How NDIC restores confidence in the nation’s financial system 

How NDIC restores confidence in the nation’s financial system

When the Central Bank of Nigeria (CBN) revoked the licence of the now liquidated Heritage Bank, it evoked tensions across the country. However, the quick intervention of the Nigerian Deposit Insurance Corporation (NDIC) in kick-starting the process of paying depositors their insured deposits is restoring confidence in the financial system; BENJAMIN UMUTEME writes.

In the morning of June 3, 2024, when the Central Bank of Nigeria (CBN) revoked the banking licence of Heritage Bank Plc, Nigerians feared that the banking albeit the financial system was under distress. Many contemplated going to collect whatever small amount in their accounts with Deposit Money Banks (DMBs). The revocation raced questions on how depositors and shareholders would fare in terms of getting back their funds.

Revoking Heritage Bank’s licence

The CBN, in accordance with its mandate to promote a sound financial system in Nigeria and in the 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.

In a statement signed by Acting Director, Corporate Communications, Hakama Sidi Ali, the apex bank stated that its action was necessary due to the bank’s breach of Section 12 (1) of BOFIA, 2020.

It added that the Board and Management of the bank had been unable to improve its financial performance, “a situation which constitutes a threat to financial stability.”

CBN noted that in spite of engaging the bank and prescribing various supervisory steps to stem the decline, its action was like flogging a dead horse.

“Regrettably, the bank has continued to suffer and has no reasonable prospects of recovery, thereby making the revocation of the license 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,” it stated.

The Nigeria Deposit Insurance Corporation (NDIC) is hereby appointed as the Liquidator of the bank in accordance with Section 12 (2) of BOFIA, 2020.

Mixed reactions

Financial experts have been divided on the action taken by the CBN. According to some, the apex bank would have allowed another bank to acquire Heritage than outright revocation, but others commended the CBN for its revocation.

The Head of the Department of Economics, Covenant University in Ota, Ogun state, Evans Osabuohien, said the action of the CBN would not only throw employees of the bank into the unemployment market, it would ignite panic among its customers.

“CBN says that withdrawing the licence was the last option. If not, one would have expected a merger or acquisition, if only for the good of the economy,” he said.

On his part, the national president of New Dimension Shareholders, Patrick Ajudua, said the revocation of the bank’s licence was long overdue as further delays would have put its customers in a dilemma.

“Since 2018, the bank’s performing loans has risen to a height of 90 per cent of the loans portfolio and only five per cent of loans are performing.

“Also, they (Heritage Bank) have over N1 trillion in negative capital reserves. Hence, they are a bank that has been in the intensive care unit for more than five years.”

“Going forward, the CBN needs to improve more on its oversight function by ensuring timely protection of depositors’ funds and investing in the public in order not to create image and panic problems.”

CBN’s re-assurances

Following the claims in certain quarters about the stability of some Nigerian banks in the wake of Heritage Bank Plc’s licence revocation, the CBN has again re-assured members of the banking public of the safety of their deposits and the banking system’s resilience.

It, in a statement, assured depositors that it was not considering revoking any more licences of DMBs operating in the banking space.

According to the regulator, Heritage Bank was an isolated case. Prior to the release of the CBN’s statement, there were reports that Polaris, Fidelity, Wema and Unity Bank were on the verge of losing their licences.

“Without prejudice to the on-going recapitalisation process, I want to restate that the Nigerian banking industry remains resilient. Key financial soundness indicators remain within current regulatory thresholds. 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,” Apex Bank stated.

“Customers are, therefore, encouraged to proceed with their transactions as usual, as the CBN is committed to ensuring the safety of the banking system,” she said.

NDIC to the rescue

Despite the assurances, Nigerians are still apprehensive that they are about to lose their hard-earned money, especially in these trying times.

In a bid to douse the tension and anxiety, the NDIC quickly moved as it already began the process of paying depositors their insured deposits.

For the Corporation, the majority of customers of the liquidated bank would get their insured deposit in seven days.

Speaking to journalists at a packed conference at its headquarters in Abuja, the Managing Director of the Corporation, Bello Hassan, vowed that the NDIC would do everything within its mandate to recover the N700 billion debts owed to the liquidated bank.

“This is what is required for us to pay the insured amount and we are going to pay the insured amount now. This insured amount is going to be paid from the deposit insurance fund that has built up over time from premiums being collected from this institution on an annual basis.

“The maximum amount is five million per depositor, so whatever amount less than five million will be paid in full now and for amounts higher than five million, we will pay five million now because that is the maximum insured amount. After this the next process is for us to realise all the assets both physical and the loans the bank granted while it was in operation. When we realise those assets, we are now going to declare what we call liquidation dividend and that’s what we’ll pay to the uninsured portion of the deposit and when we finish, we move to the creditors if there’s surplus from the realisation of those assets.

“We assure depositors that there is no need to panic and that they will get their money bank. The Corporation will do everything possible to protect you,” he said.

More weak banks?

Despite this assurance from the banking sector regulator, Nigerians are still apprehensive.

Speaking exclusively with Blueprint Weekend, a financial analyst, Aliyu Ilias, noted that the experience with Heritage Bank has further raised questions over the strength of some other banks.

He said, “What happened to Heritage Bank is a precursor and a sign that there are more weaker Banks. Recall that there is news going round that there are three more other Banks that may likely suffer the same fate.

What actually brought about the liquidation of Heritage Bank is the mismanagement or lack of supervision from the CBN, they saw it coming. According to Heritage Bank, they say its bad loans. If bad loans amount to N1trillion how would they survive?

“I think the last effort should be liquidation. They should have changed the management and changed a lot of things that would bring about a solution. I tell you categorically that some other banks may suffer. And now, it has reduced the confidence of banks. Right now, for me, we just have to be conscious. Systematically, I can tell you that people try to withdraw their money from banks that are perceived to be very weak. So, that’s a problem.”

Insider abuse, corruption

In his view, the Managing Director of SD&D Management Limited, Gabriel Idakolo, said corruption and insider abuse did not allow the bank to perform financially.

He said, “Heritage Bank Ltd has been unstable since the administration of former CBN governor, Mr. Godwin Emefiele, but nothing was done to check the excesses of the board and management of the bank that led to billions of Naira in loan defaults that has led to the revocation of its licence.

“The previous administration at the CBN used the bridge bank method which helped to secure depositor’s funds. However, it was also fraught with corruption and insider takeover as seen by the Special Investigation Report on the CBN ordered by President Bola Tinubu.”

To avoid a repeat of what happened with Heritage Bank, Idakolo opined that the “stance of the new management in CBN is to ensure strict monitoring and compliance from banks and I do not foresee a bridge bank option from the present CBN.”

“This will also be a wake-up call for all banks as we count down to recapitalisation in 2026 to ensure strict compliance to CBN guidelines or risk revocation.”

Ilias said that in spite of what has happened, many banks would not go under.

Ilias said, “I doubt if banks would merge because if you look at their balance sheets, they are declaring a lot of profit already; that means they are capable of handling the issue. From the profit they are declaring; it is a possible thing. Those that have issues already, CBN should not wait.

“In fact, NDIC should be a last resort. NDIC says they are going to pay N5 million. What about those that have more than N5 million and they are saying until they recover the assets before, they can pay the rest. So, it is very important for us to look into these things.”