How Insider Loans, Poor Corporate Governance, and Others Nearly Ruined First Bank – CBN

first bank and CBN

Following the recent dissolution of a newly constituted Board of First Bank (FBN) Holdings Plc and its subsidiary barely twenty-four (24) hours after it was announced, and the ensuing controversies generated by the action, the Central Bank of Nigeria has given its reasons for taking such drastic measures, affirming that it was in the best interest of the institution and its customers.

According to a statement issued by the Governor of the Central Bank of Nigeria, Godwin Emefiele and seen by Naijabusiness.com.ng, the decision to annul the new appointments was in a bid to sustain existing regulatory reforms aimed at stabilizing the bank and protecting its numerous customers which according to estimates are over 31 million.

According to the disclosure, the Bank had been on the radar and monitoring of the CBN under a regulatory forbearance regime, due to a host of issues including but not limited to poor corporate governance, bad credit decisions, significant and non-performing insider loans among others. In this light, the apex bank faulted FBN’s decision to constitute a new board, implicitly describing as hasty and without proper consultation and approval.

According to the recent disclosure, the FBN had maintained healthy operations up until 2016 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 (NPL) substantially breaching acceptable prudential standards. These identified issues made it difficult for shareholders and FBN Holding Plc to recapitalize the bank, prompting the CBN to step in and stabilize the bank.

READ: First Bank Grants Loan Facilities to Money Agents

Explaining how the perennial insider loans nearly ruined the institution, Mr Emefiele said: ‘’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 restructuring terms (e.g. non-perfection of lien 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.’

Outlining some of the measures it took to stabilize the bank especially during the initial stage of the systemic crisis in 2016, the CBN remarked that it;

  • Changed the management team under and appointed Dr Adesola Adedutan in January 2016 to steer the affairs of the bank.
  • Granted the bank regulatory forbearances to enable it write-off at least N150 billion from its earnings for four consecutive years.
  • Granted concession to insider borrower to restructure their non-performing credit facilities under stringent conditions.
  • Renewal of the forbearances on a yearly basis between 2016 and 2020.

Despite the recent gains achieved from the regulatory provisions, the CBN however remarked that insider-related loans and facilities remained problematic. Commenting on this, Mr Emefiele said: ‘’The measures had yielded the expected results as the financial condition of FBN improved progressively between 2016 when the forebearance was initially granted to the current financial year. For instance, profitability, liquidity and CAR improved whilst NPL reduced significantly.

‘’Notwithstanding, the significant improvement in the bank’s financial condition with the positive trajectory of financial soundness indicators, the insider-related facilities remained problematic.’

It is pertinent to note that sequel to the removal of all directors of FBN Limited and FBN Holdings Plc, the following individuals have been appointed by the CBN to pilot the financial giant;

FBN Holdings Plc: Remi Babalola (Chairman), U.K Eke (Managing Director), Dr. Fatade Abiodun Oluwole, Kofo Dosekun, Remi Lasaki, Dr Alimi Abdulrasaq, Ahmed Modibbo, Khalifa Imam and Peter Aliogo.

Bank: Tunde Hassan Odukale (Chairman), Sola Adeduntan (Managing Director), Tokunbo Martins, Uche Nwokedi, Adekunle Sonola, Isioma Ogodazi, Ebenezer Olufowose, Ishaya Elijah, Gbenga Shobo (Deputy M.D), Remi Oni and Abdullahi Ibrahim.