The recent withdrawal of the operating licence of Heritage Bank Plc by the Central Bank of Nigeria (CBN) may have come to some people as a surprise, but to those who know the genesis of the action, it was the right course of action to take. As unfolding details have shown, Heritage was a crisis waiting to happen, with the potential to drag part of the banking system with it.
In this regard, we commend the CBN for drawing the line and taking the painful but necessary action. It is noteworthy that this action came after the regulator had given the leadership of Heritage a series of safeguards, including a recapitalisation programme, which the bank bungled. It is also on record that Heritage became a regular visitor to CBN’s short-term window for borrowing, as the regulator extended to it a lifeline to hang on while sorting out its crisis.
In taking that action, the CBN was guided by Section 12 of the Banks and Other Financial Act (BOFIA) 2020, which provides several conditions that could lead to a bank’s licence being revoked. In the case of Heritage, some of the relevant conditions that led to the revocation include having insufficient assets to meet its liabilities, being involved in a situation that constitutes a threat to financial stability and many others.
A delay would have led to the bank collapsing and subsequently leading to a run on the other banks. This would surely have sparked a systemic contagion effect, with its destabilising impact on an economy that is already characterised by a traumatised citizenry.
Stability in the banking sector is highly required now. So, everything should be done to safeguard the banking system.
It is quite significant that this is happening against the backdrop of an ongoing recapitalisation exercise ordered by the CBN. The fact that there was such a weak bank within the system that had by all standards became a black hole in the country’s financial system, makes this exercise all the more imperative. Therefore, the CBN and the leadership of all the banks must be properly guided.
They cannot afford to relax at this point. The standard set must be adhered to by insisting that bank leaders play by the rules of the industry. The issue of moral hazards in the banking industry must be effectively addressed. Those to whom people’s earnings are entrusted must show sufficient capacity to manage such funds professionally.
It is on record that one of the contributory factors to Heritage Bank’s challenge was its acquisition of Enterprise Bank in 2014, for which it paid a whopping N56 billion.
Market analysts believe that the calculations by the acquirer, of attaining a wider industry reach from the deal failed to materialise, and that Heritage never recovered from that misadventure until its demise.
Going forward, therefore, such deals must be subjected to thorough regulatory scrutiny to ascertain how much enterprise-level consultations and agreements were reached before such decisions were reached.
While we hail CBN for its intervention, we sympathise with the bank’s depositors. Although the Central Bank handed the bank to the Nigerian Deposit Insurance Corporation for an orderly liquidation, the two per cent of Heritage Bank’s customers who have more than N5 million in their accounts may not be able to recover their deposits in a short time. Yet, while these are quite considerable costs, they are nothing compared with what a country could suffer when a banking system goes down.
This explains why bank failure must be avoided by every possible means because of its real cost to the society. Knowing how close to the brink we as a country got to during the banking crisis of 2008 to 2009, plus the extra years taken to finally resolve its consequences, it becomes imperative that proactive steps must be taken to arrest any signs of weakness at the earliest stage.
The way Nigerians panicked over the licence withdrawal should guide both the regulators’ and operators’ actions in the future. The banking sector is the people’s anchor; therefore, the authorities should do everything possible to ensure that banks do not fail. They should ensure that there is no run on the banks by managing the information challenge created by the Heritage demise. Let this guide them on how to superintend the banking sector because it is fundamental to the economy.
This is not the time for banks to fail in the economy; not that there is a particular time good for a banking sector crisis. The current situation in the country is highly incendiary, and the people are already at their wits end that any such event could be difficult to manage.