By Adedeji Adebiyi
Going back to when I was about to open a bank account, my parents specifically recommended a certain old generation bank. Based on the trend of banking in Nigeria then, the new generation banks were gaining grounds amongst young Nigerians mainly as a result of their catchy commercials, branding strategies, reliable customers’ service and the way they embraced technological innovations. However, my parents advised that old generation banks have been there for ages and they remain “unbreakable” with regards to customer confidence and security of depositors’ fund. They both stressed that the old generation banks have the pedigree and they also retain business integrity. Is that the case right now?
Over time, the banking industry has become so competitive because it happens to be a major driving force in the economy of Nigeria. On that note, the security of depositors’ funds has become crucial, and this goes down to how the funds are managed. The way and manner financial institutions are managed will reflect on their global outlook and their ratings.
On 29th April 2021, the Central Bank of Nigeria, the regulatory institution for banks in Nigeria in a televised broadcast announced the sacking of some members of the board of First Bank of Nigeria Limited and FBN Holdings PLC. Reasons given included the fact that the board of the First bank was finding it difficult to enforce the tenets of corporate governance in its affairs. Also, amongst the issues raised was the non-perfection of insider loans, failure to structure credit facilities granted to insiders and inability of the bank to implement the regulatory remedial commitments especially with regards to the regulatory infractions that the CBN brought to its notice during the 2016 target examination. This takes us to the role of corporate governance in all of this.
First Bank is known to be one of the strongest banks in Nigeria. Known for its conservative policies, it is believed that all eyes will be on it especially by investors, shareholders and depositors.
The role of corporate governance cannot be overemphasized in the life of our financial institutions. The impact of the Central Bank of Nigeria in ensuring sound corporate governance practice amongst banks has been evident. Before the release of the Code of Corporate Governances of Nigeria by the Financial Reporting Council of Nigeria in 2020, financial regulators including the Central Bank of Nigeria already had their various sectoral codes to guide the sector operators in Nigeria. These codes mainly provided various principles on matters arising in corporate governance and how the institutions are meant to apply them to their daily affairs.
It is important to also note that the regulator also released regulations, frameworks, circulars and sanction regimes to place a proper check on the banks. However, it appears the rules, codes etc. are not enough in ensuring adequate application of rules, process, methods in directing the affairs of our banks.
The whole essence of these regulatory checks is to ensure that the board of directors who are meant to act as major decision-makers of the banks act in the interest of the banks and to protect depositors’ assets and the shareholders’ investment. The main question in this matter is if the boards of First Bank Of Nigeria Limited and FBN holdings have acted in the interest of the bank and the shareholders. The objective of the writer is not to pass judgment on the ousted board members of the First Bank Of Nigeria Limited even as the removed Chairperson of the board of FBN had issued a communiqué defending the actions of the board in respect of the removal of the Managing Director. What is applicable in this circumstance remains the official report from the Central Bank of Nigeria regarding the regulatory infractions which they perceived as been dangerous and which may lead to the collapse of the bank.
One will recall that in 2009, the Central Bank of Nigeria under the leadership of Sanusi Lamido also carried out a similar house cleaning exercise on some banks such as Intercontinental bank, Bank PHB and so on. This episode remains unforgettable as its resultant effect included loss of jobs; drop in returns on investment, lack of confidence in the industry and the overwhelming task of rebuilding depositors trust. A similar exercise was conducted on Skye Bank (Now Polaris Bank) recently.
Since Nigerian banks seem to be struggling to abide by the rules, the Central Bank of Nigeria has a major task to closely monitor their activities.
What Central Bank of Nigeria Observed
First, the regulator raised its concerns about the removal of the Managing Director of the bank Mr Adesola Adeduntan without informing the regulator. Removal of a Managing Director is possible but in a sensitive sector like the banking sector and considering the regulatory forbearance hanging on First bank, the regulator ought to have been carried along most especially as the tenure of the Managing Director was yet to elapse and it is also on record that the board did not report any unwholesome practice by the Managing Director to the regulator. The CBN also noted that the removal of the Managing Director was a dent to the regulatory recovery plan which the CBN had been monitoring closely since 2016.
