Last week, a Pandora’s box was opened at Nigeria’s oldest bank, leading to a tsunami that swept away the bank’s board of directors. EHIME ALEX writes that the development has thrown up the need for financial institutions to reclassify insider loans.
Following the recent boardroom crisis that rocked Nigerian oldest bank, First Bank of Nigeria Limited, and its parent company, FBN Holdings Plc, there is now a strong demand on Nigerian financial institutions to properly reclassify insider loans.
There is also a demand for the Central Bank of Nigeria to focus on the general health of the banking sector to build confidence in the country’s financial system vis-à-vis international finance organisations.
The CBN has, over the years, been burdened with some high-profile cases of insider-related abuse by members of the board of directors of commercial banks and other financial institutions.
Last week saw the forceful removal of the Chief Executive Officer of FirstBank, Sola Adeduntan. But the intervention of the apex bank brought him back.
Adeduntan was removed by the Awosika-led board, which resulted in the sack of Awosika as Chairman of the board of FirstBank and Mr Oba Otudeko as chairman of the board of FBN Holdings.
Expressing sadness over the matter, public affairs analyst, Bala Zakka, told Financial Street this was not a time to apportion blame, rather a time to focus on the general health of the Nigerian financial sector.
According to him, beside the worries of social issues like insecurity, how organised the nation’s financial institutions are should be of utmost concern.
He called for caution on issues between the central bank and a commercial bank.
“To a reasonable extent, we have to wait for more information because the management of First Bank had its reasons for the action that was taken.
“Personally, as a public affairs analyst, I will not want to apportion blame now; but I will wish for a quick resolve because with time we will hear more from the bankers’ bank, which is the central bank, and we will hear more from one of the legendary banks in Nigeria, which is FirstBank,” Zakka said.
He added that a lot might also be heard from other financial institutions, “but the most important thing is a quick resolution because that is what Nigeria needs now.”
The perception the crisis would have created in the mind of international aid agencies also worried Zakka.
Small and Medium-sized Enterprises, non-governmental organisations and governments require grants and support, which mostly come through external donors.
“For external institutions to render support to Nigeria, they must look at the general financial institutional health of Nigeria, the relationship between the central bank and other financial institutions.
“I want to believe that the solution is in the middle. If it is the flexing of muscle, they should just know that all we want is a healthy and focused Nigeria,” Zakka added.
The President, Association for the Advancement of the Rights of Nigerian Shareholders, Farouk Umar, attributed about 90 per cent of bank failure to Non-Performing Loans related to insider credit, urging the apex bank to come up with policies that would prevent directors from borrowing from the banks to protect shareholders and depositors.
Investment and portfolio analyst, Abel Ezekiel, who also raised concern over the issue, said, “First Bank has a strong systemic ability in the market and as such its top line decision must be subject to regulatory approval. What the CBN did was a right step in the right direction, in repositioning the bank’s management board.
“Nothing is wrong with giving insider loans to top officials, but it must be subject to critical analysis like any other customer and not be subject to favouritism.”
He noted that since 2016 when the CBN discovered a great NPL and financial inadequacy ratio of FirstBank, the bank had been placed under a forbearance.
“The exposure was up to N150bn, of which half was traced to a former FBN Holdings chairman, as a kind of NPL. Based on this, the CBN, with the management of FirstBank, agreed that a forbearance be written off the sum for about four years to save the bank from collapse,” he recalled.
It is worrisome to hear that FirstBank would accept a collateral on which a lien was not properly classified, Ezekiel maintained.
According to him, if a lien is not properly placed, it, therefore, means that the borrower can tamper with the collateral, which is almost like a loose way of granting collateral.
FirstBank that used to pay N1.50k and higher, as dividend, is now struggling to compensate shareholders with N0.20k, N0.30k, N0.45k, whereas nothing is done to the NPL the CBN asked it to put a lien on and reclassified, Ezekiel said.
This is nothing but a rip-off on the public, especially the shareholders, he added.
On the board change, he said the bank should have been guided rather than allowing the interest of a few personalities to affect a larger public interest.
