The Power of the Governor of CBN to Remove Bank Directors: Between Fiction and Legality

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By Sola-Elesin Babatunde 

Introduction 

The last few days have seen the internet and daily newspapers awash with tales of battle of wits between major stakeholders in the First Bank of Nigeria Ltd and the Governor of the Central Bank of Nigeria (CBN). The First Bank of Nigeria Ltd had on Wednesday, 28th April, 2021, announced the removal of its managing director, Dr Adesola Adeduntan, and the appointment of a new managing director, Mr. Gbenga Shobo; however, in what appeared to be a dramatic turn of events, the Governor of the Central Bank of Nigeria (CBN), Dr. Godwin Emefiele , on Thursday 29th April, 2021, at a press conference, announced the sack of the Board of Directors of the First Bank of Nigeria Ltd and its subsidiary, First Bank of Nigeria Holdings Plc and the replacement of the respective Boards of Directors with another constituted by the Central Bank of Nigeria. This turn of events have generated much controversies as to the propriety of the apex Bank’s actions, while some are of the belief that it is ultra vires the Governor of the Central Bank of Nigeria to sack the board of directors of the bank and replace it with another, some are of the belief that the actions of the apex bank are in consonance with the dictates of the law, and thereby within the powers of the Governor. The argument in support of the action of the Governor of the Central Bank of Nigeria is predicated on the established principles of corporate governance which seeks to protect all the stakeholders in corporate organisations, to wit in this context, banks. The Central Bank of Nigeria, being the major regulatory body that regulates banks and financial institutions in Nigeria, is empowered by the Banks and Other Financial Institutions Act to remove and also appoint directors for banks in grave financial situations as provided in Section 34 of the Banks and Other Financial Institutions Act. Whilst the argument against the action of the Governor of the Central Bank of Nigeria is predicated on the ground that a bank is first and foremost a company, which is ordinarily capable of determining its own management in compliance with its articles and the Companies and Allied Matters Act. This article intends to examine the propriety of the actions of the ousted Board of Directors of the First Bank of Nigeria Plc and the actions of the Governor of the Central Bank of Nigeria vis-à-vis the provisions of the law and various codes of corporate governance applicable to banking sector.

Appointment And Removal Of Bank Directors 

Generally, the power to appoint and remove directors of a bank is vested in the shareholders and this power is exercisable through the General Meeting, while the power to appoint and remove the managing director of a bank is vested in the Board of Directors of such bank, this is because, a bank is first and foremost a company, and as such, it is expected to follow the procedures laid down by the Companies and Allied Matters Act (CAMA) in exercising its power to appoint and remove its directors. See LONGE v. FBN [2010] 6 NWLR (Pt. 1189)1. However these powers are subject to the provisions of the Banks and Other Financial Institutions Act (BOFIA), especially sections 33, 34 and 47 of the Act. These limitations are provided by the law to ensure compliance with the various codes of Corporate Governance and also for the entrenchment of good corporate governance in the banking sector.

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Powers Of The Central Bank Of Nigeria With Respect To Appointment And Removal Of Directors Of A Bank 

Section 47 of the Banks and Other Financial Institutions Act provides that before a bank can appoint a director or directors to direct and manage its affairs, the bank must first seek and obtain the approval of the CBN. This provision seeks to ensure that unqualified persons are not appointed as directors of a bank, as banks are business organisations with great inputs from shareholders and the public, and it will be unconscionable to unreasonably expose them to the risk of the mismanagement of their funds.

Sections 33 and 34 of the Act also provide that the Governor of the Central Bank of Nigeria has the power to conduct special examination or investigation into the books and affairs of a Bank and to take consequent actions, prominent amongst which include, the removal of the Directors of the bank and the appointment of new directors to direct and manage its affairs, where such examination discloses the need for such. The power of the Governor of the Central Bank of Nigeria to remove and appoint the directors of a bank was given judicial imprimatur in the case of IZEDONMWEN & ANOR v. UNION BANK PLC & ANOR [2012] 6 NWLR (Pt. 1295) 1 CA, where the court in interpreting sections 33 and 35 of the Banks and Other Financial Institutions Act 2004 (which is pari materia with the provisions of section 33 and 34 of the Banks and Other Financial Institutions Act 2020), held that the Governor of the Central Bank of Nigeria is empowered by the virtue of the provisions of the said sections, to remove the directors of a bank and appoint new directors into the board of the bank to occupy any position whatsoever in the board. The foregoing case resulted from the consequent removal of the managing directors of some banks, including Union Bank Plc, in 2009 by the then Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi after the examination of the books and affairs of the banks and the discovery of certain inefficiencies in the management of the banks, and the Federal High Court had since then affirmed the power of the governor of the Central Bank of Nigeria to remove and appoint directors for banks in grave financial situations. 

The Central Bank Of Nigeria And The First Bank Nigeria Ltd Saga 

In 2016, the Central Bank of Nigeria had conducted an examination into the books and affairs of First Bank Nigeria Ltd, and it discovered that the bank was in grave financial condition, as its Capital Adequacy Ratio (CAR) and Non-Performing Loans Ratio had substantially breached the acceptable standards due to the humongous bad debts that had accrued from bad loans arising from insider dealings, this necessitated the need for the Central Bank to step in so as to steady the ship of the bank, and help it maintain its status as a going concern, and this led to a change in management of the bank under the supervision of the Central Bank in 2016.

