It started as little snippets and messages like whispers, on social media platforms – something was brewing in First Bank.
The Central Bank of Nigeria obviously got wind of what was happening and, according to sources, tried to speak with top shareholders for them to sort out the problems to avoid bigger problems.
What was the cause of the rumbling? Honey Well Flour Mills, owned by the Chairman of FBN Holding Plc, Oba Otudeko, owed the bank a huge sum of money, running into several billions of Naira and the CBN was uncomfortable. It therefore directed First Bank Ltd. to recover the debt within 48 hours or face regulatory sanctions.
Also, as it was revealed, the CBN had earlier directed First Bank to divest its holdings in Honey Well and also perfect its lien on the shares of Oba Otudeko in FBN Holding Plc, but the bank did not obey the regulator.
The CBN said in a letter to First Bank that, “We are concerned that the bank has not complied with regulatory directives to divest its interest in Honey Well Flour Mills despite several reminders. We further noted that after four years the bank is yet to perfect its lien on the shares of Mr. Oba 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. 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”.
First Bank held its Annual General Meeting in Lagos on Tuesday and sources said nothing about board changes came up, only for the incumbent MD, Dr. Sola Adeduntan to be replaced by his deputy, Gbenga Shobo as MD-designate. By Wednesday night, news was flying back and forth about board changes, and the immediate appointment of the Managing Director-designate to take over from Adeduntan, who was not due to retire until end of the year.
The changes must have miffed the Apex Bank which said it was not consulted about the appointments nor was it aware of any wrong doing by the incumbent Chief Executive.
This prompted the CBN Governor, Godwin Emefiele to wield the big stick on Thursday and he addressed a news conference to announce decisions taken by the bank to sort out the problems in First Bank.
Emefiele noted that the First Bank board is ordinarily vested with the authority to make changes in the management team, subject to CBN 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 5 years aimed at stemming the slide in the going concern status of the bank.
In view of this position, it was surprising for the CBN to learn from media reports that the board of directors of FBN, had effected sweeping changes in executive management without engagement and/or prior notice to the regulatory authorities. The action by the board, the Governor said, was sending a negative signal to the market on the stability of leadership on the board and management and it is in light of the foregoing that the CBN queried the board of directors on the developments at the bank, which it described as unfortunate.
Mr. Emefiele described First Bank as 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”, he said, “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% 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 31m customers of the bank who see FBN as a safe haven for their hard-earned savings”.
The Governor said 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.
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. These conclusions arose from various entreaties by the CBN to them to recapitalize.
The CBN said it stepped in to stabilize the bank in its quest to maintain financial stability, especially given FBN’s systemic importance as enumerated earlier.
Regulatory actions taken by the CBN in this regard included:
i. Change of management team under the CBN’s supervision with the appointment of a new Managing Director/Chief Executive Office in January 2016.
ii. Grant of the regulatory forbearances to enable the bank work out its non-performing loans through provision for write off of at least N150b from its earning for four consecutive years.
iii. Grant of concession to insider borrower to restructure their non-performing credit facilities under very stringent conditions.
iv. Renewal of the forbearances on a yearly basis between 2016 and 2020 following thorough monitoring of progress towards exiting from the forbearance measures.
The Governor said the above measures 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.
However, 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 3 years despite several regulatory reminders. The bank has not also divested its non-permissible holdings in non-financial entities in line with regulatory directives
Emefiele then announced that following further review of the situation and in order to preserve stability of the bank, so as to protect minority shareholders and depositors, the Management of the CBN in line with its powers under BOFIA 2020 has approved and hereby directs:
- Immediate removal of the all directors of FBN Ltd. and FBN Holdings Plc.
- The appointment of the following persons as directors in FBN Holdings Plc: Remi Babalola as Chairman with Dr. Fatade Abiodun Oluwole, Kofo Dosekun, Remi Lasaki, Dr. Alimi Abdulrasaq, Ahmed Modibbo, Khalifa Imam and Sir Peter Aliogo as directors with U.K. Eke as Managing Director.
- For FBN Ltd, the new Chairman is Tunde Hassan-Odukale, while Tokunbo Martins, Uche Nwokedi, Adekunle Sonola, Isioma Ogodazi, Ebenezer Olufowose, Ishaya Elijah B. Dodo are directors. Dr. Sola Adeduntan is reinstated as Managing Director while Gbenga Shobo reverts to his previous position as Deputy Managing Director. Remi Oni and Abdullahi Ibrahim are Executive Directors.
The CBN Governor reassured depositors, creditors and other stakeholders of the bank of the Apex bank’s commitment to ensure the stability of the financial system, stressing that there is no cause for panic among the banking public, given that the actions taken were meant to strengthen First Bank and position it as a banking industry giant.
First Bank of Nigeria Limited was established in 1894, and is the premier Bank in Nigeria and West Africa. The Bank was founded by Sir Alfred Jones, a shipping magnate from Liverpool, England. With its head office originally in Liverpool, the Bank commenced business on a modest scale in Lagos, Nigeria under the name, Bank of British West Africa (BBWA).
In 1957, the Bank changed its name from Bank of British West Africa (BBWA) to Bank of West Africa (BWA). In 1966, following its merger with Standard Bank, UK, the Bank adopted the name Standard Bank of West Africa Limited and in 1969 it was incorporated locally as the Standard Bank of Nigeria Limited in line with the Companies Decree of 1968. Changes in the name of the Bank also occurred in 1979 and 1991 to First Bank of Nigeria Limited and First Bank of Nigeria Plc, respectively. In 2012, the Bank changed its name again to FirstBank of Nigeria Limited as part of a restructuring resulting in FBN Holdings Plc (“FBN Holdings”), having detached its commercial business from other businesses in the FirstBank Group, in compliance with the new regulation by the Central Bank of Nigeria (CBN).
FirstBank had 1.3 million shareholders globally, was quoted on The Nigerian Stock Exchange (NSE), where it was one of the most capitalised companies and also had an unlisted Global Depository Receipt (GDR) programme, all of which were transferred to its Holding Company, FBN Holdings, in December 2012.