419 Board: How First Bank Board Grants N75b loan to Oba Otudeko without Collateral
Directors of the First Bank of Nigeria (FBN) Limited and First Bank of Nigeria (FBN) Holdings Plc have been sacked by the Central Bank of Nigeria (CBN).
CBN Governor, Mr. Godwin Emefiele, announced the sack at a press briefing on Thursday over the removal of the Bank’s Managing Director, Mr Adesola Adeduntan and appointment of Mr. Gbenga Shobo by the board on Wednesday.
Emefiele said the decision was taken to safeguard the financial system, following the crisis that greeted the purported changes at FBN.
Adeduntan, who was earlier sacked by the board, was however, reinstated by the apex bank.
The Central Bank of Nigeria (CBN) had earlier on Thursday issued a query to the Board of First Bank Ltd, one of Nigeria’s oldest banks over the removal of its CEO.
On Wednesday, the Board of Directors of First Bank of Nigeria Limited revealed it had appointed Gbenga Shobo as its Managing Director/Chief Executive Officer (CEO).
The appointment was disclosed in a statement made by the bank’s Chairman, Ibukun Awosika.
However, in an apparent leak, a letter from the central bank to First Bank revealed a query from the former to the latter expressing concern that the appointment of Shobo was done without the approval of the apex bank.
“The attention of the Central Bank of Nigeria (CBN) has been drawn to media reports that the Board of Directors has approved the removal of the current Managing Director of the bank, Dr. Sola Adeduntan, and appointed a successor to replace him. The CBN notes with concern that the action was taken without due consultation with the regulatory authorities, especially given the systemic importance of First Bank Ltd.”
The CBN also claimed that the tenure of Mr. Adedutan was yet to expire (bank MD’s have a maximum 10 years) and that they were also not aware of any misconduct of the former MD and as such there was no justification for his removal.
“Given that the tenure of Dr. Adeduntan is yet to expire and the CBN was not made aware of any report from the Board indicting the Managing Director of any wrong-doing or misconduct, there appears to be no apparent justification for the precipitate removal.”
Sources within the bank stated that First Bank has a maximum of 6 years tenure for its MDs in line with its succession plans. They also claimed the CBN is meddling in its internal affairs as the removal of the MD is in line with its succession plans and also does not exceed CBNs maximum of 10 years.
First Bank followed its corporate governance framework in its change of leadership and appointment of new executive directors. No Managing Director in the 127 years history of FirstBank has ever attempted a tenure extension. Why now?”
Another senior management staff who preferred to remain anonymous also lamented that “Adeduntan’s term formally ends in June this year after 2 terms of 3 years each. Leaving early is in line with the bank’s succession planning. When he was appointed 6 years ago and a DMD role was created, The erstwhile FirstBank Managing Director knew the DMD would succeed him and this is what has happened. This is corporate governance at its best.”
Expectedly, the CBN ended its query to the bank with a threat to the board if the decision to remove Adeduntan is not reversed.
“In light of the foregoing, you are required to explain why disciplinary action should not be taken against the Board for hastily removing the MD/CEO and failing to give prior notice to the CBN before announcing the management change in the media.”
The strongly-worded letter signed by Haruna B. Mustapha, Director of Banking Operations and copied to all Board members and Major Shareholders continued “We further noted that after 4 years the bank is yet to perfect its lien on the shares of Mr. Oba Otudeko in FBN Holdco which collaterized the restructured credit facilities for Honey Well Flour Mills contrary to the conditions precedent for the restructuring of the company’s credit facility.
The Central Bank of Nigeria had earlier directed the Oba Otudeko owned Honeywell Flour Mills to repay a loan to First Bank within 48 hours, according to a memo seen by TechCabal.
In the letter seen dated April 26, 2021, the CBN stated, “Consequently, the company (Honeywell Flour Mills) is required to fully repay its obligations to the bank within 48 hours, failing which the CBN will take appropriate regulatory measures against the insider borrower and the bank.”
Insider lending is when a bank makes a loan to one or more of its own officers or directors.
Oba Otudeko serves as the chairman of FBN Holdings PLC, the holding company which owns First Bank. Otudeko also served as Chairman of First Bank until 2010 and is also the Chairman of the Honeywell Group.
While insider borrowing is legal, it is subject to several regulations. One such regulation is that insiders do not get any special treatment, incentive rates, or other benefits not offered to regular bank customers.
But the CBN is alleging that First Bank gave special treatment to Honeywell Flour Mills in restructuring its loan facility.
That First Bank may not have performed its due diligence in securing the collateral for the credit facility.
According to news reports, Otudeko’s Airtel shares were used as collateral for Honeywell’s Ecobank loan. Yet, in an interesting turn of events, those same Airtel shares as well as some Honeywell assets were also used as collateral for the credit facility from First Bank.