- CBN should beam searchlight on other banks to ensure the impunity in First Bank is not industry-wide
Some 12 years after the earth-shaking sanitisation exercise undertaken by the Sanusi Lamido Sanusi-led Central Bank of Nigeria (CBN), the current actors in the financial services sector appear to have learnt nothing, so to speak. If anything, the old pathology of corporate malfeasance appears to have metastasised.
On April 29, CBN governor, Godwin Emefiele, not without a tinge of drama, announced the dissolution and reconstitution of the boards of both First Bank Limited and FBN Holding Plc. That was barely 24 hours after the First Bank board led by Ibukun Awosika dramatically sacked Adesola Adeduntan, the bank’s managing director and named its erstwhile deputy managing director, Gbenga Shobo, as replacement. In reinstating Adeduntan, Emefiele also asked Shobo to revert to his former position as deputy managing director.
Needless to state that the regulatory action was the culmination of the battle of wits between the erstwhile board and the apex bank over wide-ranging issues of corporate governance, credit administration and risk management practices of the bank.
Nigerians may wish to recall a similar exercise in 2009 involving five bank chief executive officers (CEOs) – Sebastin Adigwe (Afribank), Okey Nwosu (Finbank), Erastus Akingbola, (Intercontinental Bank), Mrs. Cecilia Ibru, (Oceanic Bank), and Dr. Bath Ebong (Union Bank) – all of them found complicit and subsequently dismissed over serial unethical practices said to have left a whopping N1.1 trillion bad loans in their banks’ balance sheets.
Today, the financial services sector would appear to be back on the very spot – with 2009 being reenacted, at least, on a smaller scale. Only that in this latest one, the sector is caught between the barefaced impunity of big-time corporate delinquents and the typically vacillating regulator.
Just like in 2009, the recurring thread is impunity, insider dealing, abuse of credit guidelines as indeed other criminal infractions, for which the nation’s financial sector has over time, earned notoriety. Only that in this latest case, bad faith appears to have been added to the mix.
Clearly, the facts, as stated by the CBN, could not have spoken better to a grave situation. The lender – First Bank – had, in the words of the apex bank, been on ‘life support’ and this since 2016 as a result of which a new management team was brought in under the apex bank’s supervision. Notably, the bank had to accommodate its non-performing loans through a provision to write off at least N150b from its earning for four consecutive years. More damning is that a huge chunk of the loans were actually insider related –more appropriately described as insider abuse – hence the CBN’s tough mandate to get them restructured, particularly the non-performing ones, and these under very stringent conditions.
And to cap it all, we have also been told of the CBN’s target examination as at December 31, 2020 as revealing that the insider loans – (linked to those “with controlling influence on the board of directors”), 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; that the bank failed to divest its non-permissible holdings in non-financial entities in line with regulatory directives.
One name that features prominently in all of these is Oba Otudeko, a major shareholder of First Bank and the owner of Honey Well Flour Mills. Indeed, the CBN had in a letter dated April 26 addressed to the chairman of First Bank, expressed concern that the bank had not complied with regulatory directives to divest its interest in Honeywell Flour Mills Plc despite several reminders. Among others, the letter had also accused First Bank of failure to perfect its lien on the shares of Mr. Otudeko in FBN Holdco, which collateralised the restructured credit facilities for Honey Well Flour Mills contrary to the conditions precedent for the restructuring of the company’s credit facility.
Part of the letter also read: “Given the bank’s failure to perfect the pledge and satisfy conditions for regulatory approval, the restructuring has thus been invalidated and the credit facilities now payable immediately.
“Consequently, the central bank has requested that Honeywell fully repays its obligations to the bank within 48 hours, failing which the CBN will take appropriate regulatory measures against the insider borrower and the bank.”
In all, one troubling issue that ought to agitate the mind is the ease with which those credit officers who packaged the loans were able to circumvent the bank’s credit guidelines in favour of the high and mighty. The same with the role of the auditors, the examiners and no less the other board members. Is it a one-off case – in this instance, a case of one powerful individual using his privileged position to bend the rules of the bank; or a case of systemic failure? And at what point did the CBN discover that the infractions merit regulatory action? And could swift regulatory actions not have been taken before things got to this sorry pass? This hints at regulatory laxity.
Talk of impunity giving birth to another impunity; is it mere coincidence that the same beleaguered bank would – after holding its AGM the very next day after the CBN letter detailing those grave infractions – take a preemptive move to oust its managing director? Compare the tardiness with which a board that had so spectacularly failed in its fiduciary responsibility of addressing the regulatory issues highlighted by the regulator, with the rather deft move against an uncooperative managing director that had eight full months left to serve out his term; surely impunity and self-help could not have come in a better package.
To that extent, the Ibukun Awosika-led board deserves what it got – maybe more. As for the CBN, we expect it to follow scrupulously and without sentiments, on its outlined regulatory actions.
The tragedy unfortunately, is that First Bank may not be alone in this culture of impunity. If anything, it would appear that its only crime was to have crossed the red line of drawing the regulator out in an open brawl. They took advantage of its slow action and apparent tolerance of subversion. It seemed to coddle the the sharks in the system. All said and done, we expect the CBN to be bold, transparent and firm going forward; for only in that spirit will it inspire respect among the different players in the financial system.
