The Central Bank of Nigeria (CBN) said its decision to wield the stick on First Bank and its holding company, FBN Holdings Plc, was in the interests of its minority shareholders and depositors.
“The sacking of the board was done in order to preserve the stability of the bank, so as to protect minority shareholders and depositors,” according to a media briefing by CBN Governor Godwin Emefiele.
Prior to CBN’s sack of the board, it had directed First Bank to recover the loan it had granted to Honeywell Nigeria Plc, a company owned by the former chairman of FBN Holdings Plc, Oba Otudeko, or face appropriate regulatory measures for insider borrowing.
According to a report, the loan was to the tune of N75 billion but the annual or interim reports of Honeywell Nigeria Plc did not reveal the total amount the company owed the bank.
It stated that Honeywell’s current portion of its loan to First Bank is N13.5 billion, including the overdraft facility of N2.9 billion. However, CBN alleged that First Bank gave special treatment to Honeywell Flour Mills by restructuring its loan facility.
First Bank, Nigeria’s oldest lender, has over 31 million customers, with deposits of N4.2 trillion and also accounts for a 22 per cent share of the country’s instant payments processing capacity.
Otudeko used his FBN shares as collateral
Since 2016, First Bank non-performing loans, when compared with its Capital Adequacy Ratio (CAR), was beyond acceptable standards, according to the CBN.
CAR is the measure of the capital that banks have to protect customers’ deposits. When it is less than non-performing loans, it means that the bank’s liabilities are greater than its assets.
According to data from Nairalytics, FBN Holdings had recorded a total loan impairment of over N565 billion between 2016 and 2020, while N376.4 billion, accounting for more than half the total loans impaired, was provided for in 2016 and 2017.
In its statement, the CBN stated that First Bank might 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 were to avoid being taken over by the CBN.
First Bank’s bad loan ratio improved to 7.7 per cent in 2020, compared to 20 per cent in 2018, following the restructuring and write-offs of corporate debts.
It also revealed that First bank was yet to perfect its claim on the shares of Otudeko in FBN Holdings, which he had used as collateral for N75 billion loan to Honeywell Flour Mills -against the precedent conditions before the company’s credit facility was restructured by the bank.
This indicates that First Bank did not have a binding document filed with the CBN that would allow it to legally claim the collateral if there was a default on the loan.
The CBN also alleged that First Bank gave special treatment to Honeywell Flour Mills by restructuring its loan facility and might not have performed its due diligence in securing the collateral for the credit facility.
Otudeko is the current chairman of Honeywell Flour Mills Plc, having served as Chairman of First Bank until 2010 and was the immediate past Chairman of FBN Holdings Plc at the time the loans were issued.
He was also named Chairman of Bharti Airtel Nigeria after the Group was acquired by Zain in 2010, using his Airtel shares and some of his Honeywell assets as collateral to secure the credit facility from First Bank.
The Airtel shares were also used as collateral for Honeywell’s N5.5 billion loan secured from Ecobank in 2013 which is currently the subject of litigation at the Supreme Court.
CBN had asked First Bank to divest its interests in Honeywell Flour Mills Group and Bharti Airtel Nigeria Ltd because the Airtel shares were part of the collateral Otudeko had used to get the Ecobank loan.
A failed transition
The Board of Directors of First Bank had removed Managing Director/Chief Executive Officer Adesola Adeduntan and appointed Gbenga Shobo as CEO designate without regulatory approval from the apex bank.
The CBN faulted the appointment of Abdullahi Ibrahim as deputy managing director, as well as the appointment of Ini Ebong, Segun Alebiosu, Seyi Oyefeso and Bashirat Odunewu as executive directors.
The move was flagged by CBN, which stated that the bank had no reason to sack its board because Adeduntan’s tenure had not yet run out, and there was no notification from First Bank to the CBN about the transition.
“The attention of the CBN has been drawn to media reports that the Board of Directors has approved the removal of the current Managing Director of the bank, 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,” Emefiele said in his briefing.
Adeduntan, who was due to retire in December this year, was forced out against the wishes of the CBN, which warned the board it would take disciplinary action if the move wasn’t explained.
The apex bank decided to reinstate Adeduntan, having worked with him since 2016 to restore the bank to a healthy position after it accumulated bad loans that threatened its existence. It also named Remi Babalola as Chairman of FBN Holdings and Tunde Odukola as the chairman of the banking subsidiary.
The board tussle for control could slow down the bank’s recovery in recent years, which has seen an improved threshold in its CAR from 15.5 per cent in 2019 to 17 per cent in 2020.
During the 2008/2009 global financial crisis, the CBN invoked its powers to remove bank executives when it sacked nine CEOs of banks that were under-capitalised.
Also, the regulatory bank in 2016 sacked top executives of Skye Bank over capital adequacy issues, having in 2015 given three commercial banks time to recapitalise after they failed to hit a minimum capital adequacy rate of 10 per cent.
Under a revised Banks and Other Financial Institutions Act, CBN has the power to acquire the shares of any failing lender to the level that guarantees its control of the bank.
Since 2016, CBN has considered First Bank a systemically important bank and has been supported to help it reduce its bad loans.
Director-General of Lagos Chamber of Commerce and Industry Muda Yusuf, who spoke to The ICIR, said insider trading was unethical especially when it compromised corporate governance.
“If there is any system that needs tight supervision, then it is the financial system. It’s not like the manufacturing sector where if a manufacturing company goes under, then the shareholders bear the brunt, but for example, a bank may have a capital base of N5 billion and depositors base of N1 trillion.
“I think using insider information to trade is unethical because there is likely to be a compromise in corporate governance as the ethical is likely to become blurry,” he said.
Otudeko is alleged to have obtained billions of unpaid loans in First Bank and had to be controlled by the CBN through Adeduntan, according to the CBN governor.
“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, “Emefiele revealed.