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Nigeria: Is now a good time to buy First Bank shares? Buyer beware, say analysts

By Ruth Olurounbi
Posted on Friday, 30 April 2021 19:33

First Bank of Nigeria Limited in Lagos on 13 February 2013. (Facebook / @firstbankofnigeria)

In an explosive move, the board of the country's oldest lender, First Bank Nigeria, and its holding company, FBN Holdings Plc have been forced out. The reason? Allegations of misconduct, which include poor corporate governance and insider dealings. Here is an inside story of the fight between CEO Sola Adedutan and the board, as well as views from analysts about where the share might be heading.

This could signal potential trouble in securing investor confidence as the bank now needs to raise fresh capital and also decide, quite urgently, where to raise it from, market analysts told The Africa Report.

According to the Central Bank of Nigeria (CBN), the First Bank “maintained healthy operations up until 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 (NPL) 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.”

‘To preserve stability of the bank’

To “preserve stability of the bank, so as to protect minority shareholders and depositors,” says CBN’s governor Godwin Emefiele, the regulatory bank ordered dissolution of the boards and reinstated the former CEO Sola Adedutan — whose term expires by the end of the year — while it constituted a new board.

The dissolution of previous boards came hours after the CBN ordered repayment of an insider loan which had been granted to a company linked to the former chairman of FBN Holdings Plc, Oba Otudeko. The loan was to the tune of nearly N75bn ($183m), according to those familiar with the deal. Otudeko was said to have ‘collateralised’ the credit to HoneyWell Flour Mills, a company where he is also the chairman.

What happened to First Bank?

In 2015, the bank almost ceased to exist. By several measures, its liabilities were greater than its assets. Action by the Central Bank of Nigeria included forbearance on loans — which instead of being paid back in one go — were rescheduled for over 5 years, as strict prudential guidelines would suggest.

This allowed a reforming CEO — Sola Adedutan — to take the helm and lead the recovery, after ‘years of poor corporate governance and insider dealing’ brought the institution to its knees, according to a source within the international financial system.

What determines the level of capital that a bank needs depends on the risk assets it has, says Adedayo Bakare, the chief operating officer at Money Africa, a financial company in Lagos.

Speaking to insiders in Nigeria’s banking sector, The Africa Report established that Adedutan had been fighting with the board for years.