CBN should be vigilant and take prompt actions to prevent financial risks
The recent 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 concerns in the financial sector. The country is replete with relics of failed institutions both in the public and private sectors, occasioned by sundry ills, such as poor corporate governance, mind-boggling corruption, gross negligence, incompetence and insider abuses, among others. It is not a road we should travel again.
Trouble started when the CBN dissolved and reconstituted the boards of FBN and those of its parent company, FBN Holdings Plc. The FBN Managing Director earlier removed by the former board was reinstated by the apex bank. With what has played out in the last few weeks, the issues at stake are clearly in the public domain and need not be over-flogged. The place of the FBN in the financial sector cannot be overstressed. CBN Governor, Godwin Emefiele put it rather succinctly: “By our last assessment, 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 capacity of 22 per cent of the industry.”
Available records indicate that the FBN maintained healthy operations until the 2016 financial year 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 ratio (NPLs) substantially breaching acceptable prudential standards. The problems at the bank were attributed to bad credit decisions, significant and non-performing insider loans and poor corporate governance practices. The bank would probably have been in serious trouble were it not for CBN regulatory forbearance, a financial term for softening some of the strict rules that banks must comply with if they are to avoid being taken over by the regulator.
Incidentally, the financial sector has had more than its fair share of this malaise. 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 Banks (PMBs) largely due to the above ills. Bank failures come with a lot of ripple effects on the economy, including job losses and loss of depositors’ funds, among others. Which is why efforts by the CBN to ensure that FBN does not only recover from the rather unsavoury corporate governance misdemeanours and insider abuses that characterised its operations in the last couple of years, are commendable.
With the level of CAR at the FBN, recapitalisation has become the only option to return the banking giant on a sound footing. Everything should be done to secure investor confidence as the bank now needs to raise fresh capital and also decide, quite urgently, where to raise it from. Fortunately, the recent boardroom crisis and the ensuing disclosures have not triggered a run on the bank. But beyond the fate of one bank, pertinent questions that arise include: At what point did the CBN uncover FBN investments in Honeywell and Bharti Airtel? What measures are being considered to ensure that the level of alleged insider abuses in FBN are stamped out in 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 capital?
We urge 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 risks arising from increasing NPLs. In this connection, it noted that debt relief measures should remain time-bound and limited to clients with good pre-crisis fundamentals, in line with existing regulations.
