How bad loans, poor due diligence sank Heritage Bank

 4th June 2024


Shareholders and customers of Heritage Bank woke up to a rude shock on Monday morning to learn that the financial institution has been axed by the Central Bank of Nigeria (CBN), with its operating licence revoked and the Nigerian Deposit Insurance Corporation (NDIC) directed to undertake the liquidation process.

Daily Sun learnt that the regulator’s hammer landed on the bank due to its prolonged poor performance and lack of due diligence.

It was further gathered that its Non Performing Loans (NPLs) reached frightening levels lately with no strategic blueprint to recover them.

The situation, it was further gathered, worsened when the bank failed CBN’s stress test repeatedly.

A source said: “At least 90% of the bank’s active loan portfolio of around N700 billion was considered lost or doubtful as of March 31, 2024. The bank’s tier-1 capital comprising equity, reserves, and accumulated earnings was in the deficit of over N1 trillion”.

However, the liquidation of the bank has led to concerns about lost investments and potential impacts on investor confidence in the banking industry.

There are also fears of mass job loss as the banking sector is already saturated with workers with some existing financial institutions planning to trim down their workforce as the deployment of ICT and Artificial Intelligence deepens.

As early as 10am, anxious customers had besieged various branches of the bank in Lagos to withdraw their funds but were prevented from doing so as the regulator’s orders took immediate effect.

Those sighted by Daily Sun at various branches of Heritage Bank in Lagos said the development was like a midnight coup hatched on Monday morning.

An old man, who identified himself as Felix, clung tenaciously to the gate of Heritage Bank Branch at Adeniyi Jones in Ikeja said he would not leave until he got his money.

“I’m not going anywhere. I want my money. It’s my sweat. They want me to commit suicide. They said I should return on Wednesday but I’m not going anywhere”, he lamented.

Customers of the affected bank who spoke to Daily Sun, stated that they have had difficulties accessing their funds, with instances of the bank’s app malfunctioning and in-branch transactions facing delays.

For example, Uchechi Peace, a customer of the bank, stated that the bank had been experiencing downtime for a few weeks, adding that their app also had refused to work properly.

Meanwhile, the Nigeria Deposit Insurance Corporation (NDIC) in a statement released on Monday, said that depositors of the bank that have alternate accounts within the industry will be paid up to the insured amount of N5 million per depositor using their Bank Verification Number (BVN) to locate their alternate account.

While depositors with funds in excess of N5 million will be paid liquidation dividend upon realization of the bank’s assets and recovery of debts owed to the bank.

The Corporation directed all depositors of the defunct bank without alternate bank account in the industry are advised to visit the nearest branch of the bank with proof of account ownership, verifiable means of identification such as driver’s license, permanent voter’s card, National Identity Card, together with their alternate account and Bank Verification Number (BVN) for the verification of their deposits and subsequent payment of insured sums.

Commenting on Heritage Bank’s licence revocation, Nigeria’s first professor of the capital markets, Prof Uche Uwaleke said the action was a step in the right direction.

“This proactive step by the CBN is in the overall interest of financial system stability. With the NDIC taking over the liquidation process, efforts should be made to protect the Depositors as well as interests of employees using liquidation dividends”, he stated.

Also reacting, the National Coordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, highlighted that the CBN’s actions are reminiscent of past incidents, such as the handling of Polaris Bank.

Okezie argued that the CBN’s approach, which often leaves depositors struggling to recover their funds through the Nigeria Deposit Insurance Corporation (NDIC), does little to address the underlying issues.

He criticized the acquisition practices and the lack of adequate recapitalization of banks, questioning the effectiveness of the CBN’s regulatory oversight.

“What now happens to depositors’ money or even our investments? We are now left to go and struggle with the NDIC for our monies. The question is if Heritage Bank has not been profitable, why have they been in existence for so long? Why is the CBN just taking that decision now especially during this unfavourable and harsh environment?”, Okezie queried.

Providing a contrasting view, the Head, Research at FSL Securities and a financial expert, Victor Chiazor, explained that while Heritage Bank’s financial woes were somewhat anticipated, the CBN’s intervention aligns with its mandate to maintain financial stability.

He noted that, as a privately owned entity, the impact of the bank’s failure would primarily affect its private owners rather than public shareholders.

Asked if the move by the CBN threatens banks who have not been profitable, Chiazor said, “There is a possibility. The CBN gives you some level of purveyance to try and clean your books before taking action. Public analysts may not have insider information for private owned banks. It is only when your accounts are made public that we can understand what is really happening within that institution”.

Reps assure depositors: The Chairman, House Committee on Media and Public Affairs, Akin Rotimi, has assured frightened Nigerians not to panic over the liquidation of Heritage Bank, stressing that the provisions of the Banks and Other Financial Institutions Act (BOFIA) ensures the protection of  depositors, in the event of the liquidation of the a bank.

“We assure the public, particularly depositors and stakeholders of Heritage Bank, that the House is committed to carrying out its constitutional oversight functions to ensure that this development does not negatively impact Nigerians”, he said.


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