The costly board crisis at First Bank

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. (THISDAY)