Wednesday, September 22, 2021 06:00 AM / by Proshare Research/ Header Image Credit:
Getting a company's board to pull the organization in the right direction can be a mix of balancing egos, clever horse-trading, and clarity of purpose of a few good fellows, male and female. Company boards should be the chief visioners of a business, they set the tone and the beat of a company, and everybody else adopts dance steps that match the rhythm.
Good organizations see workers pull together with calculated order, but great organizations yield to coordination, creativity, and purpose in an environment of controlled chaos. The dance steps are far from random, but they are equally not robotic; the absence of this clever and deliberate orchestration has formed part of the FBNH/FBN problem in the past two decades. A review of the lender's recent history shows that each successive management has set out its own goals untied to either earlier or later corporate plans. The result has been a lack of corporate continuity with only episodic institutional progress.
The attempt by the bank to accelerate towards a new technology-driven era has come with crippling challenges. In the early 2000s, FBN had conceived a period-defining cultural and technological leap that it codenamed Century II (2000-2002), designed to upgrade the bank's customer interface and create a paperless work environment that would be fast and efficient.
The Century II project became unstuck as its principal visioner and supporter; the bank's then managing director, Mr. Bernard Longe, was caught in a web of allegedly unsavory professional conduct (the courts acquitted him in 2006). The expected cultural reset became suspended, and the bank quickly reverted to its 'old ways.'
With Longe gone, his successor, Mr. Moyo Ajekigbe, was not sold on the audacious intentions of the Century II project and allowed it to fizzle unmentioned, unvisited, and unsung. Indeed, Ajekigbe had other fish to fry. With the bank beginning to see red ink drip through its books with younger rivals snapping up market share and growing their comparative profits, FBN found itself in a bone-crunching fist fight for business; the competitive waters had suddenly turned red.
Having to face a brutally unforgiving local market, Ajekigbe decided that a global play could prove to be the decisive trump card in a broiling business battle that was prepared to take no prisoners. The hassled bank boss decided to open up new FBN branches in both the United Kingdom (UK) and France; the gamble was fair but unrewarded. The London bank continued to be a drag on the group's financial performance over the years and never really lived up to the early expectations.
From the Bisi Onasanya era, the board was chaired by Oba Otudeko, who had significant influence over other directors and often acted with good intentions but suffered from common human foibles. Otudeko, who doubled as the Chairman of the Honeywell Group, had purportedly used his position at the financial Holdco to secure loans for companies related to him, thereby creating a classic 'agency problem,' meaning that the difference in the interest between the borrower and lender was unclear. Honeywell, for example, had loans that were restructured to allow for more convenient repayment terms over a longer tenor and under new repayment conditions.
This was not a problem on face value, but the trouble with Otudeko's related-party bank facilities spoke more to collateral support than the intention to repay. In addition, FBN, contrary to best global practices, acquired an equity interest in the Honeywell Group, thereby creating a layer of conflicting interest. The issue of FBN's equity interest in a related-party borrower and the non-perfection of its Holdco Chairman's collaterals partly informed the CBN's decision to relieve the non-executive directors of the Holdco of their board positions.
Three identifiable achievements marked the Moyo Ajekigbe tenure:
The achievements of Ajekigbe contrasted with the accomplishments of his predecessor, Bernard Longe, who had other considerations on his mind. Longe's three defining contributions to FBN were the following:
When Ajekigbe retired from the bank, there was a brief pause as the subsequent Governor of Central Bank of Nigeria, Sanusi Lamido Sanusi, was appointed FBN managing director in January 2009 but left to become a bank regulator in June of the same year. With Sanusi becoming CBN Governor, the board of the bank appointed Mr. Bisi Onasanya as his successor. The Onasanya era was mixed, as it saw the bank tramp on new and bolder grounds in fresh lending to the Oil and Gas and Energy sectors, but the effort ended badly regarding the quality of the loans granted and the risk management deployed. Onasanya's three significant achievements included the following:
The Onasanya achievements in cultural transition and capacity upgrades became marred by numerous delinquent risk assets (i.e., loans) and liquidity difficulties caused by an increasingly depressed economy, global economic disruptions (2015-2016), and poor revenue recovery in the power sector. The bank was not alone in the fallout from the global financial crisis (GFC) that ensued, as seen in the 'potential remedies' for delinquent loans discussed in a Report prepared by Proshare for Debtors Africa in 2019.
