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Why CBN wielded hammer on First Bank

By Adetokunbo Abiola

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Late last week, some people commented on the crisis inflicting First Bank when the Central Bank wielded its big stick.
“This was a complete coup and hostile takeover by the CBN in connivance with some shareholder groups,” said one of them.
But experts say the reason for the crisis was because for years First Bank had been plagued by “bad credit decisions, significant and non-performing insider loans and poor corporate governance practices, a situation which could affect its over 31 million customers, deposit base of over N4.2 trillion, shareholder funds of N618 billion and NIBBS instant payment processing capacity of 22 percent of the industry.
The Central Bank, as the apex regulator of the activities of commercial banks, had on Thursday fired the entire members of the board of First Bank Holding and First Bank Nigeria Ltd. and the Board of Directors of First Bank of Nigeria Limited, following the refusal to rescind their decision to reinstate the CEO they sacked a day earlier.
On the day the CBN wielded the big stick, its governor, Godwin Emefiele, held a press briefing to explain the decision of the CBN. He said the insiders behind the bad credit decisions and non-performing insider loans 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 CBN governor said.
First Bank had not also divested its non-permissible holdings in non-financial entities in line with regulatory directives.
A day before it fired the First Bank board, the Central Bank had forwarded a letter to the bank mentioning the issue. The CBN questioned the Board of First Bank for not having divested its interest in Honey Well Flour Mills and Barti Airtel, companies in which Oba Otudeko, former board chairman of First Bank, had stakes.
“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 CBN stated.
The CBN further noted that after four years the bank was yet to perfect its lien on the shares of 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.
At the sack of the board, the CBN requested that Honeywell Flour Mill “fully repays its obligations to the bank within 48 hours failing, which the CBN will take appropriate regulatory measures against the insider borrower and the bank.”
It added: “Furthermore, the Bank notes the untenable delay in resolving the long outstanding divestment from Bharti Airtel Nigeria Ltd in line with extant regulations of the CBN.
“Accordingly, you are required to divest the equity investments in all non-permissible entities such as Honeywell Flour Mills and Bharti Airtel Nigeria Limited within 90 days.” .
The issue of bad credit decisions significant and non-performing loans isn’t new to First bank. Sometimes ago, a human rights group, the Social and Economic Rights Derivatives Centre, had sent a strongly-worded petition to various governmental agencies and the National Assembly asking the management of the bank to explain how a number of multi-billion naira loans, including the Honey Well loan, were not reflecting on the bank’s books again.
According to the Secret Reporters, Honeywell Group is reportedly indebted to First Bank to the tune of about N75 billion, with the loan non-performing, and with no assurance that the loan would perform anytime soon, in view of the current economic headwinds.
However, this CBN intervention had an impact on the share price of First Bank Holdings, as shares fell -6.6%, placing it at the third position in the NSE. Shares of Honey Well Flour Mills, fell 3.76% on Thursday and could fall further when investors digest the impact of the CBN’s announcement and what this could mean for the survival of Honey Well.
There was a massive share dump among shareholders over the bad corporate practices and insider dealings of the bank, causing a decline in the share value of First Bank, as the stock price lost N0.5kobo at the end of trading on Thursday, with many shareholders concerned about the scale of purported bad management decisions taken by the bank..
At the end of the capital market trading, The Hope noticed over 51.52 million shares were dumped by investors on Thursday for N6.9kobo per share, against the previous day price of N7.4 kobo per share.
However, shareholders want something done over insider trading, non-performing loans, and bad corporate governance in Nigerian banks.
“Time and time again the non-compliance to corporate governance ethics by bank shareholders has resulted in many banks going under or being taken over by the Amcon,” said one of them. He thought the CBN ought to be very strict on the issue of the borrowing by board members of banks through placing a total ban on such insider borrowing as this introduced a lot of manipulation and default on loan repayments by such shareholders which, ultimately, will result in a situation that is to the overall detriment of the bank and its depositors.
Another shareholder said, “Could this be the gradual end of First Bank?”

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