Understanding The Downfall of Heritage Bank

Although The Central Bank of Nigeria revoked the licence of Heritage Bank some months ago, it could have happened earlier as far back as 2018 according to some reports.?

The woes of the bank can be traced to the very move of acquiring Enterprise Bank in 2014 worth ?56 billion.?

When it has to do with acquisition of banks, beyond due diligence and disclosures, there are problems that can never be seen from the outside by the acquiring party.?

Access Bank’s acquisition of Intercontinental Bank in 2012 could have gone the same way and almost ended complicated.?

Heritage Bank’s troubles became even more when a significant portion of the high non-performing loans worth N490 billion granted by the bank were not repaid, leading to substantial losses.? An non-performing loan rate of 81.2% is exceptionally high and indicates severe credit risk management issues.

Next to non-performing loans were accumulated losses eroding its capital base. These losses were primarily due to the high NPLs and operational inefficiencies.

Gradually, the bank’s liabilities exceeded its assets which showed clearly a poor financial health status.

The bank's operational costs became very high compared to its income, further worsening its financial situation.

Heritage Bank failed to adhere to the regulatory requirements set forth by the Central Bank of Nigeria, which is a serious offence.

The circular by the Central Bank of Nigeria did not make very clear what regulatory requirement Heritage Bank failed to adhere to.?

However, there are many ways a bank can fail to adhere to the regulatory requirements by the Central Bank of Nigeria, here are some:

Capital Adequacy Ratio (CAR): The bank may have considered the impossibility to hit the new minimum capital required by the CBN to absorb potential losses. With a ?1 trillion deficit in its capital base—equity, reserves, and accumulated earnings—the struggling lender would never have met those requirements.?

Loan-to-Deposit Ratio (LDR): This ratio measures the proportion of deposits lent out as loans. In this case, the bank's loans exceeded deposits and exceeding the regulatory limit can pose risks.??

Non-Performing Loan (NPL) Management: The bank might not have implemented effective strategies to recover bad debts or made adequate provisions for them as recommended by the Central Bank of Nigeria.

Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Regulations: Failure to comply with these regulations can lead to severe penalties and reputational damage.

Corporate Governance: Internal weak governance practices may have contributed to financial irregularities and mismanagement.

These factors combined presented a situation where the bank was unable to recover its financial health which posed a threat to the overall stability of the Nigerian banking system.?

You care to ask why some strong banks didn’t acquire Heritage Bank??

Most banks have learnt that acquiring distressed banks can be more trouble than it’s worth.?

In the case of Heritage Bank, an acquisition must have been unsustainable as their books were red.?

The Central Bank of Nigeria recently lent Unity Bank & Providus Bank about N20billion some months after revoking the license of Heritage Bank.?

The Central Bank of Nigeria must have attempted to salvage Heritage Bank but concluded that there was no reasonable prospects of recovery

Safe to say that the Central Bank of Nigeria’s decision to revoke the bank's licence was a measure to protect depositors and maintain financial stability.

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