Heritage Bank Liquidation: Matters Arising

Comments & Opinions, cover

By Marcel Okeke

This piece is prompted by the turn of events since the withdrawal of the operational license of Heritage Bank Limited during the first week of June 2024 by the Central Bank of Nigeria (CBN). The action of the apex bank has unleashed or triggered motely unintended consequences, and has the potential to cause more ripples and negative multiplier effects on both the financial sector and the entire Nigerian economy. Indeed, the action has already generated so much apprehension and worry among numerous stakeholders and groups.

The CBN itself has been battling with ‘educating’ its publics on the license-withdrawal initiative; giving justifications for the regulatory measure. It has issued several press statements assuring and reassuring the banking public that it meant well by withdrawing the banking license. But like an incubus, the worrisome dimensions of the outcome of the bank liquidation move keeps evolving and manifesting.

Indeed, sequel to the Heritage Bank’s license withdrawal, rumors and fears among the banking industry stakeholders have gotten palpable that a number of other banks would soon be sent to the gallows too.In response, the CBN has had to issue statements widely published in the media. “No plan to revoke Wema, Polaris, Unity, Fidelity licenses—CBN”, is one of the headlines reflecting the apex bank’s assurances of the soundness of the health of all the banks. But try as the CBN has been doing to deal with the thickening rumor of more banks going down, the more the ‘fake’ news keeps spreading about the imminent ‘death’ of more banks.

In the midst of all these, ‘fifth columnists’ have joined the fray, digging out even archival materials to further spread and deepen fears and worries about the state of banks in the mind of the public. Thus, a publication bearing the headline: “CBN sacks Union, Polaris, Keystone banks’ boards” and dated January 10, 2024, has been ‘exhumed’ and kept flying around (like a current matter) in the social and other media. The upshot of all these is that some deposit money banks (DMBs), especially those being negatively projected in these publications, have been practically experiencing a run.

Openly and clandestinely, many bank depositors and customers have commenced ‘flight to safety’, by moving their deposits (partly and in full) to banks perceived to be healthy or healthier. Apparently alarmed by this development, a critical stakeholder in the banking system, the Chartered Institute of Bankers of Nigeria (CIBN), has joined in trying to allay the fears of the banking public about the health of the banking industry. In a statement issued on June 12, 2024, and signed by its President, Professor Pius Olanrewaju, the CIBN joined in assuring the public of the soundness and resilience of the banks.

In the release titled “CIBN Reassures the Public of the Safety and Soundness of the Nigerian Banking System”, the banking professional body said it would like to “reassure the public that the Nigerian banking system remains very safe, sound and resilient.” It said “this is on the heels of mendacious information making rounds in the public domain that the banking licenses of more banks would be revoked after the regulatory action taken by the Central Bank of Nigeria (CBN) against Heritage Bank Plc on June 3, 2024.”

“We would like to allay the fears of bank customers and the generality of the public that the assertion is false and misleading. The Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) have debunked the claim,” the CIBN said, stressing that “the ongoing recapitalization process announced by the CBN is also aimed at further strengthening the resilience of the Nigerian banks and their capacity to support the envisaged growth of the Nigerian economy.”

This barrage of assurances and reassurances about the good health of Nigerian banks by the CBN, NDIC and the CIBN go to show that some miscalculated steps had been taken by the apex bank. This is not to exonerate the Heritage Bank and its ownership/leadership of any misdeeds. Far from it. But considering some antecedents, the position of the apex bank since the 2008/9 global financial crises (or thereabouts) has remained not to allow the outright failure of the DMBs. Based on this, a few ailing banks at various times had been restructured, even renamed, and handed over to entirely new owners/investors.

But in the instant case, three months into the recapitalization process ordered by the CBN, the same apex bank found it most expedient and auspicious to send one of the recapitalizing banks to the ‘hangman’. By end-April 2024, all the banks, as ordered by the CBN in the ongoing recapitalization initiative, were expected to have submitted details of plans for funding their recapitalization. It follows that all the banks, including Heritage Bank, met that deadline—since the apex bank did not say otherwise.

If euthanasia could be administered on Heritage Bank three months into the recapitalization journey, without any prior warning to the public, how certain is it really that some other banks are not on the queue to the gallows? For sure, the ongoing liquidation of Heritage Bank has triggered fear, worry and uncertainty in the banking system and the Nigerian economy as a whole. The confidence of existing and potential investors (local and foreign) in Nigerian banks is already shaken; and sadly at a time every bank needs fresh funding.

As it appears, in the very highly competitive banking industry now ‘fouled up’ by the regulatory action of the CBN, intra-industry ‘war’ has also crept in. Even a cursory look at some of the loud headlines projecting a number of the banks as next in line to be hammered by the apex bank shows the handiwork of competition. Because all the banks are in the market seeking for trillions of funds to beef up their minimum capital, some DMBs are deploying the CBN’s liquidation option to de-market their competition. And this is why those ‘dirty’ and dangerous headlines, like an Albatross, are being flung round the necks of competing DMBs.

A widely circulating article in The Vanguard Newspaper (June 13, 2024) titled “Who is afraid of Fidelity Bank?” vividly spoke about the deadly competition among Nigerian banks. The article says: “a lot of mischief is going on in the banking sub-sector of Nigeria’s financial ecosystem since the Central Bank of Nigeria, on June 3, 2024, announced the revocation of the banking license of Heritage Bank.” The article says further that: “the not so subtle campaign by some faceless groups to de-market an otherwise solid financial institution like Fidelity Bank Plc, however, has not escaped the attention of the discerning banking publics. But it is mischief taken too far.”

Indeed, the intra-industry de-marketing, like farting, once it escapes through the anus, it is impossible to control or curtail the putrid order it could spread in the environment. The ‘death’ of one bank during a recapitalization race has become a ready tool that is being deployed to damage competition among the DMBs. So, beyond the smokescreen, who are the sponsors and authors of the fear-inspiring headlines and stories that show some of the banks in bad light?

This is why the blanket assurances by the CBN and other critical stakeholders about the good health of the banks could really be taken as‘post-mortem.’ The harm is already done; we can only hope the apex bank restrains itself from further weakening the chances of the banks at attracting good patronage as they scout for funds from across the globe. It is in their best interest!

The author, Okeke, a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: obioraokeke2000@yahoo.com (08033075697 SMS only)