The current boardroom crisis in the 127-year-old First Bank of Nigeria Ltd (FBN) which culminated in the intervention of the Central Bank of Nigeria (CBN) has again raised corporate governance issues in the financial sector. The nation is replete with relics of unsuccessful institutions both in the public and private businesses, occasioned by sundry ills, such as poor corporate governance, mind-boggling corruption, gross negligence, incompetence and insider abuses, among others. It’s not a road we ought to travel again.
The FBN Managing Director earlier removed by the prior board was reinstated from the apex bank. With what has played out in the last few weeks, the issues at stake are clearly in the public domain and shouldn’t be over-flogged. The place of this FBN in the financial sector can’t be overstressed. CBN Governor, Godwin Emefiele put it rather succinctly:”From our final evaluation, First Bank has over 31 million customers, with a deposit base of N4.2 trillion, shareholders’ funds of N618 billion and NIBSS instant payment (NIP) processing ability of 22 per cent of the business.”
Available records indicate that the FBN maintained healthy surgeries before the 2016 fiscal year when the CBN’s target examination revealed that the bank was in a grave financial state with its capital adequacy ratio (CAR) and non-performing loans ratio (NPLs) substantially exceeding acceptable prudential criteria. The problems at the bank have been credited to bad credit decisions, important and non-performing insider loans and poor corporate governance procedures. The bank would likely have been in severe trouble were it not for CBN regulatory forbearance, a monetary term for reshaping a few of those strict principles that banks should comply with if they are to avoid being taken over by the regulator.
Between 1989 and December 2019, the Nigeria Deposit Insurance Corporation NDIC) had liquidated 425 financial institutions, including 51 Deposit Money Banks (DMBs), 325 Micro Finance Banks (MFBs), and 51 Primary Mortgage Investors (PMBs) mainly on account of the above ills. Bank failures arrive with a lot of ripple effects on the economy, including job losses and loss of depositors’ funds, amongst others. Which is the reason why attempts by the CBN to make sure that FBN does not just recover from the somewhat unsavoury corporate governance misdemeanours and insider abuses that characterised its operations in a previous couple of years, are commendable.
With the degree of CAR at the FBN, recapitalisation has become the only option to reunite the banking giant on a solid footing. Everything should be done in order to secure investor confidence because the bank now needs to raise fresh capital and also pick, quite desperately, were to raise it from. Luckily, the recent boardroom crisis and the ensuing disclosures haven’t triggered a run on the bank. But beyond the destiny of a single lender, pertinent questions that arise include: At what stage did the CBN find FBN investments in Honeywell and Bharti Airtel? What steps are being contemplated to ensure that the level of alleged insider abuses in FBN is stamped out from the financial sector? Has the CBN consistently adhered to its circular which requires that insider-related facilities must not exceed 10 per cent of paid-up share funds?
We advocate the CBN to take cognisance of the International Monetary Fund (IMF) recommendations of December 2020. The Fund had urged vigilance and corrective actions to prevent an increase in financial stability dangers arising from increasing NPLs. In this connection, it noted that debt relief measures must remain time-bound and limited to clients with great pre-crisis principles, in accordance with present regulations.