Bond-rating agency, Moody’s, disclosed that it would be reviewing First Bank’s rating for a downgrade after its non-executive directors were removed by the Central Bank of Nigeria.
The rating agency said, in a statement, that the review of the bank would be narrowed to First Bank’s evolving governance.
It noted that the removal of “all non-executive directors of the bank’s board by the regulator demonstrates corporate governance shortcomings and weaknesses in board oversight.”
Moody’s urged the management of the bank to implement “regulatory directives concerning the resolutions of loans to and shareholding in non-banking related parties, which reportedly had not be executed in the recent past.”
It added that recent events at the financial institution could derail the focus of the management away from the path of recovery.
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While recognising the progress the bank has made including taking steps to “reduce its stock of problem loans, with its reported NPL ratio falling to 7.7% at year-end 2020 from 25.9% in 2018.
“Moody’s also notes the reputational risks associated with recent development as they could potentially influence investor confidence. In addition, the rating agency notes First Bank’s relatively low proportion of provisions to its NPLs, at just about 40%, which puts its solvency at some risk in case higher loan-losses materialise than previously expected.”
Following the removal of Sola Adedutan as the Chief Executive Officer (CEO) of First Bank, the CBN faulted the decision of the bank’s board, stating that the decision was taken without approval from regulatory authorities.
In a letter by the apex bank, signed by its Director of Banking Suspension, Haruna Mustafa, it said, “The CBN was not made aware of any report from the board indicting the managing director of any wrong-doing or misconduct; there appears to be no apparent justification for the precipitate removal.
“We are particularly concerned because the action is coming at a time the CBN has provided various regulatory forbearances and liquidity support to reposition the bank, which has enhanced its asset quality, capital adequacy, and liquidity ratios amongst other prudential indicators.
“It is also curious to observe that the sudden removal of the MD/CEO was done about eight months to the expiry of his second tenure, which is due on December 31, 2021.”
