How The CBN Saved First Bank From Crisis

•Details Of The Boardroom Crisis

These are not the best of times for First Bank of Nigeria. Over the last few days, the bank has been going through a turbulent Boardroom crisis which saw the Central Banking sacking the Board of the bank and replacing it with a new board. It has been one big drama as Corporate titans battled themselves for the control of the bank.

It became noticeable on Wednesday April 28, 2021, when the bank announced the appointment of Mr. Gbenga Shobo as its new Managing Director to replace Dr. Adesola Adeduntan. A new set of directors were also appointed.

But what followed after was a big shock. In a swift reaction to the appointment, the Central Bank of Nigeria, CBN stated that it found it difficult to accept the new board appointments of the Deposit Money Bank (DMB) while the term of its purported outgoing managing director, Dr. Adesola Adedutan, was yet to end.

In the letter to the board of FBN, the regulator noted that it took exception to a situation where a Systemically Important Bank (SIB) such as FBN would reconstitute its board without previous consultation with the regulator.

The CBN’s letter to the FBN board of directors in part read “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. 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 precipitated removal”.

The regulator noted that it was “particularly concerned because the action is coming at a time the CBN has provided various regulatory forbearances and liquidity support to reposition the bank which has enhanced its asset quality, capital adequacy, and liquidity ratios amongst other prudential indicators. It is also curious to observe that the sudden removal of the MD/CEO was done about eight months to the expiry of his second tenure which is due on December 31, 2021”.

The letter signed by the CBN’s Director of Banking Supervision, Haruna B. Mustafa, observed that “The removal of a sitting MD/CEO of a Systemically Important Bank that has been under regulatory forbearance for 5 to 6 years without prior consultation and justifiable basis has dire implications for the bank and also portends significant risks to the stability of the financial system”.

The CBN, therefore, insisted that the Board of FBN in the light of unfolding developments should “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 regulator further insisted that the bank in the meantime desist “forthwith from making any further public/media comments on the matter”. The bank’s board was instructed that a comprehensive response on the matters raised be placed before the Director, Banking Supervision Department on or before 5 pm on April 29, 2021.

In a second letter dated 28 April 2021, the Director of Banking Supervision CBN raised issues concerning FBN’s investment in Honeywell Flour Mills and Airtel Africa and the regulator’s instructions that the bank divest its interests in both companies. The second letter from the CBN’s Director of Banking Supervision noted that “Your letter dated March 30, 2021, on the above subject refers”. “We are concerned that the bank has not complied with regulatory directives to divest its interest in Honey Well Flour Mills despite several reminders”.

The letter observed that “after 4 years the bank is yet to perfect its lien on the shares of Mr. Oba Otudeko in FBN Holdco which collaterized the restructured credit facilities for Honey Well Flour Mills contrary to the conditions precedent for the restructuring of the company’s credit facility”. It went on to comment that “Given the bank’s failure to perfect the pledge and satisfy the condition for regulatory approval, the restructuring has thus been invalidated and the credit facilities now payable immediately”.

Consequently, the CBN insisted that Honeywell Flour Mills was required to fully repay its obligations to the FBN within 48 hours failing which the regulator would take appropriate regulatory measures against the insider borrower and FBN itself.

Furthermore, the bank noted what it described as the “untenable delay in resolving the long outstanding divestment from Bharti Airtel Nigeria Ltd in line with extant regulations of the CBN”.

The Director of Banking Supervision hence requested that FBN should divest its equity interests in, “all non-permissible entities such as Honey Well Flour Mills and Bharti Airtel Nigeria Ltd within 90 days”. Mustafa urged the bank’s Board to “forward evidence of compliance in accordance with the timelines above to the Director of Banking.

To this end, First Bank issued an official statement om Friday 30th April, reinstating Adesola Adeduntan, and appointed a new set of Directors for the board.

In a Corporate Statement on the new board constitution, the bank wrote: We refer to the Central Bank of Nigeria Limited (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 CON 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.

The Board of Directors of First Bank of Nigeria Limited is now comprised as follows: (1.) Mr. Tunde Hassan-Odukale – Chairman (2.) Mrs. Tokunbo Martins (3.) Mr. Uche Nwokedi (4.) Mr. Adekunle Sonola (5.) Ms. Isioma Ogodazi (6.) Mr. Ebenezer Olufowose (7.) Mr. Ishaya Elijah B. Dodo (8.) Dr. Adesola Adeduntan FCA – Managing Director/ Chief Executive Officer (9.) Mr. Gbenga Shobo – Deputy Managing Director (10.) Dr. Remi Oni – Executive Director (11.) Mr. Abdullahi Ibrahim – Executive Director.

Dr. Adesola Adeduntan has since resumed work as CEO in line with CBN directives.

We can confirm that the bank is cooperating with the Central Bank of Nigeria 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.”

There are indications that the Board of FBN may seek legal protection from the immediate consequences of the directives of the CBN while it seeks clarification and forbearance from the banking sector regulator. The CBN’s directive tornado may sweep through the bank’s hitherto calm business operations as the bank’s board scrambles for an amicable face-saving settlement with the CBN. As was pointed out in Proshare’s earlier review of FBN’s new Board appointments, the hastiness of the appointments was sequentially out of character with the bank’s governance practice and appeared uncharacteristically hurried and outside the bank’s usual carefull Abeoy orchestrated communication strategy.