Secondly, the regulator observed that insiders who were granted loan facilities abused the terms of the credit facilities due to their overwhelming influence. The Central Bank of Nigeria further observed that there was no perfection of lien on shares and collateral arrangements for some insiders who had control over the board. Some other issues were raised by The Central Bank of Nigeria which prompted it to wield its big stick on the Board of Directors of First Bank Of Nigeria Limited and FBN Holding to repose confidence in investors. This is because the adverse effect of a shakeup like this may lead to investors selling their shares and depositors withdrawing their funds as a panic measure which the bank may not recover from.
The Role of the Central Bank in this Circumstance
The Central Bank of Nigeria under provisions of sections 33, 34 of the Banks and other Financial Institutions Act (BOFIA) 2020 has the power to intervene in circumstances that may hinder the banks to perform their statutory obligations. This is imperative and obviously must have been considered over time as a result of the abuse of administrative corporate powers as exercised by managements of banks in Nigeria. The opinion of the writer, however, is that these regulatory violations should also be investigated among all other banks in Nigeria.
The Fiduciary Duty of Directors
Several laws and regulations in Nigeria have provided explicit and tricky provisions on the fiduciary duties of Directors. Section 2.1.1 Code of Corporate Governance for banks and discount houses in Nigeria provides that the Board is accountable and responsible for the performance and affairs of the bank. Specifically, and in line with the provisions in the Companies and Allied Matters Act (CAMA), Directors owe the bank the duty of care and loyalty and to act in the interest of the bank’s employees and other stakeholders. Also, Principle 24.3.2 of the Nigerian Code of Corporate Governance 2018 reiterated this sacrosanct duty when it said that Directors owe a fiduciary duty to the Company, together with a duty of care, skill, diligence and loyalty in fulfilling the functions of their offices and exercising the powers attached to those offices. This was also stressed in several court judgments including the much-celebrated case of Bernard Longe v. First Bank of Nigeria PLC.
As straight forward as these provisions are, it is interesting how Company hierarchies find it difficult to abide by them. This goes to who the Directors are and what their ambition or objective towards their offices as directors mean to them.
In deciding whether the directors of First Bank and FBN Holding have acted in the interest of the bank and its investors; it is believed that the end of this matter is far away. The writer believes that the affected parties may resort to legal redress with the sole aim to determine if their actions contravened the applicable laws and if their decision to remove the Managing director of the Bank without notifying the CBN was legally implemented.
The CBN has a lot of work to do in making sure bank operators apply ethics and sound operational values in Nigeria. The whistleblowing mechanism needs to be strengthened with good incentives that will reveal unwholesome practices in the financial sector. The CBN should also be conducting more spot checks without notices on the banks. This will help the regulator in assessing the daily work processes and the way the banks apply the rules to their operations. The CBN should discourage the armchair approach to monitoring banks due to the sensitivity of the sector in Nigeria’s economy. If the armchair approach prevails, the banks will forward reports that the public desires which may be counterproductive. The commitment as required by CBN via its circular FPI/DIR/CIR/GEN/01/004 dated 16th May 2014 that banks should forward quarterly returns on corporate governance is laudable but the salient questions are; does the CBN take its time to ask questions on these quarterly reports? Do the internal control mechanisms implement by risk managers, legal advisers, auditors and compliance officers of the banks count?
For a bank with a customer base of over 31 million account holders and with a deposit base of over four trillion Naira, one should not question the protective action of the Central Bank of Nigeria. Some depositors in the past have lost confidence in the Nigerian banking sector and have closed their accounts. Some foreign investors also study situations of volatility to determine their investment portfolio in the Nigerian economy. Corporate governance has therefore gone beyond companies posting attractive reports on board evaluation, the number of meetings attended by board members, AGMs, ownership structure, dividend declaration, CSR and so on. The integrity part of corporate governance should be embraced to avoid unnecessary crises in the financial sector.
Adedeji Adebiyi is the Vice- Chairman of the Institute of Chartered Secretaries and Administrators of Nigeria (Abuja Chapter)