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The new management, led by the Managing Director, Dr. Adesola Adeduntan, had since then been steadying the ship of the bank, however, on the 28th of April 2021, in what appeared to be sudden, the Managing Director of the First Bank Nigeria Ltd, Dr. Adesola Adeduntan was removed by the board of directors and replaced by Mr. Gbenga Shobo without the prior approval of the Central Bank being sought and obtained. The Governor of the Central Bank of Nigeria, Dr. Godwin Emefiele, in what has been described as a deft move stabilize the bank operations, had a press conference the next day, 29th April, 2021, and he announced the removal of the Board of Directors and the constitution of a new board of directors.

The Role Of The Central Bank Of Nigeria As A Major Regulator In The Banking Sector Vis-À-Vis The Codes Of Corporate Governance 

As earlier established above, it is trite that the bank itself, being a company, is the proper person to appoint its board of directors whilst the board of directors of the bank is responsible for appointing the managing director, and it is also  clear that the powers of the bank and its board of directors to appoint the members of the board of directors and the managing director respectively are subject to the prior approval of the Central Bank of Nigeria as set out in section 47 of the Banks and Other Financial Institutions Act. However, in this instance, the Governor of the Central Bank of Nigeria denied prior knowledge of the change in management of the bank, thereby signifying that the Central Bank’s approval was not obtained before the appointment of the new Managing director by the Board of First Bank Nigeria Ltd, and this in turn renders the appointment of the managing director void ab initio.

Also instructive in this regard are sections 33 and 34 of the Banks and Other Financial Institutions earlier enunciated above, which provides that the Governor  of  the Central Bank of Nigeria  can conduct examination into the books and affairs of a bank and consequently remove its director and appoint new ones if the bank is discovered to be in a grave financial situation. The examination conducted by the Governor of the Central Bank in 2016 showed that the bank is not in a good financial position, and according to the Central Bank’s Governor, Dr. Godwin Emefiele, recent examinations show that this situation, although has improved, still subsists, and as such, the power of the Governor of the Central Bank of Nigeria to remove and also appoint directors and officers for the bank still subsists.

Also relevant in this regard are the provisions of the various codes of corporate governance applicable to the banking sector, these codes seek to protect all the stakeholders in the banking sector ranging from shareholders, to bankers, bank workers, government and most especially the members of the public who are customers of the bank whose funds could be put at risk in the event of bad corporate governance; and of great importance in this regard is the role of the Central Bank of Nigeria as the major regulatory body regulating the banking sector, as it is also saddled with the responsibility of enforcing compliance with these codes. Section 2.1.1 of the Code of Corporate Governance for Banks and Discount Houses 2014 is to the effect that the directors of a bank owe the bank the duty of care and loyalty and to act in the interest of the bank’s employees and other stakeholders. See also, Sections 305 and 308 0f the Companies and Allied Matters Act 2020, which also provides for the duties of the directors of a company. However, in this instance, the directors of the First Bank of Nigeria Ltd had breached these duties by reasons of their failure to perfect loans granted to insiders in the bank, failure to structure loan facilities granted to insiders and also in their failure to recover Non-performing Loans contrary to the directives of the Central Bank of Nigeria and to the detriment of Bank, and as a matter of duty, it behoves the Governor of the Central Bank to enforce compliance with the provisions of the codes and laws applicable to banks and financial institutions, and in the event of non-compliance, wield the big stick.

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Conclusion 

Although there appears to be a lacunae as to whether the directors of a bank appointed by the Governor of the Central Bank of Nigeria for banks in grave financial situations can be removed by the bank without the prior approval of the Central Bank of Nigeria, it is however, in the light of the extant laws, safe to say that the Governor of the Central Bank  acted within the ambits of law in the removal of the newly constituted board of directors of the First Bank of Nigeria Ltd and its subsidiary, First Bank of Nigeria Holdings, as prior approval of the Central Bank was not sought before the appointment of the new managing director and other officers contrary to the provisions of section 47 of Banks and Other Financial Institutions Act. And also, since the Governor is empowered by virtue of section 33 and 34 of the Banks and Other Financial Institutions Act to remove the directors of a bank in grave situations, and also appoint new directors for such bank, the removal of the board of directors of First Bank of Nigeria Ltd and its subsidiary First Bank Nigeria Holdings and the consequent constitution of a new board by the Governor, is therefore valid and proper putting into consideration the fact that what constitutes grave situation as contained  in section  34 of the Banks and Other Financial Institutions is at the discretion(satisfaction) of the Governor of the Central Bank of Nigeria.

Sola-Elesin Babatunde is law graduate, he just completed the one year vocational training at the Nigerian Law School, Enugu Campus and he is currently awaiting NYSC deployment. His areas of interest, amongst others, include Commercial and Corporate Law Practice, Intellectual Property, Real Estate, Project Finance and Alternative Dispute Resolution. He can be reached at: solaelesintunde@gmail,com

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