Heritage Bank’s License Revocation by CBN: Legal Implications

Per the circular that was released by CBN on the 3rd of June, 2024, the Central Bank of Nigeria decided to revoke the license of Heritage Bank. This power stems from Section 12 of Banks and other Financial Institutions Act (BOFIA) 2020, which gives the grounds for revocation of license as follows:

12.--(1) Notwithstanding the provisions of this Act or any other law, the Governor may, with the approval of the Board and by notice published in the Federal Government Gazette, or print and electronic media, revoke any licence granted under this Act if a bank—

(a) ceases to carry on in Nigeria the type of banking business for which the licence was issued for any continuous period of six months or any period aggregating six months during a continuous period of 12 months;

(b) goes into liquidation or is wound up or otherwise dissolved;

(c) fails to fulfill or comply with any condition subject to which the licence was granted;

(d) has insufficient assets to meet its liabilities;

(e) conducts its business in an unsound manner or its directors engage in unsafe practices;

(f) is involved in a situation, circumstance, action or inaction which constitutes a threat to financial stability;

(g) fails to comply with any obligation imposed upon it by or under this Act, or the Central Bank of Nigeria Act or any other rule, regulation, guideline or directive made hereunder;

(h) is, in the opinion of the Bank critically undercapitalised with a capital adequacy ratio below the prudential minimum or such other ratio as the Bank may prescribe;

(i) fails to commence banking operations within 12 months following the grant of a licence; or

(j) fails to comply with the provisions of section 9 or 13 of this Act.

(2) Where the licence of a bank has been revoked under this Act and the Governor is satisfied that it is in the public interest to do so, the Governor may, subject to the approval of the Board and without waiting for any period prescribed for doing anything under this Act or any law to lapse, appoint the Nigeria Deposit Insurance Corporation (in this Act referred to as "the Corporation) as a liquidator of the affected bank and the Corporation shall have the powers conferred on a liquidator by or under the Companies and Allied Matters Act and shall be deemed to have been appointed a liquidator by the Federal High Court for the purpose of this Act.

IMPLICATIONS OF THE REVOCATION

The announcement regarding the revocation of Heritage Bank PLC's banking license by the Central Bank of Nigeria (CBN) has significant implications, both legally and practically. Here is a detailed explanation and what the public can learn from it:

Legal Basis for Revocation

Mandate and Authority:

The CBN exercised its power under Section 12 of the Banks and Other Financial Institutions Act (BOFIA) 2020 to revoke the banking license of Heritage Bank PLC. This section grants the CBN the authority to revoke the license of any bank that fails to comply with the provisions of BOFIA or is otherwise deemed to be operating in a manner that threatens the stability of the financial system.

Breach of BOFIA

Heritage Bank PLC breached Section 12(1) of BOFIA, 2020. This section typically outlines the circumstances under which a banking license can be revoked, such as insolvency, failure to comply with regulatory requirements, or engaging in unsafe banking practices.

Reasons for Revocation

Financial Instability:

The Board and Management of Heritage Bank failed to improve the bank's financial performance, which posed a threat to the stability of the financial system. Despite various supervisory steps and engagements by the CBN, the bank continued to suffer with no reasonable prospects of recovery.

Consequences of Revocation

Appointment of Liquidator

The Nigeria Deposit Insurance Corporation (NDIC) is appointed as the liquidator of Heritage Bank in accordance with Section 12(2) of BOFIA, 2020. The NDIC will oversee the liquidation process, which involves the winding down of the bank's operations, settling claims, and distributing the bank's remaining assets.

Impact on Public Confidence

This action is intended to strengthen public confidence in the banking system and ensure that the soundness of the financial system is not impaired.

Regulatory Vigilance

The CBN is charged with actively monitoring the financial health of banks and to protect the integrity of the financial system.

Deposit Protection

Customers of Heritage Bank should be aware that their deposits are insured up to a certain limit by the NDIC. The NDIC's role as a liquidator is also to ensure that insured depositors are reimbursed promptly.

Risk Awareness

The public should understand the risks associated with banking institutions and the importance of choosing banks that are in good financial health and comply with regulatory standards.

Legal Framework

The revocation underscores the importance of legal and regulatory frameworks like BOFIA in maintaining financial stability and protecting consumer interests.

What Next for Customers

According to a spokesperson for the NDIC, Bashir Nuhu, he assured depositors with an insured amount of ?5 million or less that they would get their money through alternate banks. While customers with insured amount of over ?5 million would be paid liquidation dividend upon realization of the bank's assets and recovery of debts owed to the bank.

CONCLUSION

This action by the CBN demonstrates the regulatory measures in place to maintain the stability of the Nigerian financial system and protect depositors' interests and the significance to banks of strict adherence to laid down principles.

REFERENCES

Bank And Other Financial Institutions Act, 2020

CBN Circular on the Revocation of Heritage Bank's License, dated June 3, 2024

Step-By-Step Process: How Heritage Bank Customers Will Get ?5m Insured Funds — NDIC by @Kayode Ojero of Channels Television

Written by Omowonuola Alabi

Adeola Kolawole

Header image designed by Oshinlolu Kofoworola

of Aviel Avenante Law Practice

https://www.aaLawsng.com