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Friday, December 9, 2022

First Bank Under Regulatory Forbearance, Supervision Since 2016 – CBN

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First Bank of Nigeria has been under regulatory forbearance since 2016 to date according to the Central Bank of Nigeria (CBN).

Forbearance is a regulatory policy implemented by central banks and other regulatory authorities, that permits banks and financial institutions to continue operating even when their capital is fully depleted.

First Bank maintained healthy operations up until 2016 financial year when the Central Bank of Nigeria (CBN) targeted examination and stress tests, revealed that the bank was in grave financial condition.

First Bank’s capital adequacy ratio and non-performing loan ratios were then found to be substantially breaching acceptable financial and regulatory standards, according to CBN Governor Godwin Emefiele.

“The problems at the bank were attributed to bad credit decisions, significant and non-performing insider loans, and poor corporate Governance practices.”

The shareholders of the Bank and FBN Holdings lacked the capacity to recapitalize the bank to minimal requirements, Emefiele said.

The CBN stepped in to stabilize the bank in its quest to maintain financial stability, given First Bank of Nigeria’s systemic importance.

Regulatory actions taken by CBN included:

  • the change of management team under the CBN supervision with the appointment of a new MD/CEO in January 2016 who was now purportedly removed without the CBN’s approval.
  • Granting of regulatory forbearances to enable the bank work out its non-performing loans through provision of write-off of at least N150 billion from its earnings for 4 consecutive years.
  • Grant of concession to insider borrowers to restructure their non-performing credit facilities under very stringent conditions.
  • Renewal of the forbearances on a yearly basis between 2016 and 2020 towards monitoring the progress towards exiting from the forbearance measures.

Emefiele noted that the measures had yielded the expected results as the financial conditions of the bank improved greatly between 2016 and 2020.

“The profitability, liquidity, capital adequacy ratio of this bank improved, while the NPL ratio reduced significantly,” Emefiele said.

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