 You're welcome back to the breakfast on PLOS TV Africa. Here's our first big conversation for today. First bank of Nigeria and its holding company, FBN Holdings, have new boards appointed by the central bank of Nigeria. This follows the sacking of the previous boards of both institutions by the apex bank. The boards were fired on live television for alleged insider abuse, insider credit, and poor corporate governance. A writer with online medium tech cabal, or Lumu Yua, or Loa Boyega is here to help us understand what led to this and what it means for first bank and the banking industry as a whole. Good morning and thanks for joining us again. Hi, good morning. It's great to be here. All right, so Nigerians were shocked seeing the new CBN Saks Board of Directors at FBN Holdings, first bank restates Dr. Shola Adid Dutton. What do you think might have led to this? You know, I'm talking about deeper beyond what we see in the news. So this has felt like it's been a long time coming. First bank is one of the banks that is deemed too big to fail in Nigeria, which means that central bank, which is the regulator, puts an eye on them a lot. So central bank, first bank rather, had been having some issues since about 2016. There were some issues of non-performing loans, a really high ratio of non-performing loans that was above an acceptable percent of 5 percent. I believe at one time, their non-performing loan ratio was up to around 14 percent. And in fact, they even wrote off loans of up to $827 billion as a matter of fact. So that was the beginning of some of the problems. So at the time, CBN stepped in because they had some capitalization problems. So the CBN stepped in and announced a new board. And one of the things for the new board was they were supposed to help drive down the non-performing loan ratio and stabilize the bank. To some extent, the new board was able to do that to some extent. But there were still bigger issues, such as some insider lending and the terms of some insider lending. So that's sort of how we have found ourselves here. Okay. I want you to, for the benefit of millennials and maybe people who don't understand, I want us to break down these terms, insider abuse, insider trading, breakdown of corporate governance. So we can all be on the same page. All right. So insider lending is basically when a bank extends a loan to directors or potential officials within the bank, it's perfectly legal. The only thing around insider lending is that it must have the same terms as if, for instance, if you wanted to get a loan in the bank. So it must not come across as pressure. There must be no incentives, basically. So that's basically what insider lending is. So some of the most important things around this particular first bank's case is that the CBN said there was a high rate of insider lending for one. And for one of the insider lending credit facilities, for instance, there were really big irregularities, for instance. One of those irregularities was that the bank hadn't sort of perfected the collateral. It used to issue that loan. So that was a big issue. And that issue was something that CBN had written to first bank about on several locations, according to a memo from the first bank that we saw yesterday. All right. Olumu, you are another thing most Nigerians are a bit confused about is the issue of the central bank of Nigeria. Some would say that what is the business with the CBN and of course the appointment of board of directors and of course corporate governance in any particular bank. I know the CBN steps in when they have issues of problems in the money market in Nigeria, but specifically for understandable purpose, does the central bank of Nigeria have all the powers to appoint or remove a board of directors of any bank? The short answer is that, yes, the CBN has those powers. The thing is, so I think it's important to state that the first bank's management is why we did its rights, for instance, to remove an MD or a CO. However, that removal must be done with respect to existing regulation. What the CBN said yesterday was that it was not notified of the change of Dr. Shola Adedutun. And most importantly, that Dr. Shola Adedutun's tenure hadn't expired. So the CBN's concern was that that removal not send the wrong message to investors and onlookers, for instance. So yes, the CBN had the power to step in and change the board. But then again, you talked about sending wrong signals to investors and of course customers because a lot of Nigerians are reacting that CBN is taking over the first bank of Nigeria and of course it's holding company. Does it really tell on its customer right now because most people are thinking of maybe doing a run on the bank? No, there's no real reason to fear. One of the first things I said was, first bank is one of the banks that the CBN did too big to fail. So nothing is going to happen. Shareholder, customized deposits are safe. There's no real reason to fear. This is basically just trying to correct long running errors in corporate governance because like I said, these are some long running issues from 2016. This is corrective although leads, but it's corrective and there's no real reason for any customer to have any real faith. And within that four years, the CBN has used Adedutun basically to check the issues of insider trading and all that in the bank. Do we expect to see him continue in that role? So Dr. Sharela Adedutun was reinstated yesterday. It's very unclear. I cannot speak to his views on insider lending or how the CBN looked at his role to sort of get insider lending under control. Those would come to conjecture. But I mean, all in all, the most important thing for first bank is to keep driving down their non-performing loan ratio and to come to a point of stronger corporate governance. So yeah, that's basically what they have in mind. Okay. Also, we saw a story here on the newspapers