holdings in non-financial entities in line with regulatory directives.” Responding to a question on whether Otudeko was given the opportunity to engage with the central bank before the earlier decision to remove Adeduntan before the expiration of his tenure, Emefiele said, efforts he personally made in that regard were rebuffed, adding that the CBN had exhausted all measures to forestall the ensuing crisis after Hassan-Odukale called him to intervene in the matter. Nonetheless, he said the CBN would not “allow a shareholder who feels that he cannot subject himself to regulatory control and authority to remain as a director of the bank.” He said there was no need for the initial changes at the bank, but all entreaties to Otudeko to save the situation fell on deaf ears. He said: “Like we said, this decision came to us as a surprise. Like we said, this bank has been under regulatory forbearance intervention since 2016. “The truth is that yes, even before we issued a query yesterday (Wednesday) to the chairman of the board and copied all the directors and shareholders, the initial attempt to remove the Managing Director, Dr. Sola Adeduntan, was leaked to me by an interested party in the course of the board meeting. “When I heard about this, I had first to call the chairman of the holding company, Mr. Oba Otudeko. He picked my call and I reminded him about the regulatory intervention and forbearance regime in the bank and that the decision to make such sweeping changes would require prior approval of the CBN. “I pleaded with him to step down the decision and that we could hold the meeting to discuss the issues. The current managing director was running on a tenure that is expected to expire on December 31, 2021. And as far as we are concerned, there was no need for such changes. “And I repeat that given our regulatory intervention and forbearance regime, we felt that if there was any misconduct on the part of Dr. Sola Adeduntan that he should have been queried, the CBN should have been informed and the CBN should have been party to such an action to punish Dr. Adeduntan. “We were not informed of any misconduct, nor were we informed of any query; indeed, the CBN has been satisfied working with Dr. Adeduntan on a stabilisation regime for First Bank since 2016. “He had played his role to the best of our knowledge, the best that could be done of a professional banker. He had insisted on governance being put in place and we suspect that it is because he has stood his ground on certain decisions that are not in favour of major shareholders in the bank that they felt hurt and thought he should be removed. “This is against what we stand for. This is a bank where depositors’ funds are almost ten times shareholders’ funds. And like I said earlier, our interest is to protect depositors and minority shareholders who have no voice in this business.” He added: “We would not sit idle and continue to allow this to continue. “I spoke to Dr. Oba Otudeko; he refused to grant my entreaties. I had cause to call two of his major shareholders to ask him to ask the board not to take such decisions without the approval of the CBN, but he refused to pick the calls of these shareholders who are co-owners of the bank. “I called him a second time and heard one of the shareholders listening to me on another line, begging Dr. Otudeko that he should not take that decision, he insisted on taking that decision. “We hung up the phone and I sent that shareholder back to the office of Mr. Oba Otudeko to appeal to him to please suspend the decision to remove the MD. He refused to see the shareholder. “I feel we had done our best and that we would not allow a shareholder who feels that he cannot subject himself to regulatory control and authority to remain as a director of the bank. “So, we didn’t have any choice but to take this decision. As we speak, the chairman of the bank was queried, Ibukun Awosika, we are yet to receive any response. In any case, I would imagine that response is no longer necessary.” Emefiele gave reasons why the CBN spared the executive directors, deputy managing directors and managing director of the bank from being removed in the shake-up. He said having worked with them since 2016, the CBN perceived the board crisis to be more of a breakdown of governance and insider abuse by shareholders. “We felt that because we have worked with them from 2016 till now, what we saw was more of a breakdown of governance and insider abuse by shareholders. “And we felt that we needed to stamp our authority to reappoint and give them a chance to continue to remain executive directors, deputy managing directors and managing director of this bank.” THISDAY learnt that the apex bank aims to insist on the recapitalisation of the bank and restore it not only to profitability, but also to its erstwhile leadership position in the industry. It would also tackle insider abuse and ensure the restoration of good corporate governance. Analysts Laud CBN’s Intervention Meanwhile, analysts who spoke to THISDAY in separate interviews on the development commended the CBN for living up to its responsibility and saving the situation in record time. The Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said it is important that depositors’ funds are protected and malpractices are called out in order to maintain confidence and sanity in the financial system. He pointed out that the duty of the regulator is to always ensure that best practices and corporate governance guidelines are adhered to, adding that it “seems that FBN had breached those processes therefore it is proper that the CBN intervened”. “However, I would assume that the apex bank had previous communication with FBN