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Otudeko’s Non-Performing Loan will Hurt Shareholders

The Central Bank of Nigeria has revealed the murky corporate ethics that has permeated the operations of First Bank of Nigeria and FBN Holdings (FBNH). It seems the erstwhile Chairman, Oba Otudeko, had a lot to do with the unnecessary travails that have befallen First Bank. Otudeko had used his influence as the Chairman of FBNH to secure a #75 billion loan facility from First Bank of Nigeria to revitalize Honeywell Flour Mills and reneging on promises to repay the loan causing it to be termed “non-performing”. In an attempt to stall attempts to recover the loan, Otudeko and Mrs. Ibukun Awosika, the former Chairperson of the bank, masterminded the removal of Dr. Adesola Adeduntan who succeeded the bank’s erstwhile Managing Director, Mr. Bisi Onasanya in 2016. 

The sack of Adeduntan caused ripples in the banking sector causing Mr. Godwin Emefiele, Nigeria’s Central Bank Governor, to quickly rescind the illegal decision and reinstating Adeduntan the next day.

The apex bank also dissolved the boards of First Bank of Nigeria and FBN Holdings (FBNH) as the CBN Governor noted that “As you may be aware, First Bank of Nigeria is one of the systemically important banks in the Nigerian banking sector given its historical significance, balance sheet size, large customer base and high level of interconnectedness with other financial service providers, amongst others. By our last assessment, First Bank of Nigeria has over 31m customers, with deposit base of N4.2trn, shareholders’ funds of N618bn and NIBSS instant payment (NIP) processing capacity of 22% of the industry. To us at the CBN, not only is it imperative to protect the minority shareholders, that have no voice to air their views, also important, is the protection of the over 31m customers of the bank who see FBN as a safe haven for their hard-earned savings. The 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.”

Mr. Emefiele also stated that he had reached out to Oba Otudeko and Awosika to quietly bring an amicable solution to the impasse but his reconciliatory moves were rebuffed. He lamented that “The insiders who took loans in the bank, with controlling influence on the board of directors, failed to adhere to the terms for the restructuring of their credit facilities which contributed to the poor financial state of the bank. The CBN’s recent target examination as at December 31, 2020 revealed that insider loans were materially non-compliant with restructure terms (e.g. non perfection of lien on shares/collateral arrangements) for over 3 years despite several regulatory reminders. The bank has not also divested its non-permissible holdings in non-financial entities in line with regulatory directives” 

Some persons may term the outburst by the CBN governor as emotional but according to Emefiele “The problems at the bank were attributed to bad credit decisions, significant and non-performing insider loans and poor corporate governance practices. The shareholders of the bank and FBN Holding Plcalso lacked the capacity to recapitalize the bank to minimum requirements. These conclusions arose from various entreaties by the CBN to them to recapitalize”. 

Reports show that Oba Otudeko is a delinquent debtor as the same scenario is playing out at Ecobank where he has defaulted on an over #5 billion loan facility. It is unlikely that these loan facilities will ever be recovered and it is the shareholders that will feel the brunt.

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