The governor of the Central Bank of Nigeria, Mr Godwin Emefiele has reportedly dissolved Boards of First Bank of Nigeria, FBN Holdings and appointed new boards in replacement.
Premium times reported that the Nigeria’s Premier Bank, First Bank, has for years been plagued by “bad credit decisions, significant and non performing insider loans and poor corporate governance practices”, the reason why the Central Bank of Nigeria took the decisive regulatory decision.
The Banks and other Financial Institutions Act 2020 is the principal legislation that regulates and directs the affairs and operation of banking industry in Nigeria. It empowers the Central Bank of Nigeria to oversee both the banks and other financial institutions in the Nigeria.
The CBN has exclusive regulatory and supervisory power over Banks and other financial institutions in Nigeria under part three particularly section 29 of the Banks and Other Financial Institutions Act 2020. For the sake clarity, section 29(1) BOFIA provides thus: Notwithstanding anything to the contrary contained in this Act or in any other document the Bank (CBN) shall have and exercise regulatory and supervisory power over banks, other financial regulatory and specialised Bank to the exclusion of any other agency or institution…
Consequently, the motive of this write up is to examine the powers of CBN over banks, their affiliated companies, other financial institutions and specialized banks, with special reference to commercial banks.
Why CBN dissolved the boards of First Bank of Nigeria, and FBN holding Plc?
The summary of the reasons why CBN invoked its exclusive regulatory power in dissolving the Boards of First Bank of Nigeria and its parent company is as contained in the opening chapeau of this write up. At the expense of repetition, the reasons are “bad credit decisions, significant and non performing insider loans and poor corporate governance practices”. It can be reasonably concluded that First Bank heading towards becoming a failed bank which CBN must take actions.
Intervention Powers of CBN in Failing Banks
The Banks and Other Financial Institutions Act 2020 mandated CBN to intervene and salvage a failing bank, as contained in Part IV. This shall be done by the CBN governor after a special examination or investigation of the affairs of the bank concerned has been carried out. This must be in the interest of the public, where the bank carrying on its business in a detrimental way, where the bank has insufficient assets to cover its liability and where the bank has been contravening the provisions of the BOFIA, as contained in section 33(1) a, b, c, d save paragraph e (i)(ii) where special examination would not be conducted.
Instructively to this article is the provision of section 34 BOFIA, particularly sub section 1 paragraphs a, b, c, and d and sub section 2 paragraphs a, b, c, d, e, f, g, h, and i. The community reading of sections 33 and 34 gives the CBN power to remove from office and appoints any director or directors of a failing bank as seen CBN governor exercised.
Thus as far back as 2010, the Federal High Court, Lagos Division was reportedly held that CBN Governor has statutory power to appoint and remove Bank CEOs. Proshareng reported that Justice Mohammed Idris made this declaration while ruling on a case filed by some aggrieved shareholders of Union Bank Plc challenging the propriety of the appointment of executive directors into the board of the bank by Sanusi.
According to the judge, section 35( now section 34 of the new Act) sub-section (2) (d) of Banks and Other Financial Institution Act (BOFIA) gives the CBN Governor the power to remove or appoint not withstanding anything in any written law or contained in the memorandum and article of association of the banks.
In the words of the judge, “in my view by virtue of the combined effect of the provision of section 33 and 35 of BOFIA, the CBN Governor is empowered to order a special examination into the books and affairs of a bank. He can also intervene in the operation of a bank by removing and replacing the directors of a bank found to be in a grave situation; to hold otherwise is to impair the legislative intent underpinning the provisions, which is the ability of the CBN Governor to provide a failing bank with necessary managerial and operational support to facilitate the bank’s turn around.”
It is submitted, that the holding of the Learned judge is in tandem with the view of this writer as expressed in paragraph 8 of this write up.
It is highly regretted that this writer could not laid his hand on the above case due to the limited materials available as at the time of conducting research on this write up.
The banking industry no doubt occupies a pervasive role in financial system of any nation and therefore banking business must be highly regulated.