to allow them to get their house in order before taking these drastic steps,” he said. Also, a reliable source who craved anonymity because of his connection with affected parties in the development said, “The CBN Governor has taken the right decision to ensure avoidance of huge systemic risk”. He said: “Recall that CBN target examination/stress test on First Bank found their non-performing loan ratio extremely higher than the maximum limit of 5 per cent and also found their capital adequacy ratio very weak, lower than the then minimum of 15 per cent (now 16 per cent) for systemically important banks. “CBN also found them wanting in respect of poor corporate governance with lots of insider related credits, unsecured and attracting lower interest rates. “This is what is called insider abuse. Nothing kills a bank easily more than insider abuse. If after almost five years, CBN still feels First Bank board are still weak and evidently micro managed by the significant shareholders, there is risk to both minority shareholders and depositors.” The source added that being a systemically important bank (due to their size, asset base, number of employees with subsidiaries/branches offshore among others, anything significantly negative on FBN will automatically have huge effect on the entire banking industry as well as the Nigerian economy. He pointed out that, “Besides CBN acted within their powers to avoid huge systemic risk. “However, the question now is, are First Bank majority shareholders the only culprits or there are others with similar challenges being micro managed by CBN and yet to burst?” Also, speaking with THISDAY, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the CBN action has saved the bank from systemic collapse due to its bad loans adding that this measure was similar to what happened to the likes of Skye Bank where the apex regulatory body had to intervene due to unsecured loans to directors against financial best practices. Gbolade, First Bank remained an important player in the banking sector and can be said to be a corporation that any news of negative performance will affect the banking sector. “The bank is one of the systemically important entity in the financial sector and reports like the shake-up of the board of the bank and HoldCo will negatively affect the entire banking sector,” he added. In the same vein, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, told THISDAY that the decision taken by the CBN to sack directors of First Bank was in the interest of the country, and all the stakeholders of the bank. He stressed that the “CBN plays many roles but more importantly, they play both regulatory role and supervisory role over all financial institutions for purposes of financial systems stability”. Ekechukwu said: “Recall that First Bank has been enjoying forbearance from CBN to cushion the effect of their huge non-performing loans profile. There were cases of insider abuses in the credit administration of the bank. “First Bank is one of the biggest banks in Nigeria and anything that affects them adversely will affect the financial system. So to nip it in the bud, it was necessary for CBN to take the decision they did.” Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said the CBN’S action will boost investor confidence adding that it is in the overall interest of banking system stability. He added that the action also served to ensure that depositors’ funds are protected. “So, I support the CBN wielding the big stick on any bank that flouts the rules. A banking system regulator should be seen to take the issue of corporate governance very seriously. “In this particular matter, my take is that the apex bank is in order in view of the fact that it gave the Board of First Bank the opportunity to defend itself. “It behooves the CBN now to communicate the reasons for its action to members of the public and provide reassurance of banking system stability.” Also, analysing the development, Chief Executive, Global Analytics Company, Mr. Tope Fasua, said the situation was avoidable and regretted that it was not nipped in the bud by the former board. He said: “What has happened today 29th of April, 2021 to First Bank Limited should not have been allowed to escalate to this level. Since around 2015 First Bank has been in and out of the news for not-too-palatable reasons…” He also argued that the CBN retains the right as a regulator to maintain its oversight on all banks under its jurisdiction, adding that since it receives and examines the books and transactions of all banks, it alone can make a judgment call on whether a bank’s directors have done the right thing. Fasua said: “In the communication we have seen in the space, the central bank has emphasised the fact that it has given First Bank some regulatory forbearance more than once, and that it has had to help the liquidity position of the erstwhile biggest bank in Nigeria on a number of occasions. “I wouldn’t understand how a bank ignores such weighty warnings. The CBN went further to detail some of the insider lending of First Bank, especially as it relates to the chairman of its holding company – Otunba Oba Otudeko.” According to him, “Some of the people on the side of the now dismissed board have alleged all sorts. The most ridiculous is that the CBN is after First Bank for supporting Flutterwave, which also supported EndSARS. Everything has become politicised in Nigeria.” “With the move from the CBN, we pray First Bank finds some peace. But more generally, we hope that our smart people who run banks will understand the sheer enormity of the licences they owe and never get it into their heads to throw it all away in some flight of fancy,” he added.