FOLLOWING the revocation of Heritage Bank Plc’s licence over its failure to improve its financial performance, indications quickly emerged that the Central Bank of Nigeria (CBN) had plans to revoke the licences of three other banks.

But CBN refuted the allegations that it had plans to revoke the licence of Unity Bank Plc, Polaris Bank Limited, and Keystone Bank Limited, calling it a false rumour intended to trigger panic in the financial system.

In a statement on June 4, the apex bank said the Nigerian financial system remains safe, sound, and resilient without recourse to the state of the financial health of Unity, Keystone, or Polaris Bank.

On June 3, the CBN revoked the banking licence of Heritage Bank with immediate effect over the bank’s failure to improve its financial performance.

According to the apex bank, it acted under the powers invested in it under Section 12 of the Banks and Other Financial Act (BOFIA) 2020, adding that its action became necessary due to the bank’s breach of Section 12 (1) of BOFIA.

It states, “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–.”

This comes on the heels of the CBN’s move to recapitalise the deposit money banks to ensure their financial soundness and safety of depositors’ funds, deepen financial intermediation, and enhance the banks’ capacity to support economic growth through investment funding.

It pegged the minimum capital base at N500 billion for commercial banks with international exposure, N200 billion for banks with national authorisation, N50 billion for regional banks and merchant banks, and N20 billion and N10 billion for non-interest banks with national and regional operations, respectively.

The move could lead to the withdrawal of more banks’ licences as it happened in 2006 when CBN’s recapitalisation led to the revocation of about 14 banks’ licences which were financially unhealthy at the time.

The ICIR reports that between 1994 and 2018, about 53 banks had their licenses revoked by the regulatory umpire.

The financial position and corporate governance of the Unity Bank, Polaris Bank, and Keystone Bank raise quite a few concerns should the apex bank act by Section 12 of the BOFIA.

Financial position: Unity Bank 

A cursory look at Unity Bank’s financial summary for the past five years shows that the bank has been in a financial dilemma over the years.

In the five years, 2018 to 2022, the bank has consistently reported negative net equity that has wiped off investors’ funds.

In 2018, Unity Bank’s total liabilities exceeded its total assets by N-284.37 billion, in 2029 by N-278,86 billion, in 2020 by N-275.41 billion, in 2021 by N-276.15 billion, and in 2022 by N-274.95 billion, according to the bank’s Annual Report and Accounts 2022.

This points to the fact that Unity Bank has consistently breached Section 12(d) of the BOFIA, which states that CBN can revoke a bank licence if it “has insufficient assets to meet its liabilities.”

Also, in its 2022 independent auditor’s report signed by its professional services chartered accountant, Akinyemi Ashade, KPMG raised concerns over the bank’s financial health as total liabilities continue to exceed its assets.

The KPMG noted that Unity Bank did not meet the required minimum Capital Adequacy Ratio (CAR) of 10 per cent and the minimum capital requirement of N25 billion for a national bank as required by the CBN, The ICIR reported.

Financial position: Polaris Bank

In its performance for the last five years, Polaris Bank reported a positive net equity as its financial position showed that the bank’s total assets were slightly higher than its total liabilities.

In 2018, Polaris Bank’s assets exceeded the liabilities by N58.76 billion, in 2019 by N86.89 billion, in 2020 by N99.94 billion, in 2021 by N102.04 billion, and in 2022 by N100.197 billion.

Financial position: Keystone Bank

A check by The ICIR shows that Keystone Bank is not disclosing its financial statement or annual reports to the public being a limited liability company that is not under any compulsion to do so.

However, in March 2018, Keystone Bank had liabilities of N298.5 billion that exceeded its assets base of N258.9 billion, Proshare, a news and research platform, reported.

In June 2018, its liabilities of N331.2 billion also exceeded its assets of N286.2 billion but its assets, and by September, its liabilities rose to N357.1 billion higher than its assets of N316.7 billion.

The ICIR reports that when the CBN dissolved the management board of Keystone Bank, along with two other banks earlier this year over various infractions, the decision echoed a pattern of regulatory interventions to ensure the stability and integrity of the Nigerian banking sector.

Corporate governance 

While Keystone Bank financial position is not easily available for public scrutiny and Polaris Bank posted positive net equity in last five years, however,  CBN’s worries over their corporate governance led to the removal of their boards for breach of the Section 12 of BOFIA.

The ICIR reported earlier in January that the CBN had the course to unseat the boards’ of Polaris Bank, Union Bank, and Keystone Bank for various infractions.

The infractions varied from regulatory non-compliance, corporate governance failure, disregarding of the conditions under which their licenses were granted, and involvement in activities threatening financial stability.

The regulatory umpire stated specifically that its action became necessary due to the non-compliance of these banks and their respective boards with the provisions of Section 12(c), (f), (g), (h) of the BOFIA, The ICIR reported.

Financial rating

In its latest financial rating, Agusto & Co. affirmed the ‘Bb-’ rating assigned to Unity Bank with a positive outlook.

It further attached a ‘3’ environmental, social, and governance (ESG) score which denotes that environmental, social, and governance issues have a material impact on the assigned credit rating.

“The rating is hinged on the bank’s low level of impaired credits, adequate liquidity position, and growing retail brand franchise. However, suppressing these factors are the Bank’s negative capital, sectoral and obligor concentration in the loan book amidst the prevailing macroeconomic and regulatory headwinds,” the rating agency stated.

A pan-African credit rating agency, Agusto & Co. upgraded Polaris Bank’s rating to ‘Bbb-’, with a stable outlook.

It said the upgrade was upheld by improving asset quality, which involved resolving significant impaired assets and recoveries, stating that the rating reflects adequate capitalization, the new shareholders’ capacity and intent to transform the Bank, and a strong retail funding base.

Agusto & Co. said, however, that the rating assigned was constrained by prevailing macroeconomic headwinds as well as a significant loss of market share due to the governance issues that the bank contended with in the past.

“We have also assigned a “3” ESG score, reflecting our view that environmental, social, and governance issues have a material contribution to the Bank’s credit rating.”

Likewise, Agusto & Co. affirmed the “B-” rating assigned to Keystone Bank with a stable outlook.

It said the rating reflects the experienced management team overseeing the turnaround of the Bank’s performance and strong retail franchise.

Agusto & Co. said, “The rating also recognises the lack of any capital buffer to absorb shocks and support growth plans, particularly in a period of heightened risks and weak macroeconomic fundamentals. In addition, the rating is constrained by Keystone Bank’s lingering asset quality issues and weak profitability.

“We have also assigned an ESG score of “3” as we adjudged environmental, social, and governance issues to have a material contribution to the rating of Keystone Bank.”