The decision of the Central Bank of Nigeria (CBN) to dissolve the entire board and management of the First Bank of Nigeria Limited and FBN Holdings Plc attracted various questions and commentaries about the power of CBN to appoint and disqualify a director of its choosing and the legal implication of the decision. The concern on everyone’s mind was whether the CBN had the power to do this, and if so, was such a measure the least severe measure, if not was it appropriate?
To understand what led to the decision of the CBN Governor, a little bit of background is needed. It all started in 2016 when the First Bank came under CBN’s close surveillance as result of significant increase in the bank’s non performing loans. The apex bank believed that the high incidence of non performing loans with the bank was as a result of “bad credit decisions, significant and non-performing insider loans and poor corporate governance practices”; thus, the apex bank felt it imperative to take steps to protect the interest of shareholders and customers of the bank.
One of the steps taken by CBN was to supervise the change of management team which led to the appointment of Sola Adeduntan as the new Managing Director/ Chief Executive Office in January 2016. It appears that Sola Adeduntan served as CBN’s check on the activities of the board of First Bank Limited with respect to the insider loans, and this must not have gone down well with Oba Otudeko, the Chairman FBN holding Plc who also doubles as the Chairman of Honeywell Group, one of the companies alleged to have non performing loans with First Bank of Nigeria.
According to Nairametrics in its article titled “Why CBN sacked board of First Bank”, the move to remove Sola Adeduntan came after the bank received instruction from CBN on the 26th of April, 2021 stating that the bank had failed to perfect its lien on the shares of Mr. Oba Otudeko in FBN Holding Plc which served as collateral to the restructured loan for Honeywell Flour Mill contrary to the terms of the restructuring. CBN further directing the bank to ensure the repayment of the Honeywell Flour Mills loan within 48 hours or the apex bank to take regulatory measures against the insider borrower and the bank.
As expected, the directives of CBN didn’t go down well with Oba Otudeko, and in response, the decision to remove Sola Adeduntan was hatched. Despite the opposition of the CBN Governor to the removal of Sola Adeduntan, the board went ahead with the removal which was announced on April 28, 2021 much to CBN’s disapproval. By the 29th of April 2020, the CBN Governor announced the removal of the all directors of FBN Ltd and FBN Holdings Plc and the appointment of new directors in FBN Ltd and FBN Holdings Plc, as well as the reinstatement of Sola Adeduntan as Managing Director/Chief Executive Officer of First Bank.
It’s important to note that the activities of all financial institutions in Nigeria is governed by Banks and Other Financial Institutions Act (BOFIA) 2020, and virtue of Section 34 of BOFIA, the CBN may direct the removal of a manager or officer of a bank where after an examination, it is satisfied that the bank is in a grave situation. The power of the apex bank under Section 34 of BOFIA is quite discretionary and only two requirements are proposed; that an examination is carried out and the situation of the bank is grave.
Since non-performing loans are detrimental to the financial stability of any bank, we could argue that the bank’s situation was indeed grave thus necessitating CBN taking steps to protect the shareholder’s interest even if it meant removing all directors who in the opinion of CBN were complacent of the situation of the bank with regards to its non performing loans. However, according to the FBN Audit Committee’s Financial Year report for 2020 on insider-related transaction, the audit met the CBN standards and was signed off by the CBN and dated March 8th, 2021. If this is the case it blurs the narrative. Could the action of the CBN Governor be a result of character clash for not simply obeying the pecking order?