First Bank: Limits to boardroom bullying when the regulator steps in
May 3, 20211.8K views0 comments
EVIDENCES OF sagacity of the great thinkers on corporate governance principles entail an understanding of possible overreach and high handedness of individuals with greater leverage in corporate settings. Influential maestros in the boardroom, it was feared, might bully the less powerful into acquiescence and complicity, keeping them perpetually vulnerable. The weak ones therefore need to be protected from the strong ones, not only because of equitable corporate co-existence, but also for the sake of customers and wider stakeholders of such corporate organisations. The rule applies equally to local entities and multinationals.
In the First Bank of Nigeria PLC, some powerful individuals seem to have entrenched a system that tends to breach this time-tested corporate rule, leading to recurring stories of breaches that have assumed ridiculous proportions. The Central Bank of Nigeria (CBN), on Wednesday openly admitted that First Bank has been in forbearance since 2016, a declaration that should not have been made if all was well with the bank. Although the bank, like any other big bank in the country, is no stranger to controversies, as they allegedly sit on colossal bad loans that could have significant effect on the entire system, First Bank drew the ire of CBN by the singular action of unilaterally changing the composition of the boards of the bank and the holding company, a decision that could have sent negative signals to the economy, if the regulator was not quick on its feet.
Last week was not the first time the bank’s decision to change its Managing Director was reversed. Mr. Bernard Longe was unceremoniously removed in a manner that was considered questionable. He regained his position through the judgment of the Supreme Court of Nigeria that decided in his favour in a 28-page unanimous ruling, declaring that Mr. Longe’s sack violated the provisions of section 266 (1) and (2) of the Companies and Allied Matters Act, (CAMA) then, and therefore null and void. The management of First Bank had attempted to justify its decision to sack Mr. Longe, insisting that the loan he granted Investors International London Limited (IILL) in 2001 in the botched acquisition of 51 per cent equity in Nigeria Telecommunication Limited (NITEL) was the reason why he was removed from office. But Mr. Longe prevailed.
It seems like some powerful individuals in the First Bank Plc have gone too far and have taken so much for granted and preferred to be running the bank like a private estate or an empire, oblivious of the facts laid out on Wednesday by the Governor of CBN. According to the Governor, First Bank has always been highly respected and remains so. In his speech, the CBN Governor disclosed that, “FBN is one of the systemically important banks in the Nigerian banking sector, given its historical significance, balance sheet size, large customer base and high level of interconnectedness with other financial service providers, amongst others. By our last assessment, FBN has over 31 million customers, with 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 FBN as a safe haven for their hard-earned savings.”
To the CBN Governor, the changes in the management team by the board would not have been treated as an action taken in the breach if it had been done with the approval of CBN. But the CBN, considering itself a key stakeholder in management changes involving FBN due to the forbearances and close monitoring by the Bank over the last 5 years aimed at stemming the slide in the going concern status of the bank, reasoned that it was wrong for a systemically important bank under regulatory forbearance regime to have effected sweeping changes in executive management without engagement and/or prior notice to the regulatory authorities. According to the CBN Governor, “the problems at the bank were attributed to bad credit decisions, significant and non-performing insider loans and poor corporate governance practices. The shareholders of the bank and FBN Holding Plc also lacked the capacity to recapitalize the bank to minimum requirements. This conclusion arose from various entreaties by the CBN to them to recapitalise.”
It is important to emphasise that the Central Bank of Nigeria retains the right, as a regulator, to maintain its oversight on all banks under its jurisdiction, and 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 or the wrong thing. The CBN gave detailed explanations of insider lending in First Bank, specifically pointing at the Chairman of its holding company. Among the regulatory actions taken by the CBN was the 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. Another, according to the Governor, was a grant of concession to insider borrower to restructure their non-performing credit facilities under very stringent conditions as the bank, allegedly, may have provisioned over N1 trillion in the last 6 years for bad loans.
So, as the Governor disclosed, “the CBN stepped in to stabilise the bank in its quest to maintain financial stability, especially given FBN’s systemic importance as enumerated earlier.” In 2016, it had to change the management team under the CBN’s supervision, with the appointment of a new Managing Director/Chief Executive Office in January 2016. It had renewed the forbearances on a yearly basis between 2016 and 2020. These, the CBN Governor said, “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.” He, however, lamented the persistence of insider-related facilities, describing them as “problematic.” He was emphatic that “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.”
In his swift response at reversing the decision of the board to change composition, he had announced the appointment of Mr. Remi Babalola as Chairman FBN Holdings Plc and eight others as directors. In the bank, the new Chairman was announced as Mr. Tunde Hassan-Odukale, with 10 other directors, including the reinstated Managing Director, Dr. Sola Adeduntan. The CBN Governor did not hesitate to reassure the depositors, creditors and other stakeholders of the bank of its commitment to ensure the stability of the financial system, adding that there was “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.”