- It was in bad faith – Legal Expert
- It’s Response to Corporate Governance Rascality – Analysts
June 16, (THEWILL)- Some stakeholders and industry experts have expressed different views on the controversy trailing the liquidation of Heritage Bank Limited, after 10 years it was established.
In December 2012, the Central Bank of Nigeria (CBN) reissued Societe Generale’s banking license, but as a regional bank. Having acquired the banking license, the new ownership re-branded the bank as Heritage Banking Company Limited and opened for business under the new name on March 4, 2013. However, on June 6, 2024, the CBN terminated the existence of the Tier-2 bank by revoking its operating licence. .
Announcing the decision of the apex bank to revoke the bank’s licence, Acting Director, Corporate Communications, CBN, Hakama Sidi Ali, in statement, said: “The Central Bank of Nigeria (CBN) in accordance with its mandate to promote a sound financial system in Nigeria and in exercise of its powers under Section 12 of the Banks and Other Financial Act (BOFIA) 2020, hereby revokes the licence of Heritage Bank Plc with immediate effect.
“This action has become necessary due to the bank’s breach of Section 12 (1) of BOFIA, 2020. The board and management of the bank have not been able to improve the bank’s financial performance, a situation which constitutes a threat to financial stability. This follows a period during which the CBN engaged with the bank and prescribed various supervisory steps intended to stem the decline. Regrettably, the bank has continued to suffer and has no reasonable prospects of recovery, thereby making the revocation of the licence the next necessary step.
“Consequently, the CBN has taken this action to strengthen public confidence in the banking system and ensure that the soundness of our financial system is not impaired.
“The Nigeria Deposit Insurance Corporation (NDIC) is hereby appointed as the Liquidator of the bank in accordance with Section 12 (2) of BOFIA, 2020.
“We wish to assure the public that the Nigerian financial system remains on a solid footing. The action we are taking today reflects our continued commitment to take all necessary steps to ensure the safety and soundness of our financial system.”
A solicitor and expert in banking and financial matters, Victor Ukutt, expressed dismay over the liquidation of Heritage Bank Limited which he said was done in bad faith.
Ukutt, who is Principal Partner at Victor Ukutt and Co, Legal Practitioners, and whose firm has been extensively involved in the Asset Management Corporation of Nigeria (AMCON)-related matters, said the CBN should have considered a merger or acquisition option for the troubled financial institution.
In a chat with THEWILL, Barrister Ukutt noted that the CBN had given a soft landing to other troubled banks (names withheld) in a similar situation and were not treated so harshly.
“The CBN acted in a bad faith. There were other banks in a similar condition in the past, but the CBN extended a lifeline to them and they are still existing. The CBN did not consider the fate of the employees, investors and owners of Heritage Bank before revocaking the operating licence of the bank.
He noted that First Bank of Nigeria was the clearing house for Heritage Bank during which over N400 billion was accumulated against Heritage Bank which the CBN arranged to be recovered by FirstBank before announcing the revocation of Heritage Bank’s operating licence.
“Why did CBN not arrange a merger or acquisition with FirstBank or any other financial institution to save Heritage Bank, if there were no vested interests in the deal,” Ukutt queried.
Reports revealed that FirstBank received the full repayment of a “N456 billion loan” extended to Heritage Bank. The recovery was part of a “bailout loan” arranged during the tenure of former Central Bank of Nigeria (CBN) Governor Godwin Emefiele.
The reports further revealed that CBN promptly credited FirstBank prior to its decision to revoke Heritage Bank’s license, thus averting what could have been a significant impairment charge for First Bank Reports confirmed that the actual amount received by First Bank was N456 billion, concluding a seven-year wait since First Bank supported Heritage Bank in clearing.
An investment analyst and Chairman, Trusted Shareholders Association of Nigeria, Mukhtar Mukhtar, said regulatory functions of the government agencies are often influenced by political considerations.
“There is no way the CBN could have taken the action without confiding in the Presidency. When Charles Soludo and Sanusi Lamido Sanusi were CBN governors, they obtained the consents of the Presidents then before the reforms they embarked upon.
