January 14, (THEWILL) – The recent dissolution of boards and management teams of three deposit money banks by the Central Bank of Nigeria (CBN) has sparked mixed reactions among stakeholders and industry experts.
The CBN had announced the dissolution of the boards of Union Bank Limited, Keystone Bank Limited and Polaris Bank Limited on January 8, 2024, and appointed an interim management team (comprising a chairman and an executive director) for each of the banks.
By this action, a total of 26 bank directors lost their jobs.
The apex bank said it wielded the big stick on the three financial institutions for various infractions considered inimical to financial system stability.
In a statement by its Acting Director, Corporate Communications, Mrs Hakama Sidi-Ali, the CBN said the action became necessary, following failure on the part of the affected banks and their respective boards to abide by the stipulated rules.
“This action became necessary due to the non-compliance of these banks and their respective boards with the provisions of Section 12(c), (f), (g), (h) of Banks and Other Financial Institutions Act, 2020.
“The banks’ infractions vary from regulatory non-compliance, corporate governance failure, disregarding the conditions under which their licences were granted, and involvement in activities that pose a threat to financial stability, among others”, the regulator said.
A senior legal practitioner and versed in banking and finance matters, Victor Ukutt, picked holes with the Bola Tinubu-led government’s decision to sack the boards and management of the three banks.
In a chat with THEWILL, Mr Ukutt, who is Principal Partner at Victor Ukutt Chambers in Lagos, condemned the action by CBN for lacking transparency.
The legal practitioner argued that the CBN Act is clear on why and how it can take over a bank which he said was not in tandem with the recent action by the apex bank.
“If you look at the provisions of the CBN Act and, also, the provisions of the Banks and Other Financial Institutions Act (BOFIA), the CBN can intervene where the banks have not been properly managed. There are thresholds on which the CBN can act. If those thresholds have not occurred, the CBN cannot come in.
“For example, the CBN can only come in when the financial adequacy of the banks is in trouble. And you have to first set up a special investigation committee. If there is no such committee to review and confirm that the financial status of the bank is in a critical condition, the CBN cannot wield the power, under the CBN Act and BOFIA, to intervene.”
He noted that such interventions lead to investors bringing in money to boost the financial adequacy of the banks which was not the case in the recent intervention by the apex bank.
Ukutt maintained that the exercise lacked the desired transparency and made it assume a political coloration, which is unhealthy for the financial services industry.
He stressed that it is absolutely wrong to base such crucial decisions on a reason that is narrow and lacks transparency. He added that even the bank you are treating her case should be part of the decision-making process.
The Lawyer predicted that the CBN action will trigger a series of litigations and said, “Whoever has advised President Tinubu on this kind of agenda did it wrongly.” He argued that Union Bank was not in a critical financial condition, so there was no basis for the intervention.
On his part, a retired bank executive who pleaded for anonymity because of his closeness to some persons in the government, expressed concerns over the implementation process and possible outcomes of the CBN dissolution of the boards and management of the banks..
“Banking is a sensitive area. You don’t take action that could lend credence to insinuations that it was politically motivated or that no critical thinking occurred before proceeding with the move”, he said.
He added that the relevant sections of the CBN Act and BOFIA that the CBN quoted for sacking the boards and management of the three financial institutions did not tally with the action of the government through the CBN.
According to him, there will be a plethora of legal fireworks in the days ahead because “you cannot confiscate someone’s assets without due process especially where the law spells out the way to do that”.
“Right now, we do not know the basis on which the CBN acted. If it is true that the report of the Special Investigator, Jim Obazee, appointed by President Tinubu to investigate the central bank activities under Godwin Emefiele and related matters, was the basis for dissolving the boards and management of the affected banks, that will be the wrong thing to do.”
A television presenter and member of The Morning Show team on Arise News Television, Dr Ruben Abati, said during the programme on January 11, that there are gaps to fill, especially on the ownership status of the banks. According to him, the CBN should explain those who have ownership of the banks now and for how long the interim management team would be in place.
Dr Abati, who is also a Lawyer, urged the government to explain whether the banks have been nationalised, or being turned into bridge banks for eventual sale.
A development economist and investment banking executive, Dr Nnaemeka Obiaraeri, said the dissolution of the banks’ boards and management teams was right but far inadequate in tackling corruption that has bedeviled the system.
Dr Obiaraeri said in his response to THEWILL that the CBN’s action will help in unravelling many lingering issues that were shrouded in secrecy regarding the acquisition of Polaris and Keystone banks.
He noted that the CBN is trying to trace the source of funds used in acquiring Union Bank, but in the case of Polaris and Keystone, he observed that their matters had lingered over time concerning the process of acquiring them.
“What worries me is beyond what the CBN has done. If we want to sanitise the system, we must go the whole hog and identify policies that endanger financial system stability,” he said, adding that “CBN should extend its searchlights on the Asset Management Corporation of Nigeria (AMCON) to ensure that any person with AMCON-related debts is not given the opportunity to enjoy a credit facility in the country.”
An investment expert and Head of Securities Trading at Planet Capital, Dr Paul Uzum, commended the CBN for the action which he said will unveil the true ownership of the banks.
“The banks are now owned by the Federal Government. The owners used free government money from CBN to acquire the banks. The banks had no issue. The banks were all private companies so no investor will suffer.
“There may be legal issues if the owners of the Banks have evidence that they used their own funds for the acquisition. CBN lends Bank A N50bn, to lend to Mr B to acquire a bank for sale. Since CBN funded the acquisition, it can easily recall the loan and cancel the deal”, Uzum told THEWILL in a note.
Another top banker who would not want his name in print, stressed that the kernel of the matter resides in the process.
“You cannot claim to be doing the right thing the wrong way because you have the power to do and undo. The process should be transparent such that irregularities will make nonsense of any attempt to take a legal action. That way, we begin to see who is swimming naked,” he said.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
