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CBN STEPS IN TO AVERT CRISIS IN FIRST BANK’s BOARDROOM

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In a swift reaction to the appointment of new directors by the board of First Bank of Nigeria (FBN) earlier on Wednesday, April 28, 2021, the regulator 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 precipitate 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  

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 carefully orchestrated communication strategy. 

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