The Report emphasized the need for a new approach to reducing NPLs and achieving major loan-loss writebacks. One of the recommendations was creating a shareable digital register of delinquent borrowers properly profiled for credit status across continental and global markets. The register would have helped Onasanya in pressuring borrowers to repay their debts. The Onasanya epoch represented the strong, the weak, and the obscure parts of FBN's recent lending history. The former bank CEO's gamble to grow the bank's fiscal book size has seen a detour since 2016 under the new leadership of Dr. Adesola Adeduntan (see illustration 6 below).
Illustration 6: First Bank's Taxonomy of Growth
Adeduntan has had to navigate a different path of cleaning up the Augean stable by attempting to take on delinquent loans head-on. The effort at recovering sticky loan assets had at times placed the bank's management in direct conflict with its Holding company's previous board of directors. However, with the new Holdco board, things appear better.
Nevertheless, in some measure, the drama that saw the exit of the bank's non-executive directors resulted from a powerplay between the bank's management and significant insiders on the board of the Holdco. The political chess moves by both parties were deft, but the outcome predictable, with the CBN solidly behind the bank's present management. It was just a matter of time before the non-executive directors of the bank and Holdco were gone, given the disposition of the CBN.
The CBN's position confirmed aspects of the recent Fitch Global Ratings review of FBNH. The financial Holdco received a B- rating from the Rating Agency. According to Fitch's analysis for May 2021, the B- rating was because "FBNH's IDR is driven by its intrinsic creditworthiness, as defined by its 'b-' Viability Rating (VR). The rating considers the group's exposure to Nigeria's volatile operating environment and factors in vulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate. Capitalization is a factor of high importance to the VR."
According to Fitch, "FBNH's IDR is driven by its intrinsic creditworthiness, as defined by its 'b-' Viability Rating (VR). The rating considers the group's exposure to Nigeria's volatile operating environment and also factors in vulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate. Capitalization is a factor of high importance to the VR."
The rating went on to say that: "The new boards appointed to FBNH and FBN comprise individuals with sufficient experience and expertise. However, we view such major change as hugely disruptive. There are no changes in FBNH and FBN's executive management team."
It concluded, saying, "We believe the governance shortcomings cited by the CBN reflect poorly on FBNH's reputation and the group's governance and control practices. As a result, we have revised down our assessment of FBNH's Management and Strategy score to 'B-' from 'B.'"
Downloadable Versions of 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards Report (PDF)
1. Executive Summary: 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards - September 19, 2021
2. Full Report: 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards - September 19, 2021
1. Of First Bank and Bad Debtors; A System's Throbbing Headache - Apr 30, 2021 - Proshare Editorial
2. CBN Removes Boards of First Bank of Nigeria, FBN Holdings; Appoints New Chairmen - Apr 29, 2021 - Proshare News
3. Analyzing the H1 2017 Performance of FBNHoldings Plc - A Comprehensive Report - Oct 23, 2017, Proshare Research
4. FBNHoldings Plc Q1'2017 Performance Assessment Report Updated - Sep 25, 2017, Proshare Research
5. Bank NPLs (23) - The Case for a New Approach - Jun 07, 2020 - Debtors Africa
6. W. Chan Kim and Renee Mauborgne (2004) "Blue Ocean Strategy"
7. Board Governance: A Thin Line Between Oversight and Operations - Sep 28, 2020 - IoD Centre for Corporate Governance
9. CEO Remuneration 2021 Report: From COVID to Collaboration - Aug 01, 2021, Proshare Research
10. Memo to the Market - The NSE, Oscar Onyema Foundation and Corporate Governance - Aug 20, 2018, Olufemi Awoyemi, Proshare
FBN Holdings Plc - IR Page on Proshare MarketsProshare Research
Annual Accounts - IR Page in ProshareProshare Research
13. Bernard Longe wins suit against First Bank Plc, Supreme Court decides today - Mar 05, 2010, Proshare
Related News from the Report
1. First Bank and Institutional Learning - A Sense of History - Sep 21, 2021
2. 100 Days After CBN's Board Removal: First Bank's Shaky House of Cards - Sep 19, 2021