CBN’s Heritage Bank Licence revocation,a breach of faith with banking sector, says expert

Onome Amuge

Orji Udemezue, CEO of Flame Academy & Consulting Ltd,has expressed deep concern and disappointment over the revocation of Heritage Bank Plc’s banking license by the Central Bank of Nigeria.

Udemezue, in a note to Business a.m., cited the CBN’s previous pledge not to allow any bank to collapse after the Global Financial Crisis of 2008-2009, which he believed had been betrayed by Governor Cardoso’s actions.

“What has happened to the Financial Industry Resolution Funds enshrined in the 2020 amended BOFIA??

“What has happened to the risk-based supervision approach entrenched in the Central Bank in the past decade and more??

“Why couldn’t the Central take over the bank as a bridge bank pending whenever an investor can be found?? Or has this been on behind the table?” he questioned.

Udemezue warned that the revocation of Heritage Bank’s license could have severe implications for the future of the sector and the broader Nigerian economy.

The banking and finance expert added that the decision could erode investor confidence in the banking industry, particularly given that many banks, both large and small, would soon need to raise capital. He observed that the current economic climate, with Nigeria already experiencing a prolonged period of stagnation, was an inopportune time for such disruptive news to be announced

Udemezue also voiced his concerns about the role of the Nigeria Deposit Insurance Corporation (NDIC) in managing the affairs of Heritage Bank.

He expressed a lack of trust in the NDIC’s ability to manage the assets of Heritage Bank, stating that as usual, NDIC will sit on people’s deposits for decades.

According to Udemezue, “NDIC has (also) never recovered defunct banks’ risk assets to ensure further payments to deposits beyond the hungry insured amounts.”

The Central Bank of Nigeria (CBN) had on Monday, June 3,  announced the immediate revocation of Heritage Bank Plc’s banking license.

The CBN, citing Section 12 of the Banks and Other Financial Institutions Act (BOFIA) 2020, stated that the license revocation was intended to ensure that Nigeria’s banking sector remains stable and healthy, thus safeguarding the interests of depositors, investors, and the economy at large.

A circular signed by Hakama Sidi Ali, the CBN’s acting director, corporate communications, explained that the decision to revoke Heritage Bank Plc’s banking license was based on the bank’s persistent underperformance and its inability to turn around its financial situation, which posed a significant threat to the stability of the Nigerian financial system.

The apex bank  stated: “This action has become necessary due to the bank’s breach of Section 12 (1) of BOFIA, 2020. 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 bank has continued to suffer and has no reasonable prospects of recovery, thereby making the revocation of the license the next necessary step.”

To avoid further erosion of public confidence in the country’s financial sector and safeguard the stability of the system, the CBN said it has appointed the Nigeria Deposit Insurance Corporation as the official liquidator of Heritage Bank.

Reaffirming its dedication to upholding the stability of Nigeria’s financial system, the CBN reassured the public that the banking sector remains on solid footing, adding that the action it is taking reflects its continued commitment to take all
necessary steps to ensure the safety and soundness of Nigeria’s financial system.