CBN DISSOLVES THE MANAGEMENT OF UNION, KEYSTONE AND POLARIS BANKS: LEGAL CONSIDERATIONS

Introduction

The news of the dissolution of the Board and management of Union, Polaris and Keystone banks by the Central Bank of Nigeria on Wednesday, 10th of January 2024[1] aroused scathing concerns among bank customers especially the banks concerned. While the CBN in the press release assured the safety of depositor’s funds, customers of the concerned banks are perturbed by the pungent consequences which may be patent currently. This dissolution was immediately followed by the appointment of new executives for the banks on Thursday 11th January 2024, which took immediate effect[2].

The rationale behind CBN’s action

The dissolution of the incumbent board and management was due to the infractions by the banks of relevant provisions of the Bank and Other Financial Institutions Act (BOFIA) 2020. The press release stated that the dissolution of the banks’ managements was due to flagrant breaches of the provisions of Section 12 (c), (f), (g) and (h) of the Act. The referred section empowers the CBN Governor acting with the approval of the board to revoke any bank license, considering the bank’s actions fall in any of the categories underlisted in the section.

The event that led to the dissolutions was the outcome of an investigation by the CBN’s special investigator, Jim Obazee which revealed that the acquisition of the banks was conducted through a clandestine operation by the former CBN governor, Godwin Emefiele, using proxies[3]. Specifically, the report revealed that Titan Trust Bank which was used to acquire Union Bank was set up by the erstwhile CBN governor, Emefiele, using illegally obtained funds. It further revealed that the two supposed Dubai-based firms - Magna International DMCC and Luxis International DMCC – which were used to establish Titan Trust Bank were proxies of Emefiele.

As for Polaris Bank, the investigation revealed that venture capitalists Michel Danladi Verheijen, Ehimari Idahi and Albert Chukwuemeka Emuwa used offshore entities to hold 45% stakes in the bank after it was announced for sale by CBN in conjunction with Asset Management Corporation of Nigeria (AMCON) to Strategic Capital Investment Limited (SCIL) in October 2022. This was made possible through a deficient disclosure of Polaris Bank’s stakes and ownership during their documentation with the Corporate Affairs Commission[4].

The investigation with regards to Keystone Bank revealed that it was likewise acquired without any legitimate evidence of payment. The special investigator concluded that the lender was another proxy entity that was acquired by Emefiele[5].

Legality or otherwise of CBN’s action

Despite these revelations and conclusions, it however appears worrisome that the action taken by the CBN governor was the dissolution of the banks’ management distinct from revocation of the banks’ license as provided by section 12 of BOFIA as cited in the press release. Let’s then take a quick look at the provision.

Section 12 of BOFIA 2020 provides:

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 fulfil or comply with any condition subject to which the licence was granted

(f) is involved in a situation, circumstance, action or inaction which constitutes 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.

A salient question that surfaces henceforth is whether dissolution and appointment of a new board rather than revocation of the banks’ license is the appropriate action to be taken by the CBN governor. A perusal of the reproduced Section will reveal the use of the word ‘may’. That is, the Governor may revoke any license granted under the act where the bank falls in the listed categories. The use of the word ‘may’ in a statute has, in unnumberable cases, been construed to imply discretion and not compulsion[6]. It is therefore trite to infer from this position that the CBN governor has the liberty, following Section 12 of BOFIA, to revoke the Banks’ licenses or waive such direction.

Agreed that the position above answers the question of why the CBN governor did not revoke the license of the concerned banks, the confusion regarding the dissolution of the Bank’s management remains obfuscated.? In a bid to unravel its complexities, recourse will be had to other pertinent provisions of the act.

Some apposite provisions which must be looked upon are Sections 33 and 34 of BOFIA 2020. Section 33 provides that the Governor of the CBN has the power of special examination and investigation of affairs of banks, other financial institutions and specialized banks. By Section 34 (2) (e) of the Act, the governor may remove any manager or officer of any bank as a result of the investigation conducted, notwithstanding any other law. Section 4 (4) further provides that the Governor may then revoke the license of the bank if, after such overhaul of the management, there is no improvement in the bank’s state of affairs.

It is on the strength of the above provisions that we can conclude that the dissolution of the Banks’ managements as recently done by the CBN is not antithetical to the position of any extant Banking law in Nigeria. So long as due procedure is followed, public interest and the financial stability of the banks are considered, the action is well founded within the doctrines and principles that undermine the Banking and Other Financial Institutions Act (BOFIA) 2020.

Conclusion

The role of the apex bank, the CBN, in the regulation of banking activities in Nigeria is quintessential. In upholding its responsibilities, the CBN is guided by laws such as the CBN Act, Banks and Other Financial Institutions Act and other regulations and guidelines. Banks and other financial institutions must therefore submit themselves to the dictates of the corpus of these laws to enjoy a smooth and efficient operation. I will conclude this piece with the resounding remarks of Oyin Olusesi . For the Umpteenth time, Fis and OFIs should never forget that their license is always at the mercy of the CBN, checked only by superior laws or good practices.

[1] Central Bank of Nigeria, ‘CBN dissolves the Board and Management of Union Bank, Keystone Bank and Polaris Bank’ https://www.cbn.gov.ng/Out/2024/CCD/CBN%20Dissolves%20the%20Board%20&%20Management%20of%20Union%20Bank,%20Keystone%20Bank%20and%20Polaris%20Bank.pdf accessed on 11 January 2024.

[2] Central Bank of Nigeria, ‘CBN Appoints New Executives for Union Bank, Keystone Bank and Polaris Bank’ https://www.cbn.gov.ng/Out/2024/CCD/Press%20Release_New%20CEOs_2.pdf accessed on 12 January 2024.

[3] Oluwakemi Abimbola, ‘Union, Keystone, Polaris boards sacked for threatening financial stability — CBN’ Punch https://punchng.com/union-keystone-polaris-boards-sacked-for-threatening-financial-stability-cbn/ accessed on 12 January 2024.

[4] Ronald Adamolekun, ‘Analysts speak on implications of CBN’s sack of Union, keystone, Polaris banks’ CEOs ‘ Premium Times https://www.premiumtimesng.com/news/more-news/657991-analysts-speak-on-implications-of-cbns-sack-of-union-keystone-polaris-banks-ceos.html accessed on 13 January 2024.

[5] Ibid.

[6] Atayi Farms Ltd. v N.A.C.B. Ltd (2003) 4 NWLR (Pt. 810) 427; Ojukwu v. Onyeador (1991) 7 NWLR (Pt. 203) 286.