Banking Blunders: Lessons from Heritage Bank Licence Revocation

For a country with a history of bank failures, last week’s revocation of the licence of Heritage Bank did not come as a shock. However, analysts believe that the decision of the regulators to close the bank at this period is a lesson to other players that the era of regulatory cover-up and breaches is gone, writes  Festus  Akanbi

It was the end of the road for the systemically challenged Heritage Bank last week when the Central Bank of Nigeria (CBN) announced the revocation of its operating licence, paving the way for auditors from the Nigeria Deposit Insurance Corporation (NDIC) to swarm on the books of the bank in a last minute attempt at sorting out depositors and creditors’ funds.

The CBN, which cited the bank’s persistent financial instability and breach of regulatory requirements as reasons for the withdrawal of licence, pointed out that the decision was part of its mandate to maintain a sound financial system in Nigeria, as outlined under Section 12 of the Banks and Other Financial Institutions Act (BOFIA) 2020.

Heritage Bank was said to have failed to adhere to Section 12 (1) of BOFIA 2020, which necessitated the regulatory intervention.

The banking public was told that despite multiple supervisory measures prescribed by the CBN to mitigate the bank’s declining financial performance, Heritage Bank couldn’t improve its financial health.

To assuage the fears of customers of the bank, the NDIC said the bank’s liquidation has started. Its Director of Communication and Public Affairs, Bashir Nuhu, who gave the indication, noted that depositors are protected, as the NDIC is currently verifying to pay bank customers up to N5million, depending on their deposits.

Similarly, creditors of Heritage Bank are instructed to visit the nearest bank branch to file their claims or use the online platform, while debtors with outstanding loans are advised to contact the corporation’s Asset Management Department (AMD) to arrange repayments.

Crackdown on Debtors

As a follow up to the revocation of the bank’s licence, the Managing Director/Chief Executive of Nigeria Deposit Insurance Corporation (NDIC), Mr. Bello Hassan, has vowed to employ all resources at its disposal to recover over N700 billion loans and advances owed to the defunct Heritage Bank Plc, whose operating license was recently revoked by the Central Bank of Nigeria (CBN).

Hassan said NDIC had the responsibility to recover all debts as well as pay eligible depositors and creditors. He also said payment of insured deposits to customers of the failed bank would commence this week, rather than the 30 days prescribed by the NDIC Act.

Heritage Bank’s Fall Foretold

Informed analysts, however, said the fall of the bank did not come as a surprise and accused the previous management of the apex bank of postponing the evil day as far as the Heritage Bank was concerned.

For instance, in a review of the bank’s performance, a foremost financial analyst, Founder and Chief Executive Officer of Proshare Limited, Mr. Femi Awoyemi, as far back as 2019 warned of the dangerous trend in the bank’s financial statement.

According to Awoyemi, one of the issues haunting the bank was the acquisition of Enterprise Bank which he described as a major strategic error. He also pointed out that the bank’s non-performing loans were among the worst in the industry; raised the alarm over the declaration of losses in its 2018 operation and the fact that the bank’s regular recourse to the CBN’s short-term borrowing window highlighted persistent liquidity problems.

 “Corporate governance has been a challenge as a number of the bank’s directors have allegedly been involved in a series of poor-performing insider transactions,” he warned in many of his informed commentary on the banking sector.

Awoyemi argued that at least four other banks “are in situations requiring swift CBN intervention; therefore, the CBN and the NDIC will have to shift regulatory/intervention gear sticks to ensure that the banking system works with minimal disruption.”

Unlike Heritage Bank, the apex bank did not spare some players for breaches.

For instance, in 2021, the CBN dismissed the entire board of First Bank of Nigeria and FBN Holdings Plc on allegations of bad credit, non-performing insider loans, and corporate governance malpractices.

Similar action had been taken three years earlier, precisely in 2018, when Skye Bank Plc’s banking licence was revoked, and this necessitated the establishment of  Polaris Bank Limited as a bridge bank, taking on the assets and certain liabilities of the now-defunct Skye Bank Plc.

That Skye Bank had some challenges came to limelight in early July 2016 when CBN as a regulator, intervened in the bank. That intervention led to the resignation of the bank’s Board of Directors chairman, all non-executive directors, the managing director/chief executive, the deputy managing director, and the two longest-serving executive directors on the management team. The intervention also resulted in the appointment of a new board and management by CBN to ensure the bank’s survival.

The bank was fingered for “unacceptable corporate governance lapses;” “inability of the bank to meet critical prudential and adequacy ratios” and prolonged liquidity problems that occasioned the bank’s ceaseless dependence on CBN Lending Window to remain in operations.

However, the coming on board of the new management of the apex bank last year brought a new regime that was not ready to pamper any institution that is not ready to justify its presence on the list of Nigerian banks.

This is where the recent decision by the CBN to dissolve the boards and management of Union Bank, Keystone Bank, and Polaris Bank echoes a pattern of regulatory interventions to ensure the stability and integrity of the Nigerian banking sector. The CBN’s actions underscore its commitment to upholding prudent financial practices and governance standards.

Lessons from Heritage Bank’s Fall

Head of Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi said, “Heritage Bank has been struggling for a while now. The bank’s capital has been persistently below the CBN minimum threshold.

“I believe that the revocation is meant to send a message to the banks that the CBN will not hesitate to revoke the licence of any bank in breach of the CBN regulations. It could also sanitise the banking industry to an extent.”

He noted that the revocation could improve confidence in the financial system since the banks know that their licences could be withdrawn and would have to comply with the various regulations.

Olubunmi, further stressed that the recent increase in the NDIC coverage would provide some comfort to depositors.

Analysts from Nairametrics believe that the shift in approach is likely to bolster public confidence in the banking sector by demonstrating the CBN’s commitment to a healthy and stable financial environment.

Another lesson is that the new policy shift will shake up how the sector perceives the CBN. Banks will become more circumspect about their lending practices and handling of non-performing loans (NPLs).

“They will likely adopt more stringent lending criteria and ensure that bad loans are recovered promptly.

“Furthermore, many banks may face fresh audits, and a sector-wide stress test might be on the horizon, particularly in the wake of significant losses declared by Nigerian companies due to high-interest loans,” they said.

There is also the likelihood that the oil and gas and manufacturing sectors, which many banks have reported as being under strain, will be of special focus.

They argued further that smaller banks that pursued aggressive lending and high-risk strategies would also be feeling the pressure, anticipating potential regulatory actions.

The analysts said that bank customers may become concerned and anxious about which institution might be next. This, according to them highlights the need for the CBN to swiftly reassure Nigerians that the remaining banks are financially sound and healthy.

Heritage Bank Plc began its operations in Nigeria as a regional bank on March 14, 2013. It acquired the licence and structure of the old Societe Generale Bank of Nigeria, which the CBN closed down for failing to meet the capital requirements of N25 billion or $155 million for a national bank in January 2006.

In October 2014, the Assets Management Corporation of Nigeria (AMCON) announced that Heritage Bank had emerged winner of the bid for the defunct Enterprise Bank. Heritage Bank had successfully met all the terms and conditions set by the CBN and AMCON towards owning 100% shares in Enterprise Bank. It inherited over 160 branches, over 177 ATMs, and 2000 POS terminals spread across major markets and commercial centres in the country. This move automatically transformed Heritage Bank from a regional to a national bank.