Interrogating Union, Keystone, Polaris Boards’ Dissolution

Obinna Chima

The announcement of the dissolution of the boards of Union, Keystone and Polaris Banks by the Central Bank of Nigeria (CBN) on Wednesday, has set tongues wagging as bank customers, investors and analysts continue to weigh in on the issue.
This was expected as the statement released by the central bank announcing its action left some questionable gaps. For instance, the CBN in the statement failed to disclose the specific breach of the Banks and Other Financial Institutions Act (BOFIA) 2020, committed by the erstwhile board members.

It is worthy to note that since the creation of the CBN, no Governor of the bank has ever sacked the board of financial institutions without stating clear reasons for such action. From the era of failed bank tribunal during the military government, to removal of banks’ boards by Sanusi Lamido in 2009, and even Godwin Emefiele in 2021, all itemised the infractions committed by the persons affected. This, was clearly missing in the statement issued by the CBN which ought not to be. Transparent communication is important in central banking as it helps mitigates panic and builds confidence in the banking system. This is why the central bank should ensure that it communicates its actions effectively. The financial system plays a critical role in the economy and so the CBN must always guard against actions that could send the wrong signals to customers and investors.
The financial statements of Union and Polaris Banks showed that both institutions meet the regulatory requirement, save for Keystone Bank because it has not opened its books for several years now.

For instance, Union Bank Plc, in its unaudited financial statements for the period ending 30th September 2023, its gross earnings was up by 120 per cent to N309.1 billion, compared with the N140.6 billion it recorded in the comparable period of 2022. Also, its profit before tax was up by 461.1 per cent to N102.3 billion, compared with the N18.2 billion recorded in the first nine months of 2022. In the review period, Union Bank’s capital adequacy ratio was 16.1 per cent, which was even higher than the regulatory threshold of 15 per cent, just as its non-performing loan ration was only 3.7 per cent, still below the industry benchmark of five per cent. Also, Union Bank posted Liquidity ratio of 34 per cent, which was still above the industry threshold of 30 per cent.
For its part, Polaris Bank disclosed its financial position in its full year 2022 financial statement, which showed that its capital adequacy ratio was 12.95 per cent, higher than the stipulated 10 per cent and liquidity ratio of 30 per cent and a non-performing loan ratio of 21.4 per cent in the review period.
This is why the central bank has to inform Nigerians the basis for its action.

Also, another issue that the action of the central bank has raised was the fact that in the statement announcing the dissolution of the boards, the CBN cited sections of the BOFIA which have to do with the revocation of a bank’s licence, which was not the case here.
In announcing the sacking of the board, the CBN acting Director, Corporate Communications, Mrs. Sidi Hakama, stated that the action became necessary due to Union, Keystone and Polaris Banks’ non-compliance with provisions of Section 12(c), (f), (g), (h) of the BOFIA, 2020.
Hakama noted that the banks’ infractions varied from regulatory non-compliance, corporate governance failure, disregarding the conditions under which their licences were granted, and involvement in activities that pose a threat to financial stability, among others.
Curiously, the Section 12 c, f, g, and h cited by the CBN states that: “Notwithstanding the provisions of this Act or any other law, the Governor may, with the approval of the Board and by notice published in the Federal Government Gazette, or print and electronic media, revoke any licence granted under this Act if a bank –

c)  fails to fulfill or comply with any condition subject to which the licence was granted;
f)  is involved in a situation, circumstance, action or inaction which constitute a threat to financial                  stability;
g)  fails to comply with any obligation imposed upon it by or under this Act, or the Central Bank                     of Nigeria Act or any other rule, regulation, guideline or directive made hereunder;
h) is, in the opinion of the Bank critically undercapitalised with a capital adequacy ratio below the                prudential minimum or such other ratio as the Bank may prescribe.”

Section 12 and its sub-sections cited have to do with the withdrawal of licence of a bank, which explicitly states that the approval of the board of the CBN would be required. The CBN Board which has not been constituted is distinct from its Board of Governors. Therefore, did the Yemi Cardoso-led CBN get the required approval for their action as stated in the Section of BOFIA cited by the central bank? Even though the Committee of Governors are also members of the Board, does BOFIA empower just the CBN Governor and his deputy governors to take such an action without other board members?
The CBN presently does not have a board as President Bola Tinubu last year dissolved the boards of all federal agencies and parastatals. In fact, the non-existent of a board as well as members of its Monetary Policy Committee (MPC) is one of the reasons why the Yemi Cardoso-led CBN has not been able to hold MPC meetings since they assumed office.
This however does not take away the fact that if after its routine examination of a bank, the CBN is satisfied that the financial institution is failing to meet its requirements, Section 33 (2) (c) of BOFIA states that the Governor may by order in writing remove for reasons to be recorded in writing with effect from such date as may be set out in the order, any manager or officer of the bank, notwithstanding anything in any written law or limitations contained in the memorandum and articles of the association of the bank.
Finally, while there are insinuations that the action of the CBN was based on recommendations by the Special Investigator, Jim Obazee, who was appointed by Tinubu to probe the CBN under Emefiele, Cardoso and his men must be reminded that the CBN has regulatory and supervisory independence. They must not make the mistake of disrobing the CBN its regulatory independence. This is because if the removal of the board was instigated by the recommendation by Obazee, it puts question mark on the examination and supervision of these banks, which never saw the corporate governance lapses that were identified.
Section 1(3) of the CBN Act guarantees the independence of the CBN. It provides thus, “in order to facilitate the achievement of its mandate under this Act and the Banks and Other Financial Institutions Act, and in line with the objective of promoting stability and continuity in economic management, the Bank shall be an independent body in the discharge of its functions.”
This means that the CBN is a fully autonomous body and its decisions. Therefore, the present leadership of the CBN must strive not to destroy the independence of the bank and must ensure transparent communication of its actions so as not to dampen confidence in the industry.