- The CBN revoked the license of Heritage Bank because of non-performance and no prospects of recovery
- This action created panic among customers of the bank about the safety of their funds
- Here are ways insured depositors and shareholders of defunct banks can get their money
Nigerians woke up on Monday, June 3, to the news that the Central Bank of Nigeria (CBN) had revoked Heritage Bank's operating licence.
This is the second time the bank's licence has been revoked in 18 years, the first being in 2006 as Societe Generale Bank for failing to meet the N25 billion capital requirement at the time.
According to the CBN, the action is to ensure public confidence in the financial system. The bank’s non-performance threatened financial stability as it had "no prospects of recovery."
The announcement created panic among Heritage Bank customers, who lamented a possible loss of their funds despite the CBN appointing the Nigeria Deposit Insurance Corporation (NDIC) as liquidator of the assets of the bank.
As a liquidator, the NDIC is mandated by law to make payment of insured deposits up to the insurable limit to the depositors of a liquidated bank while uninsured depositors and creditors would only have claim on the liquidator from the proceeds of liquidation.
To allay fears, the NDIC announced the commencement of the bank’s liquidation process, saying insured depositors would be paid up to N5 million through their Bank Verification Number (BVN)-linked alternate accounts, while depositors with funds above N5 million will be paid liquidation dividend upon realisation of the bank’s assets and recovery of debts owed to the bank.
In revoking Heritage Bank’s operating licence, the CBN had acted within its regulatory rights as contained in Section 12 of the Banks and Other Financial Institutions Act (BOFIA), 2020, which provides conditions under which the CBN governor may, with the approval of the Board and by notice published in the Gazette, revoke the operating licence of a bank.
Backstep: Heritage Bank is not the first to come under CBN’s sledgehammer
Prior to Monday’s revocation of the licence of Heritage Bank, 21 other banks had been hit by CBN’s hammer between 2000 and 2024.
The first banks to be shown the door were Premier Commercial Bank, Ivory Merchant Bank and Rims Merchant Bank on December 20, 2000. These were followed by 12 others on January 16, 2006.
Bank PHB, Afri Bank and Spring Bank got the same fate on August 5, 2011. African Intercontinental Bank got its time on August 1, 2013, while Skye Bank followed on September 21, 2018. Heritage Bank is the latest addition to the troupe.
How can shareholders, depositors of a defunct bank get their funds?
By virtue of Section 28 of the NDIC Act, 2023, insured deposits of customers of defunct banks are to be paid within 30 days of being appointed liquidator. Already, the NDIC has assured that 99.9 per cent of the 2.3 million Heritage Bank depositors will start receiving their payment this week to the tune of N5 million. The payment can be in cash or a negotiable instrument, a signed document that promises payment to a specified person or assignee.
The NDIC asked depositors without alternate accounts to visit its website or the nearest branch of the bank with proof of account ownership, verifiable means of identification and other documentation to file a claim.
The Act also empowers the corporation to, at its discretion, require proof of claim from all qualified depositors of a defunct bank and may equally seek a final verdict by a court of competent jurisdiction if it is not satisfied with the validity of a claim for an insured deposit.
Shareholders and directors are individually liable after the revocation of a bank’s licence, according to Section 57 of the NDIC Act.
The Act, in Section 30, mandates the NDIC to give depositors at least a three-month notice to pay, notifying them of the venue and dates of payment by either mailing a copy to their last known address or publishing a general notice in at least two national dailies and electronic media houses.
If a depositor fails to claim the insured deposit within six years, such a depositor will forfeit the sum to the NDIC, according to the Act.
Also, the Act empowers the NDIC to appoint another financial institution to take over the deposits of a defunct bank.
Whatever the amount of transferred deposit not claimed by a depositor within six years will go back to the NDIC. Also, all rights against the defunct bank and its shareholders will be reverted to the NDIC if a depositor fails to claim or arrange to continue their transferred deposit with the new financial institution within six years.
Seeking legal redress
The Act states that a legal redress can be commenced to challenge the CBN’s decision to revoke the licence of a bank within 30 months from the date of the revocation. Section 12 (5) of the Act states that “no action in respect of the revocation of the license of a bank, specialised bank or other financial institution shall be filed or maintained unless such action is filed within a period of 30 days from the date of the revocation.”
According to Section 30(6) of the Act, depositors of a defunct bank have six years to commence a court proceeding against the NDIC with regards to its obligation to make payment to depositors.
Section 29(2) of the NDIC Act states that what would be paid as a remedy to claimants would be limited to the amount of loss incurred in the event of any case against the corporation.This means that depositors can only get the maximum insured deposit.
Shareholders of a defunct bank will receive the nominal value of shares in the insured institution while a group of shareholders will receive the nominal value of the aggregate of the shares in the insured institution.
The 2004 bank consolidation effort and the role of AMCON
One of the goals of the bank consolidation drive of CBN under Professor Charles Soludo was to ensure the safety of depositors' funds.
The drive, which began at a Special Meeting of the Bankers' Committee on July 6, 2004, saw the number of banks in Nigeria reduced from 89 to 25.
The CBN had required banks to increase their minimum capital base from N2 billion to N25 billion within 18 months. Those who could not meet the capitalisation target through new issues, mergers or acquisitions were shown the door. 18 of such banks had their licences revoked by the CBN.
Soludo, the then CBN governor was concerned about Nigerian banks' capacity to match the demands of 21st Century banking, a diversified strong and reliable sector and a huge player in the African and global financial system.
Although the CBN in 2009, under Sanusi Lamido Sanusi, had to intervene in the case of 10 distressed banks including Diamond Bank, First Bank, Guaranty Trust Bank, etc, depositors' funds have overall been safeguarded.
The Assets Management Company of Nigeria (AMCON) also played a role in acquiring and salvaging the dwindling fortunes of three banks and renaming them. AfriBank was changed to Mainstreet Bank, Bank PHB to Keystone, and Spring Bank to Enterprise Bank, while the ownership of Union Bank also changed.
This is in addition to the willful acquisition of Oceanic Bank by Ecobank, Intercontinental Bank by Access Bank, Equatorial Trust Bank by Sterling Bank and Fin Bank by First City Monument Bank between 2011 and 2012.
'No need to panic'
In addition to the NDIC's assurances of the safety of depositors' funds with Heritage Bank, the House of Representatives also gave the same assurances.
Lending his voice to this, Kingsley Moghalu, a former Deputy Governor of the CBN, said the revocation of the bank's licence was "the chronicle of a death foretold. In other words, it's not surprising."
Moghalu, however, noted that the revocation shouldn't worry anyone.
“I don’t think it should worry anyone, nor does it mean 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.
“What we did in 2010 when we created @AmconNg was to ensure SYSTEMIC financial stability. We made sure no bank failed then to ensure systemic stability because of the unique situation of the global financial crisis.
"But over the long term, I never subscribed to a view that no bank, no matter how badly run, should ever fail. That would be a wrong approach to financial regulation,” he tweeted.
