By Dipo Olowookere
There is every possibility that the financial health (solvency) of First Bank of Nigeria Limited, the flagship subsidiary of FBN Holdings Plc, could be at risk, Moody’s Investors Service has feared.
The rating agency in a report on Wednesday also said the management team of the bank could find it difficult to focus on implementing the company’s strategic plan.
First Bank has been in the news recently following the botched boardroom coup that initially ousted its Managing Director, Mr Adesola Adeduntan.
The Veterinary Doctor turned banker was removed from office by the board of the organisation formerly led by Mrs Ibukun Awosika and was replaced by his deputy, Mr Gbenga Shobo.
However, the Central Bank of Nigeria (CBN), the primary regulatory agency for the banking sector in the country, restored him and sacked the board as well as that of its parent company led by renowned businessman, Mr Oba Otudeko.
The apex bank revealed that it took the action to protect the interest of depositors, minority shareholders and others, revealing that it had been supporting the lender with funds in the past so as not to allow it to crash.
It was alleged that First Bank had been granting loans to its directors, especially to Mr Otudeko and one of his companies, Honeywell Flour Mills, without clears ways of recovering them, though this was denied.
As a result of the board crisis shaking the banking institution, Moody’s said it has placed all long-term ratings and assessments of First Bank on review for downgrade.
The agency said the action of the CBN on the bank clearly showed “corporate governance shortcomings and weaknesses in board oversight.”
Moody’s noted that though the management team has been restored, the crisis “could distract management’s focus on implementing the bank’s strategic plan and the road to recovery,” pointing out that the development was also likely to sway “investor confidence.”
“In addition, the rating agency notes First Bank’s relatively low proportion of provisions to its NPLs (non-performing loans), at just about 40 per cent, which puts its solvency at some risk in case higher loan-losses materialise than previously expected.”
The management team led by Mr Adeduntan worked tirelessly to reduce the NPL ratio of the financial institution from 25.9 per cent in 2018 to 7.7 per cent at year-end 2020 and this has been commended by several observers and analysts.
But the rating firm noted that First Bank “needs to implement regulatory directives concerning the resolutions of loans to and shareholding in non-banking related parties, which reportedly had not been executed in the recent past.”
It said the review for downgrade of First Bank rating will focus on its “ability to address the shortcomings highlighted by the regulator as concerns its governance and risk procedures, among others, the management of its loan portfolio to related parties.”
Moody’s stated in the statement sighted by Business Post that it would “monitor any further corrective actions that the regulator may require.”
“Moody’s will also assess the likely impact of these changes on the bank’s risk governance, its solvency level and its on-going efforts to reduce the bank’s stock of NPLs,” it added.
It disclosed that, “The bank’s long-term deposit ratings could be downgraded if deficiencies in the governance structures of the bank persist and if there is any further sanctioning of the bank by the CBN, including but not limited to requirements to take corrective measures of any weaknesses that could be uncovered. Weaker financial performance than expected could also lead to a downgrade of the ratings.”
“There is limited likelihood that First Bank’s ratings could be upgraded given the review for downgrade and the negative outlook on the government of Nigeria, its support provider in case of need,” adding that “stronger solvency improvements than what is currently captured in the ratings, together with a stabilisation of the sovereign outlook, could lead to stabilisation of the outlook.”
