On June 3, the Central Bank of Nigeria (CBN) revoked the banking licence of Heritage Bank Plc, raising curious questions about how depositors and shareholders would fare in terms of getting back their funds.

The CBN had explained that its decision on the licence revocation was made due to the bank’s inability to improve its financial performance.

The regulator said Heritage Bank, which was nationally licensed, has not improved and “has no reasonable prospects of recovery”, thereby making revoking the licence the next necessary step.

According to the CBN, the Nigeria Deposit Insurance Corporation (NDIC) has been appointed as the liquidator of the bank in line with Section 12 (3) of the Banks and Other Financial Act (BOFIA) of 2020.

A liquidator is an organisation with the legal authority to act on behalf of a company to sell the company’s assets before the said firm closes, in a bid to raise capital for various purposes such as debt repayment.

Following the licence revocation, the NDIC said it would pay a maximum of N5 million insured deposits to each customer of Heritage Bank.

However, the corporation said depositors with funds more than “the insured deposits will be paid as and when the assets of the closed bank are realised”.

Deposit insurance involves insuring a financial institution so that depositors are guaranteed against loss in the event the bank fails.

HERITAGE BANK NOT NEW TO REGULATORY ISSUES

This is not the first time the bank has run into issues with regulators.

Heritage Bank was founded in the 1970s as the Societe Generale. The CBN, in 2006 closed down the institution due to failure to meet new capital requirements of N25 billion ($155 million), after which the bank successfully challenged the closure in court. The CBN reissued the licence as a regional bank in December 2012.

Having acquired the banking licence, the new ownership rebranded the bank as Heritage Banking Company Limited and opened for business on March 4, 2013.

In October 2014, Heritage Banking Company met the requirements of Asset Management Corporation of Nigeria (AMCON) and the CBN for 100 percent shares in Enterprise Bank Ltd.

In January 2015, AMCON officially transferred ownership of Enterprise Bank to Heritage Bank.

With the bank now enmeshed in another regulatory woes, TheCable looks at the implications of Heritage Bank’s licence revocation on depositors’ funds and stakeholders.

WHAT HAPPENS TO CUSTOMERS?

According to the CBN, the NDIC is required to commence liquidation of the revoked bank’s licence and the payment of depositors.

The insured institution’s assets, according to the NDIC, must be available to cover its deposit liabilities, which will be prioritised over all other liabilities.

Payment of the insured deposit to customers of banks — in this case, Heritage Bank — is expected to be done by the corporation within 30 days of being appointed liquidator, according to Section 28 of the NDIC Act.

The payment can be made by cash or a negotiable instrument, and customers can also receive the specific amount payable via transfer to another financial institution.

The NDIC, at its discretion, would require proof of claim from all qualified depositors of the bank, the Act also states.

The corporation may also seek a final determination by a court of competent jurisdiction if it is not satisfied with the validity of a claim for an insured deposit.

According to Section 31 of the NDIC law, after payment of insured deposits, the corporation may make interim dividend payments from proceeds of realised assets of the failed insured institution.

The law, in Section 57, emphasises that shareholders and directors are individually liable after a bank’s licence revocation.

STEP-BY-STEP PROCESS FOR DEPOSIT REPAYMENT

In a statement on June 3, Bashir Nuhu, spokesperson of NDIC, assured that depositors would retrieve their funds, stating the process for such retrieval.

“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” he said.

“Creditors are advised to visit the nearest branch of the bank to file their claims or via the online platform. Please note that the process of payment of creditors will commence immediately after all depositors have been paid.

“Debtors’ Repayment of Loans: Debtors who have yet to repay loans are advised to contact the Corporation’s Asset Management Department (AMD). Visit the NDIC website for more details.”

WHAT HAPPENS IF DEPOSITIORS DO NOT CLAIM PAYMENT?

Section 30 of the NDIC Act mandates that a corporation must give depositors at least three months’ notice to pay, either by mailing a copy to their last known address or publishing a general notice in at least two national dailies and electronic media houses, notifying them of the venue and dates for payment.

According to the regulation, any depositor who fails to claim the insured deposit within six years after the notice would forfeit such sums to the corporation.

To protect depositors, the NDIC could decide to appoint another financial institution to assume the deposits of Heritage Bank.

If the customers fail to claim or arrange to continue their transferred deposit with the new insured institution within six years, all of their rights against Heritage Bank and its shareholders will be reverted to the corporation.

The amount of any transferred deposit not claimed within six years will be refunded to the corporation.

Section 30(6) of the Act states that a court proceeding cannot be commenced against the corporation in respect of its obligation to make payment to depositors of the failed financial institution after six years.

CAN AGGRIEVED DEPOSITIORS, SHAREHOLDERS SUE NDIC OVER PAYMENT ISSUES?

Moreso, depositors or shareholders who, for instance, do not receive deposits or dividends from the NDIC after following due process, can sue the corporation.

According to Section 29(2) of the NDIC Act, in case of any suit against the corporation, what will be paid (remedy) to claimants would be limited to the amount of actual loss suffered.

For depositors, it is the maximum insured deposit, while shareholders get the nominal value of the shares in the insured institution. A group of shareholders will receive the nominal value of the aggregate of the shares in the insured institution.

Like depositors, financial institutions and its shareholders can challenge their licence revocation, according to the CBN.

However, aggrieved parties can only do so within a 30-day period after licence revocation.

In the BOFIA Act, Section 12(5) states that no action in respect of the licence revocation of a financial institution must be filed or maintained unless it is filed within 30 days from the date of the revocation.