Revocation of the License of Heritage Bank by the Central Bank of Nigeria (CBN)

The existence of a bank ends when its banking license is revoked. On June 3, 2024, the Central Bank of Nigeria (CBN), by a press release revoked the license of Heritage Bank. Heritage Bank’s license has been revoked by the Central Bank of Nigeria (CBN) for violating Section 12(1) of the Banks and Other Financial Institutions Act 2020.

According to Section 12 of the Banks and Other Financial Institutions Act 2020, the Central Bank has the power to revoke a financial institution’s license if it doesn’t comply with the requirements, such as being severely undercapitalized, being in a situation that jeopardizes its financial stability, operating in an unethical manner, or having insufficient assets to cover its liabilities.

As the principal regulatory agency in charge of the banking and financial industry in Nigeria, the CBN bears the burden of guaranteeing the stability, integrity, and soundness of the country’s economic system.

Additionally, the apex bank stated that the revocation was necessary to preserve trust in the business’s financial system.

Grounds For The CBN’s Decision

According to the CBN, the bank’s financial problems have not abated and there are no obvious signs of improvement. Other grounds the Central Bank might look at for such revocation are as follows.

• Failed to fulfill or comply with the conditions subject to which their licenses were granted.
• Persistently failed to render the relevant returns as and when due.
• Failed to comply with the obligations the CBN imposed upon them, e.g., during the evaluation stages before the revocation was announced.
• Remained inactive.
• Become insolvent.
• Ceased to continue, in Nigeria, the type of business for which their licenses were issued for six (6) months.

Options Available To Affected Financial Institutions

The options available to affected financial institutions for business continuity include:

• Seek Redress before the Federal High Court: In some cases, a financial institution whose license has been revoked may choose to take legal action against the CBN. However, it is important to note that the court cannot mandate the CBN to restore the revoked license, as there are provisions and limitations outlined in Section 12 (4), (5), and (6) of the BOFIA 2020.
  
  
• Re-apply for the same license or a Downgraded License: An institution that has had its license revoked may still reapply to the CBN for the same license to resume its banking operations, except for situations involving patent fraud or mismanagement. This is comparable to applying again after it was previously denied or dismissed by a judge.

Options Available To Depositors

The Nigeria Deposit Insurance Corporation (NDIC) is appointed as the bank’s liquidator under Section 12 (2) of BOFIA, 2020, and Section 40 of the NDIC ACT. The NDIC is mandated to function as a liquidator to a bank whose license was revoked and exercise the powers conferred on a liquidator by the Companies and Allied Matters Act (CAMA).

The NDIC will settle claims in the following order:
-Depositor
-Investors
-Shareholders

The Nigeria Deposit Insurance Corporation (NDIC) will promptly notify the eligible depositors of the shuttered bank of the protected funds, following verification of their eligibility on the bank’s premises.

The NDIC insures depositors with deposit-taking financial institutions. Upon revocation of license, winding up, and verifying accounts, the NDIC will reimburse eligible depositors up to the maximum insured amount of N5 million in Deposit Money Banks (DMBs). This means that if the Central Bank of Nigeria (CBN) revoked a bank’s license, you would receive N5 million back into your account

• Depositors will receive a Liquidation Dividend upon the financial institution’s liquidation if the total amount in their account exceeds the amounts mentioned above (i.e., uninsured deposits). In a situation where a depositor with funds above N5 million in their account, the depositor will be paid a liquidation dividend upon realization of the bank’s assets and recovery of debts owed to the bank.
  
  
• Insured deposits are paid within 30 days after the revocation of license, on the condition that depositors verify their accounts with the NDIC. However, uninsured deposits will be paid by the NDIC upon realization of the assets of the Deposit Money Banks (DMBs).
  
  
• Depositors would then need to obtain the necessary documentation to enable the verification and payment of their insured deposits, which would include proof of account ownership, valid identification, and an alternative bank account.

For example, if spouses, or any two or more individuals, have a joint account in the same covered bank in addition to their accounts, then each of the individually owned accounts and the joint account is protected separately up to the insured maximum sum.

The Fate Of Investors And Shareholders Of Heritage Bank.

When a liquidator is appointed to liquidate a failed bank, the fate of investors and shareholders is usually as follows:

• Loss of investment: Investors and shareholders may lose their entire investment in the bank, as the liquidator’s primary responsibility is to pay off depositors and creditors, not investors and shareholders. Section 2(c) NDIC ACT
  
  
• Last in line: Shareholders are usually last in line to receive any payments from the liquidator after all depositors, creditors, and other priority claims have been settled.
  
  
• Loss of control: Shareholders lose control over the bank’s affairs, as the liquidator takes over management and decision-making responsibilities. Section 585(9) CAMA.

Conclusion

The financial system may be significantly impacted if a banking license is revoked. It might erode public confidence in the banking industry, which would make it harder for other banks to obtain funding. Lending activity may also decline, which would slow economic expansion. However, to safeguard depositors and stop the development of financial instability, it is occasionally essential to revoke a banking license.