“T don’t know the owners of the bank, but the CBN should have encouraged them to go into a merger or acquisition arrangement to save the financial institution, its employees and the depositors’ funds.
“It is really very sad the way the bank’s operations were terminated by the CBN which I consider callous at difficult times and makes one suspect there is a sinister motive to the whole matter,” Mukhtar told THEWILL.
However, a former Deputy Governor at CBN, Kingsley Moghalu, has said the recent revocation of Heritage Bank’s licence by the apex regulator should not worry anyone.
In a statement via X, Moghalu described the revocation of the bank’s license as the chronicle of a death foretold, adding that the move was not surprising. He asserted that the apex bank’s action was to protect depositors’ funds and maintain confidence in the banking system.
“The revocation of the banking licence of Heritage Bank by @cenbank is the chronicle of a death foretold. In other words, it’s not surprising.
“I don’t think it should worry anyone, nor does it mean that the financial system isn’t sound. Banks are businesses, even if very special and thus heavily regulated ones. A bank that is badly run should not have a lifetime guarantee. The important thing is to protect depositors’ funds,” he stated.
The National Co-ordinator, Pragmatic Shareholders Association, Mrs Bisi Bakare, applauded the CBN’s revocation of the Heritage Bank’s operating licence, adding that the liquidation of the Tier-2 bank was overdue.
She told THEWILL in a telephone chat that the action would serve as a deterrent to those who engage in corporate governance rascality, which does not augur well for the nation’s financial services industry.
Mrs Bakare urged the authorities to go after those behind the huge non-performing loans that led to the death of Heritage Bank because they do not mean well for the economy.
“Who are those borrowers behind the non-performing loans? Are they not Nigerians? Do they not live in this country? The CBN and other relevant agencies should fish them out and compel them to pay the loans they collected from the bank because the loans are depositors’ funds,” she stated.
While members of the public were caught unawares by the sudden revocation of the licence of Heritage Bank by the CBN on June 10, among many industry operators, it was widely known that the bank had been severely distressed in the last five years.
Under former CBN Governor, Godwin Emefiele, the apex bank did not have the appetite to close down a bank and so Heritage was under life support for a long time, relying mostly on borrowing from the CBN and the interbank market to support its businesses. But Yemi Cardoso is taking the apex bank in a different direction.
The revocation of Heritage’s licence coincides with CBN’s recent requirement for major banks to increase their minimum capital requirement by at least fifty-fold. With a ₦1 trillion deficit in Heritage Bank’s capital base—equity, reserves and accumulated earnings—the struggling lender would never have met those requirements.
Reports indicate that the CBN attempted to salvage the bank, but concluded that there was “no reasonable prospects of recovery.”
Heritage Bank’s struggles stemmed from a high volume of non-performing loans. Internal documents, according to reports, revealed that the lender was trapped in the misery of staggering ₦490 billion of non-performing loans likely from risky lending practices and questionable corporate governance.
Several unconfirmed reports claimed that the regulator had tried to arrange an acquisition of Heritage Bank. But this was not successful. Many banks have learned that acquiring distressed companies can be more trouble than it’s worth.
Heritage Bank’s ₦56 billion acquisition of Enterprise Bank in 2014, for instance, was considered a major misstep. Access Bank’s acquisition of Intercontinental Bank in 2012 was similarly complicated.
According to analysts, beyond due diligence and disclosures, distressed banks often have problems that can never be seen from the outside by the acquiring party.
Industry experts believe that an acquisition must have been unsustainable in the case of Heritage Bank because the hole was too big to be filled,
Ultimately, the revocation of Heritage Bank’s licence signals to the financial sector that under-performing banks will not receive any soft landing from AMCON.
While the CBN has denied some other banks will have their licences revoked in the near future, there are still clear question marks around the financial institutions whose confidence among the public is fast fading..
Meanwhile, the Nigeria Deposit Insurance Corporation, NDIC, said it has commenced liquidation of the bank, adding it will pay the insured amount of N5 million per depositor.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
