CBN queries First Bank over replacement of MD, orders divestment of stakes in Honeywell, Airtel Nigeria

The Central Bank of Nigeria (CBN) has queried the board of First Bank of Nigeria Limited over the removal of Sola Adeduntan, the bank’s managing director/chief executive officer, without due consultation with regulatory authorities.

On Wednesday, the bank announced the appointment of Gbenga Shobo as its new MD/CEO with effect from April 28.

First Bank said Adeduntan will be leaving the position in accordance with the bank’s term limit for its chief executives, after leading the bank since January 2016.

But in a letter dated April 28 and addressed to Ibukun Awosika, the chairman of First Bank, the CBN said the tenure of Adeduntan was yet to expire (MDs of banks have a maximum tenure of 10 years).

“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,” the letter signed by Haruna Mustafa, CBN’s director of banking supervision, read.

“We are particularly concerned because the action is coming at a time the CBN has provided various regulatory forbearances and liquidity support to reposition the bank, which has enhanced its asset quality, capital adequacy and liquidity ratios amongst other prudential indicators.

“It is also curious to observe that the sudden removal of the MD/CEO was done about eight months to the expiry of his second tenure, which is due on December 31, 2021.”

The apex bank noted that the displacement of a sitting MD of a bank under regulatory forbearance puts the aforementioned bank at risk.

Regulatory forbearance simply refers to regulators refraining from exercising their right to put an insolvent bank out of business. Such banks are allowed to continue operating.

It further directed the bank to respond to the query on or before 5pm on Thursday, April 29.

“The removal of a sitting MD/CEO of a systemically important bank that has been under regulatory forbearance for five to six years without prior consultation and justifiable basis has dire implications for the bank and also portends significant risks to the stability of the financial system,” the statement added.

“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.

“In the meantime, you are directed to desist forthwith from making any further public/media comments on the matter. Your comprehensive response on the foregoing should reach the Director, Banking Supervision Department on or before 5pm on April 29, 2021.”

90-DAY ULTIMATUM TO DIVEST INTERST IN HONEYWELL FLOUR MILLS, BHARTI AIRTEL NIGERIA LTD

The CBN also directed First Bank to divest equity investments in all non-permissible entities such as Honeywell Flour Mills and Bharti Airtel Nigeria Limited within 90 days.

This is contained in a letter dated April 26 and signed by Haruna Mustafa, CBN’s director of banking supervision.

The apex bank noted that First Bank of Nigeria had not complied with regulatory directives on divesting its interest in Honeywell Flour Mills despite several reminders.

“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 collateralized the restructured credit facilities for Honeywell Flour Mills contrary to the conditions precedent for the restructuring of the company’s credit facility, ” the CBN said.

Otudeko is the group chairman of First Bank Holdings Plc and Honeywell Flour Mills Plc.

Checks by TheCable show that Otudeko has 5.29 billion indirect shareholding in Honeywell as at December 2020.

He also owns 5.89 million direct shareholding in First Bank and 532 million indirect share holding in the bank as at December 2020.

In its 2020 financial results, Honeywell disclosed that a short term loan was obtained from First Bank in January 2017 to ease the company’s cash flow.

“The facility has a tenor of 3 years (36 months), quarterly repayment of principal and interest, and interest rate of 16% per annum,” the company said.

“Discussion for restructuring of the loan is still in progress with the Bank. However, an extension of 60 days pending conclusion of the renewal process which commenced on 19 March 2020 was agreed. Post year-end review showed this has now been extended for another 90 days.”

According to the CBN, First Bank’s failure to perfect the pledge and satisfy conditions for regulatory approval had resulted in the invalidation of such restructuring and the credit facilities are now payable immediately.

The CBN also instructed Honeywell Flour Mills to fully repay its obligations to the bank within 48 hours, warning that failure to do so will prompt the apex bank to take appropriate regulatory measures against the insider borrower and the bank.

“Furthermore, the Bank notes the untenable delay in resolving the long outstanding divestment from Bharti Airtel Nigeria Ltd in line with extant regulations of the CBN,” the CBN added.

“Accordingly, you are required to divest the equity investments in all non-permissible entities such as Honey Well Flour Mills and Bharti Airtel Nigeria Limited within 90 days.”