that the CBN said they took this decision to protect customers and shareholders. So looking at the bigger picture, how would this protect customers and shareholders? So at the end of the day, so most some of these monies are, I mean, it's the business of banking. You take money from everybody. You make some loans and you end some interest on that. So at the end of the day, anything that makes for stronger corporate governance, anything that makes for proper risk assessment, anything that makes a bank more circumspect in its lending and its operations as a whole are good for the shareholders who have real money in there and who are part-holders of the bank as well. So the idea is that even if you don't own a majority stake, you still deserve to have money in a company that has been properly run. So at the end of the day, shareholders' interests have been protected. And for the customers, their interests are being protected because you don't want to use a bank that fails or is insolvent. So yeah, so the big picture is just to protect everybody and to prevent some of the worst outcomes really. All right, let's do talk about the inside trading issue for a bit. Just leave the first bank of Nigeria on the side for a bit and talk about the commercial banks generally. You said it is a regular thing for most bank management to be involved in insider trading and insider lending. But then again, the issue of corporate governance is the main talk right now. How do we begin to ensure that banks actually follow a regulatory framework of the central bank and of course so that at the end of the day will not have issues of the NDIC stepping in to take over banks? So basically, the thing is corporate governance has standards. Again, like I said, all these things have rules that guide them. Insider lending, as I said, it's not a crime, it's not legal at all. As always, the most important thing is to still follow the existing regulations, right? That's why I also had an issue about removing an MD a few years ago, I believe it was a longer. So it's just to prevent issues like this from arising. If MDs or CEOs want to be changed, then it must be done properly. The CBN must be notified. If insider lending is done to principal officials, then it must also follow the same rules. The same interest rates must apply. There must be no incentives. So basically, that's it. Because when you have strong corporate governance, increase the chances that the company will survive and do well. You know, people do not cut corners and people, the bank and officials don't make moves that will land the company in hot water. So basically, that's it. So the CBN's business is almost always just stronger corporate governance for these companies. Because stronger corporate governance will lead to better risk assessments. So right now, we've not heard from Oba or Tudeco and what his reaction to this would be like. But we've seen other analysts saying that he's likely to go to the courts to get an injunction to stop the CBN's move from falling through. Do you see that actually as a likelihood? And that's hard to speak to. So we just have to watch and see how that plays out. So that's hard to tell. But if he eventually goes to court and gets an injunction, stopping the CBN, what kind of situation will that look like regarding the customers, the stakeholders and the bank committee or the bank board? As far as I'm concerned, if they go to court, they're only going to be asking one thing and one thing only. Would you be asking if the central bank has the powers to remove the board of directors to which the answer is yes. But again, because I'm not a lawyer, there are certain legal aspects to it. I cannot speak to. But again, if they go to court, the primary question would be one, does the CBN have the powers to make this remove house? Yeah. All right. Olu Minua, let me play a bit of a devil's advocate here right now. We all know that the banking sector is a well-regulated one. And of course, our first banker is indeed one of the oldest banks in Nigeria. If they are well aware of what happens with regulation in Nigeria, why would they ordinarily not want to carry the central bank along in the proceedings? That's a difficult question to answer. Because that would be for the directors and the company. Because I think that Naira Metrics quoted someone within the bank to say that the bank was well within its right and it followed the existing rules. But at the end of the day, they did not notify the CBN. And that could have sent a wrong signal to the FX bank. Now, if ordinarily things were all 100% AOK with the first bank, it might not have triggered anything at the central bank. But the central bank did say in their press statement just today, Godwin Emefile was on TV yesterday. I was saying that there had been money trained for these banks in about 2016 when some of the big issues had started. So for them, removing an MD CEO without telling the bank just sent a wrong signal. And if first the CBN acted, there's that back story to it that is important. So what's the likelihood of this causing crisis within the bank and its management? Sorry, I have to say that again. So what's the likelihood of this whole shake-up causing a crisis within the first bank? It's unlikely that this causes a crisis. I do not think that any of the parties, that's my personal opinion. I do not think any of the parties will go to court. But that remains to be seen, of course. But I do expect that this would just be business as usual. Life goes on. And then the board and every principal officer within the bank will focus on moving the bank towards a stronger financial footing, really. Okay. So beyond what we're seeing online, you know what we're seeing on social media, what do you perceive to be the reaction of Nigerians in general and even first-bank customers to this move? As always, I think that Nigerians, we do not get a