Bad loans, controversial acquisition, other issues behind Heritage Bank’s liquidation

In May, customers stormed the various branches of Heritage Bank in Nigeria as they 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 before then, many customers had complained that they could not complete transactions and make cash withdrawals on their bank accounts.

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

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

According to the CBN, “The Board and Management of the bank have not been able to improve the bank’s financial performance, a situation which constitutes a threat to financial stability. This follows a period during which the CBN engaged with the bank and prescribed various supervisory steps intended to stem the decline.”

Regrettably, the apex bank said Heritage Bank continued to suffer and has no reasonable prospects of recovery, thereby, making the revocation of the licence the next necessary step.

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

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

Jim Obazee’s Investigation

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

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

However, when the loan matured and the ISA FUNTUA/EMEFIELE GROUP defaulted, Heritage Bank’s MD, 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 MD and the Deputy Managing Director, who subsequently became the Acting Managing Director.

The report claimed that “the MD of the bank at that time resigned due to the consistent pressure from him and the shareholders to comply.”

Background

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

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

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

The bank challenged the apex bank’s decision, leading to an Abuja Federal High Court order in April 2008 that compelled the apex bank to restore the operational permit after declaring that the bank met the minimum financial requirements to return to business.

The court had ruled that while it was the prerogative of CBN, as the regulatory body for banks in Nigeria, to revoke a banking licence in deserving situations, SGBN should have been given ample time to meet the condition attached to the forbearance of a considerable portion of its huge indebtedness to CBN.

Consequently, Societe Generale’s licence was reissued as a regional bank in 2012.

At an emergency meeting of the Financial Sector Surveillance Committee held after the order, the CBN amongst other things said it would not appeal the court’s judgment to avoid worsening depositor hardship.

“That CBN is a responsible and law-abiding corporate body which earnestly believes in the rule of law. Accordingly, and in the interest of justice and more so, in the overriding interest of the suffering depositors, the CBN has decided not to appeal the judgment of the court.

“Since the court has given SGBN only 30 days to complete all processes relating to its acquisition by another bank, the CBN reasoned that appealing the judgment would worsen the suffering of the innocent depositors.

“Consequently, appropriate machinery has been put in place to allow SGBN 30 days to meet the condition attached to the forbearance of 80 per cent of its huge debt to CBN as directed by the court,” it said in a statement.

SGBN later rebranded as Heritage Banking Company Limited and opened its doors for business in 2013. In 2015, Heritage Bank successfully acquired 100 per cent shares valued at about N56.1 billion in Enterprise Bank Limited.

AMCON at the time, said HBCL Investment Services Limited, HISL, emerged as the preferred bidder from among several domestic and international bidders that 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 off property belonging to Heritage Bank for failing to remit N100,270,910 tax liabilities to the state coffers.

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

“A Warrant of Distraint is hereby issued upon any land, premises or place of business in respect of which the respondent is the owner or occupier at 41 Aka Road, Uyo Akwa Ibom State in satisfaction of outstanding Tax liability of N100, 270, 901.62 established against the respondent,” a ruling by Effiong Effiong, a judge of the state high court, read.

Upon the revocation of the bank’s licence, the Managing Director/Chief Executive of Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan, vowed to employ all resources at its disposal to recover over N700 billion loans and advances owed to the bank.

Meanwhile, there have also been concerns over the bank’s non-performing loans, considered among the worst in the Nigerian banking industry. Experts also raised issues over the declaration of losses in its 2018 operation and its reliance on CBN’s short-term borrowing window amid liquidity crises.

Experts Speak

Boniface Okezie, National Coordinator of the Progressive Shareholders Association, called for the probe of the managers of Heritage Bank to boost confidence in the banking sector. He criticised the partial payments being made to depositors and questioned the solvency of other banks in the sector.

“Someone has N20m in the bank and you pay them N5m until the assets of the bank have been assessed and liquidated. That is wrong. It is going to discourage people from using banks.

“Besides, is it only 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. The management should be called for questioning. Those who ran the bank aground should be called for questioning. It is not enough that NDIC should liquidate,” he told Punch newspaper.

Paul Alaje, senior economist and partner at SPM Professionals, expressed concerns about the directors of banks withdrawing money without proper documentation, posing significant risks to the financial sector.

“Based on the CBN reports, the way the directors have collected money and made withdrawals out of the bank without proper documentation is a huge concern for our financial sector,” he said.

Kingsley Moghalu, a former deputy governor of the CBN, noted that the revocation of Heritage Bank’s licence should not cause undue concern or indicate that the financial system is unsound.

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