Bad loans, controversial acquisition and other issues behind Heritage Bank liquidation

In May, customers stormed Heritage Bank’s various branches in Nigeria and urged the government and other regulatory authorities, such as the Central Bank of Nigeria (CBN), to urgently intervene in the challenges facing the bank.

Many weeks earlier, many customers had complained that they were unable to complete transactions and make cash withdrawals to their bank accounts.

Subsequently, on June 3, the CBN revoked the banking license of Heritage Bank Plc, raising questions about the fate of the bank’s depositors and shareholders.

The CBN appointed the Nigerian Deposit Insurance Corporation (NDIC) as liquidator, and the corporation has since taken over the defunct bank.

According to the CBN, “the board and management of the bank have been unable to improve the financial performance of the bank, a situation that constitutes a threat to financial stability. “This follows a period during which the CBN interacted with the bank and prescribed various supervisory measures aimed at stemming the decline.”

Unfortunately, the apex bank said Heritage Bank was still suffering and had no reasonable prospects for recovery, so revoking the license was the necessary next step.

Following the revocation of the licence, the NDIC said it would pay a maximum of N5 million in insured deposits to each customer of the distressed bank and would pay depositors who had funds more than the insured deposits when Heritage Bank’s assets were realised. .

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Meanwhile, signs have emerged that a bad loan, a questionable acquisition deal and other corporate governance concerns may have worsened the bank’s condition, leading to its liquidation.

Jim Obazee’s investigation

Details in the “Final Comprehensive Report” of Jim Obazee, the special investigator appointed by President Bola Tinubu to examine the operations of the apex bank under Godwin Emefiele, former CBN governor, suggest that the collapse of Heritage Bank could be associated with its role in the acquisition of Keystone bank.

The report submitted in December 2023 indicated that in 2017, the Managing Director of AMCON transferred N20 billion to Heritage Bank and subsequently, Heritage Bank issued a loan of N25 billion to the promoters of ISA FUNTUA GROUP/EMEFIELE to acquire Keystone Bank, backed by the bank’s shares. .

Upon securing Keystone Bank, the promoters returned the N20 billion to Heritage Bank as placement, allowing Heritage Bank to repay AMCON from the cash flow generated.

However, when the loan matured and ISA FUNTUA/EMEFIELE GROUP defaulted, the CEO of Heritage Bank, under severe liquidity pressure, sought repayment through legal threats to take over Keystone Bank based on the pledged shares.

The relentless pressure led to the resignation of several key executives, including the CEO and the deputy CEO, who later became interim CEO.

The report stated that “the bank’s CEO at the time resigned due to constant pressure from him and shareholders to deliver.”

Background

Meanwhile, the now troubled Heritage Bank has its roots in Societe Generale Bank, founded in the 1970s by Olusola Saraki, a senator from the second republic and father of Bukola Saraki, former president of the Nigerian Senate.

In 2004, the Olusegun Obasanjo administration sought to fiscally strengthen banks against the collapses that were common up to the time the former president took office.

In 2006, the CBN closed Societe Generale after it failed to meet the new minimum capital requirement of N25 billion for a national bank. The new capital requirement for banks at that time was overseen by the CBN under the leadership of Charles Soludo.

The bank challenged the apex bank’s decision, resulting in an order by the Federal High Court in Abuja in April 2008 that forced the apex bank to restore operating permission after declaring that the bank met the minimum financial requirements to return. to operate.

The court had ruled that while it was the prerogative of the CBN, as the regulatory body of banks in Nigeria, to revoke a banking license in deserving situations, SGBN should have been given sufficient time to comply with the condition attached to the leniency of a considerable part. of its enormous indebtedness to the CBN.

Consequently, Société Générale’s license was reissued as a regional bank in 2012.

At an emergency meeting of the Financial Sector Oversight Committee held after the order, the CBN, among other things, said it would not appeal the court’s ruling to prevent depositors’ plight from worsening.

“That CBN is a responsible and law-abiding corporate entity that sincerely believes in the rule of law. Consequently, and in the interest of justice and, more so, in the best interests of the suffering depositors, the CBN has decided not to appeal the court’s ruling.

“Given that the court has granted the SGBN only 30 days to complete all processes related to its acquisition by another bank, the CBN reasoned that appealing the ruling would worsen the suffering of innocent depositors.

“Accordingly, the appropriate mechanism has been put in place to grant SGBN 30 days to fulfill the condition attached to the forgiveness of 80 per cent of its huge debt to the CBN as ordered by the court,” he said in a statement.

SGBN was later renamed Heritage Banking Company Limited and opened its doors for business in 2013. In 2015, Heritage Bank successfully acquired 100 percent of the shares valued at approximately N56.1 billion in Enterprise Bank Limited.

AMCON at that time, said HBCL Investment Services Limited, HISL, emerged as the preferred bidder among several domestic and international bidders who indicated interest in acquiring the bank.

Turbulence

Since then, the bank has gone through turbulent phases amid unsuccessful efforts to reposition it.

In 2023, the Akwa Ibom government threatened to sell properties belonging to Heritage Bank for failing to remit tax liabilities of N100,270,910 to the state coffers.

At the time, Leo Umana, executive director of enforcement and recovery at the Akwa Ibom State Inland Revenue Service, said the bank had 14 days to negotiate with the service and set aside the order.

“A writ of attachment is hereby issued over any land, premises or place of business in respect of which the respondent is owner or occupier at 41 Aka Road, Uyo Akwa Ibom State in discharge of outstanding tax liability of N100, 270, 901.62 established against the defendant,” said a ruling by state high court judge Effiong Effiong.

Following the revocation of the bank’s license, the Managing Director and CEO of the Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan, has vowed to use all resources at his disposal to recover over N700 billion in loans and advances owed to the bank. bank.

Meanwhile, there has also been concern over the bank’s non-performing loans, considered among the worst in the Nigerian banking industry. Experts also raised issues about loss reporting in its 2018 operation and its reliance on the CBN’s short-term borrowing window amid liquidity crises.

The experts speak

Boniface Okezie, National Coordinator of the Progressive Shareholders Association, has called for an investigation into the management of Heritage Bank to increase confidence in the banking sector. He criticized partial payments to depositors and questioned the solvency of other banks in the sector.

“Someone has N20 million in the bank and you pay them N5 million until the assets of the bank have been assessed and liquidated. That is wrong. It will discourage people from using banks.

“Also, is it just Heritage Bank that is insolvent? What is the fate of some other banks in the sector? Are they strong and viable? They should tell us. Management should be questioned. Those who ran the bank aground should be questioned. It is not enough for the NDIC to be liquidated,” he told the Punch newspaper.

Paul Alaje, senior economist and partner at SPM Professionals, expressed concern that bank directors withdraw money without proper documentation, posing significant risks to the financial sector.

“According to reports from the CBN, the manner in which the directors raised money and made withdrawals from the bank without proper documentation is a major concern to our financial sector,” he said.

Former CBN deputy governor Kingsley Moghalu said the revocation of Heritage Bank’s license should not cause undue concern or indicate that the financial system is not sound.

“The revocation of the banking license of Heritage Bank by the CBN is the chronicle of a death foretold. It is not surprising. A poorly managed bank should not have a lifetime guarantee. The important thing is to protect depositors’ funds,” he said.