People & Money

First Bank: Otudeko Eats His Cake, Emefiele Keeps His

“The sacking of the First Bank of Nigeria board seems marked with an exercise of arbitrary powers by the CBN after the apex bank has failed to regulate in a strict and transparent manner. The Central Bank Governor has tolerated poor corporate governance and has also intervened to protect further insider abuse. Unlike Mr. Otudeko, he has eaten his cake and also kept it whole in the refrigerator”. 

The German dramatist, Bertolt Bretch (1898- 1956) once quipped, “What is robbing a bank compared with founding a bank”?  A Nigerian observing the trajectory of Nigeria’s banking industry since the days it was liberalised by the Ibrahim Babangida government in 1987 might propose a halfway compromise – to be a major shareholder or board member is enough.

Either as managers, founders or directors, the elite of the banking sector has taken financial intermediation to mean funelling depositors’ savings to favoured businesses. Despite “incessant” bank failures from the early 1990s, catch-up regulatory reforms and improvement in the quality of corporate governance in the sector, it is still possible for determined insiders to manage banks primarily for their own benefit. Top managers are chosen for their competence as much for their “flexibility” (to allow infractions which benefit powerful insiders).

Rumours that the busines mogul Oba Otudeko was using his position as the largest shareholder and Chairman of the Board of First Bank Nigeria Holdings to manipulate lending terms to his business spectacularly were confirmed when the Central Bank of Nigeria sacked the board of the bank and the holding company after the board sacked the Managing Director, Dr. Sola Adedunta.

The CBN thus forced Mr. Otudeko to choose between being a big debtor with a poorly performing loan and simultaneously, the person most responsible for ensuring that the bank lent money responsibly and safely.

Mr. Oba Otudeko’s position clearly was untenable. He should have long quit the board of First Bank of Nigeria. But there are so many question marks hanging over the choices and actions of the Central Bank of Nigeria as a regulator before, during and after the bank’s board was sent packing.

Extraordinary Forbearance or Failure?

The powers which the CBN has relied upon to sack the board of First Bank are set out in Part 4, “ Failing Banks and Rescue Tools” of the Bank and other Financial Institutions  Act (BOFIA) 2020. The question arises if the CBN regards and has declared First Bank of Nigeria to be a failing bank and thus could usurp the rights of the shareholders to vote for their own board.

Also Read: Planning is Good Governance: Data and Foresight Key To Development – Julia Bello-Schünemann

A Secret Rules Book: 

It is not clear the rules guiding the “forbearance” which the Central Bank of Nigeria has said it had granted First Bank of Nigeria since 2016. What qualifies a bank to enjoy forbearance? What restrictions does a regime of forbearance place on the powers of the board of the bank? When and how does the bank exit forbearance? The CBN seems to be keeping its rules book close to the chest.

Indulgence, Negligence and Bias:

The CBN emphasised the fact that First Bank of Nigeria for three years refused to perfect the collateral (shares in the bank) pledged against loans to  Honeywell, Mr. Otudeko’s company. It was also revealed that it has used Dr. Adeduntan “as a check against attempts by directors of First Bank to secure insider loans.” The CBN unwittingly portrays itself as a weak and negligent regulator whose directions could be ignored. The forbearance it extended to First Bank of Nigeria, including overlooking the refusal of the directors to raise fresh capital by issuing new shares which would have diluted their shareholding, also appears to be a cocktail of personal favours rather than regulatory actions in the interest of minority shareholders and depositors or indeed the banking system. It is difficult to look away from the impression of lax “paddy paddy” regulation.

Concealment and Complicity:

The nature and extent of the forbearance the CBN extended to First Bank of Nigeria remained unknown to the general and investing public and it is believed that the bank took steps to disguise relevant facts in its audited annual accounts. Maintaining confidence in First Bank of Nigeria and the banking system was not incompatible with giving investors a true picture of the bank’s health and the steps it was taking to improve its position.

Interference and Personalisation:

The First Bank of Nigeria drama is a self-created crisis for the CBN.  If it had been the case, as it appears it was, that the CBN was not convinced of the integrity of some or all of the directors of First Bank of Nigeria, it had and should have used supervisory powers to force a change e.g. pushing for the perfection of their collateral and then timely recovery of their outstanding loans. Suddenly waking up to see the threat the board posed to corporate governance and the safety of the bank after the Managing Director was sacked smacks of interference and personalisation of regulatory powers.  The Central Bank should be seen to be enforcing impersonal rules rather selecting what to punish and when.

Also Read: Nigeria’s inflation problem and the ‘Gbatueyos’ at the CBN

Opacity and Informality:

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele disclosed at the press conference announcing the action against the board of First Bank of Nigeria that the board could have sacked Dr. Adeduntan because he resisted further abuses related to insider lending. This appears to be rather facile speculation. The CBN should have investigated the principal reason it was sacking the bank’s board over and determined if “insiders” are liable for any criminal infractions. Similarly, the managers responsible for “poor corporate governance” which has seen the bank lose billions of naira should have been investigated for criminal culpability. Nigerians are still left wondering if First Bank of Nigeria accumulated over N500 billion in bad loans because its managers and board were just incompetent and careless or whether they criminally benefitted from the bad decisions.

The sacking of the First Bank of Nigeria board seems marked with an exercise of arbitrary powers by the CBN after the apex bank has failed to regulate in a strict and transparent manner. The Central Bank Governor has tolerated poor corporate governance and has also intervened to protect further insider abuse. Unlike Mr. Otudeko, he has eaten his cake and also kept it whole in the refrigerator.

The Nigerian Economic Summit Group has been proven right over the alarm it raised over the extensive powers BOFIA 2020 grants the Central Bank of Nigeria Governor.  The CBN should be focused on driving strict and transparent compliance with fiduciary and corporate governance standards. This would force boards of directors to stay straight and honest and save the CBN from having to intervene in board or management decisions.

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