Heritage Bank Revocation: How Bad Was the Bank?
Nigeria's Central Bank (CBN) has revoked the banking license of Heritage Bank, citing the bank's inability to meet its financial obligations. This decision comes after months of speculation and struggles for the bank.
A Long History of Non-Performing Loans
Heritage Bank has been grappling with a significant amount of non-performing loans (NPLs) for years. Internal documents obtained by TechCabal reveal that a staggering 90% of the bank's active loan portfolio, valued at around ₦700 billion ($1.6 billion USD) as of March 31, 2024, was classified as lost or doubtful. This indicates a severe lack of loan repayment by borrowers.
The bank's financial state further deteriorated with its tier-1 capital, which includes equity, reserves, and accumulated earnings, falling into a deficit exceeding ₦1 trillion ($2.3 billion USD).
CBN Takes Action After Failed Recovery Attempts
Despite these alarming figures, Heritage Bank reportedly explored various strategies to recover defaulted loans. These included deploying debt collection agencies, seizing collateral from defaulters, and even contacting former staff. However, these efforts proved unsuccessful in rectifying the bank's financial situation.
NDIC Steps In to Protect Depositors
Following the CBN's license revocation, the Nigeria Deposit Insurance Corporation (NDIC) has been appointed as the official liquidator for Heritage Bank. The NDIC will assume control of the bank's management and initiate the process of reimbursing insured deposits up to the maximum insurable limit, which was recently increased from ₦500,000 ($1,160 USD) to ₦5 million ($11,600 USD). Depositors are expected to have access to their insured funds as early as Wednesday.
The Road Ahead for Heritage Bank
The NDIC will establish a "bridge bank" to manage Heritage Bank's functional assets and liabilities. This bridge bank will ensure minimal disruption for customers, allowing them to continue accessing deposits and core banking services. Regulators will concurrently search for a buyer to acquire Heritage Bank.
This situation is not without precedent. In 2018, Skye Bank, another Nigerian bank facing financial difficulties, was liquidated. Polaris Bank assumed control of Skye Bank's operations with a significant cash injection of ₦786 billion ($1.8 billion USD).
The Future of Nigerian Banking
The case of Heritage Bank serves as a stark reminder of the importance of responsible lending practices and robust financial management within the Nigerian banking sector. The CBN's decisive action aims to protect depositors and maintain stability within the financial system. It remains to be seen how this situation will unfold and what long-term implications it will have for Heritage Bank and the Nigerian banking landscape.