peek into corporate Nigeria very often. We do not get a peek behind the cuttings of banking and what some of the amounts are. So these things are usually really a matter of surprise. And people express, I'm shocked as to say things like, oh, I can't even get a line of credit. And people are getting billions, billions in credit. So those are typically some of the reactions. But I do not think there's any real fear amongst the customers about their deposits. I do not think that there should be real fear. It's just shock and immemorial and slight, would I say disgust is a strong word. It just feels really bizarre for a lot of people. All right. Aside from the first bank of Nigeria, its holding company was also affected. Let me just read part of what was stated by the governor yesterday. That's the CBN governor. He said, the problems at the bank were attributed to bad credit decision, significant and non-performing on the insider loans and poor corporate governance practice. The shareholders of the bank and the CBN holding PLC also lacked the capacity to recapitalize the bank's minimum requirements. These conclusions arose from various entities by the CBN to them to recapitalize. Are they having recapitalization issues? So, yeah, the CBN said as much in 2016. But I said that they're working towards it and the bank is currently on a stronger financial footing than it was in 2016. But yes, in 2016, they did have some issues with recapitalization. And the CBN has said as much more than once. Yes. Okay. So how come it was not just about the management that's the board of directors of the bank alone? Why must it also be attributed to the holding company? I would think that some of the issues with the holding company would be the fact that one of the insider loans was given to the chairman of the holding company. So probably that felt like and not only was the loan given, which is not a bad thing as I said time and time again, but it became a little contentious. So I would think that that's one of the reasons they also decided that the holding company should also have a change in leadership. All right. So going forward, right now, what are the lessons to be learned by other commercial and of course deposit money banks in Nigeria? I just think that my curiosity is is about why the CBN let this drag this long, because this feels like an issue that should have been resolved a long time ago. So yeah, but for commercial banks, the lessons are all the same. We've seen this in a few cases before now, the lessons are all the same. And it's always a lesson of some proper corporate governance. Don't do some really weird deals. So again, stronger corporate governance, do things by the books. And for me, I think would be an apex bank that doesn't wait till things get really bad before stepping in. And I asked the question earlier about what kind of a crisis this might generate. But when I was seeing that shares of first bank holders is plunging, we're seeing that there's lots of sell-offs on the stock market really. Did you actually see this come in? No, I mean, I feel like yes, the shareholders, it's not unusual for shareholders to react to big news like this. This is, I think, would say that it's fairly typical. But I do expect that in the long term, if the bank continues to improve and post better results, it will pass as well. Okay, but then again, it was also reported that they have had a significant improvement in the bank's financial condition with positive trajectory of financial sadness indicators. The insider related facilities remain problematic. But then again, if they are doing well and why should CBN still have problems with the board? So the thing is, if they're doing well and there's still some infraction, it's clear that the board hasn't been able to deal with that infraction, especially if that infraction has become a long-running issue about which the CBN has written to them time and time again. So I would think that it sends a message that the board could not exactly manage the issue and the CBN felt like it had given them enough time. So we see that the CBN has actually released the list of the new board members taking a look at them. Lots of people had sort of an emotional attachment to the previous members of the board because of the accomplishments individually as a person. But looking at this new set of people, the new board members, what do you think about them and what they have to offer really in the banking sector? I think that as always in situations like this, the remit for the new people is to solve whatever Tony problems they have on ground and again to just ensure stronger performance of the bank and ensure compliance with corporate governance rules. So yeah, really when you have situations like this, you have people who are coming in to just stabilise the ship, much like the board did to some extent in 2016. So yeah, so basically this would see some stability if all goes to plan. All right, so we'll keep tabs on the news. Let's see what plays out. Even though we've seen the directive from the CBN that it should not, the exact board members should not communicate with the public and that any communication should be directed through the bank. So we'll definitely see how this plays out if they will be taking this matter to court. The CBN has also directed the board members to ensure that they pay off all loans. So there's just a lot really unraveling with this matter. And yes, we'll keep you updated on the breakfast. So thank you very much. Yes, indeed. Oluma Iwa Olobwega is a writer with tech cabal and he joined us to look at all of the issues of the central bank of Nigeria, the FBN and of course its holding company. Many thanks once again Oluma Iwa. Thank you very much. All right, fantastic. Well done talking business. We're heading into security matters next on the breakfast. A lot talking business. Stay with us, we'll be right back.