THE revocation of Heritage Bank Plc’s licence would not have come as a surprise to industry watchers, following the bank’s financial status over the years.
On Monday, June 3, the Central Bank of Nigeria (CBN) revoked the bank’s licence with immediate effect, stating a breach of Section 12 (1) of the Banks and Other Financial Act (BOFIA) 2020.
The apex bank said Heritage Bank’s board and management failed to improve the bank’s financial performance, a situation which constituted a threat to financial stability.
To strengthen public confidence in Nigeria’s banking system and ensure the soundness of the financial system is not impaired, the CBN said it had to revoke the licence.
It appointed the Nigeria Deposit Insurance Corporation (NDIC) as the liquidator in accordance with Section 12 (2) of BOFIA, 2020.
Heritage Bank’s journey in Nigeria
Established in March 2012, Heritage Bank began operations in Nigeria as a regional bank on March 14, 2013, after acquiring the licence and structure of the old Societe Generale Bank of Nigeria.
In October 2014, it emerged winner in the acquisition of the defunct Enterprise Bank, a move that automatically transformed the bank from a regional bank to a national bank.
A check by The ICIR shows that Heritage Bank is among the deposit money banks having commercial banking licences with national authorisation.
Poor financial performances
Over the years, however, there have been pockets of concern about the financial soundness of Heritage Bank in the Nigerian banking system.
In 2019, an unpublished ‘Confidential Report on Heritage Banking Company Limited‘ by Proshare, a research and media organisation, exposed most of the concerns about the bank’s financial health.
It attempted a holistic look at the bank’s reality at the time and exposed a few major concerns relating to its corporate governance, operational stability and sustainability.
According to the report, Heritage Bank’s acquisition of Enterprise Bank turned out to be a major strategic error.
Its non-performing loans were among the most challenged in the industry. It posted an operating loss before tax of N38.5 billion in half year 2018, and a loss of N4.4 billion in the unaudited figures for December 2018.
The bank’s debt-to-equity ratio was -0.17, a negative value that reflected a negative shareholders fund which could be impaired by as much as $1 billion.
Its equity capital was virtually wiped out by accumulated losses, which raised red flag on the bank compliance to corporate governance culture as a number of its directors allegedly involved in a series of poor-performing insider loan transactions, with little known resolutions, if any.
There were other issues the report raised. In April this year, customers of Heritage Bank reportedly lamented the frustration encountered in their efforts to withdraw from their accounts, which the bank blamed on a “system refresh exercise.”
What the revocation means
The revocation of Heritage Bank’s licence has signalled the end of its life as a bank in Nigeria, experts told The ICIR.
It has also streaked the bank’s power to engage in core banking activities of taking deposits from the public and using the deposits to make loans.
“The first signal the CBN has done was to communicate to the bank that since it is not doing well, the threat of not revoking its licence was very high,” said the Head of Financial Institutions Rating at Agusto & Co, Ayokunle Olubunmi.
He recalled that over a couple of years, some banks were known to have been struggling but maintained their shareholders’ funds and remained in business.
“I think what the CBN is trying to show is that if a bank is not complying with the extant regulations, their licence can be revoked,” Olubunmi added.
He said even though the bank was not listed on the Nigeria stock exchange, for shareholders, the bank is already gone.
“I expect that the bank has the issue of negative capital, and when you have that, the implication is that it is owned by the debtholders, and as shareholders, you have lost your interest in the institution.
“For the debtholders, I don’t think they need to fret as typically the CBN has appointed a liquidator. The NDIC can step in to ensure that all the obligations of the bank to depositors are taken care of.
“I don’t think the banks’ customers should fret. I am sure that very soon, the CBN will send out a circular on what they should do, who they should go to and possibly the documents that they need to submit.”
Sharing his views on the matter, the national president of New Dimension Shareholders, Patrick Ajudua said the revocation of the bank’s licence did not come as a surprise to many.
He hailed the step taken by CBN but said it was long overdue as further delay would have put bank customers in dilemma.
“Since 2018, the bank performing loans has risen to a height of 90 per cent of loans portfolio. Only five per cent of loans are performing.
“Also they (Heritage Bank) have over N1 trillion in negative capital reserve. Hence they are a bank that has been in the intensive care unit for more than five years.”
Commenting further that it has become the responsibility of NDIC to ensure depositors receive their money, he urged the apex bank to rise to its statutory oversight function.
“Going forward, CBN needs to improve more on its oversight function by ensuring timely protection of depositors’ fund and investing public in order not to create image and panic problems.
“Though they (Heritage Bank) are not listed on the stock exchange, this situation has cast doubt on the effectiveness and efficiency of risk management in most banks, which is a source of worry to investors,” he added.
The revocation means that the situation with Heritage Bank is beyond redemption, another financial analyst, David Adonri, said.
“NDIC will settle the insured portion of deposit liability while the liquidator which may also be NDIC will liquidate the assets and settle creditors according to seniority, starting with tax, staff, secured credits, unsecured credits and lastly shareholders if there is any residual asset.”
NDIC to pay depositors N5m
The liquidator, NDIC, said it had commenced the liquidation of Heritage Bank to pay depositors of the failed bank N5 million insured deposits.
Its Director of Communication and Public Affairs, Bashir Nuhu, disclosed this in a statement on Monday, June 3.
According to NDIC, depositors of the bank with alternate accounts within the industry will be paid up to the insured amount of N5 million per depositor using their Bank Verification Number (BVN) to locate their alternate account.
Depositors with funds over N5 million will be paid liquidation dividends upon realisation of the bank’s assets and recovery of debts owed to the bank.
It urged all depositors of the defunct bank without an alternate bank account in the industry to visit the nearest branch of the bank with proof of account ownership and necessary identities.
It also urged creditors to visit the nearest branch of the bank to file their claims or via online platform, stating that the process of payment of creditors would commence immediately after all depositors have been paid.
The NDIC added that debtors who are yet to complete the repayment of loans are advised to contact its Asset Management Department (AMD).
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.