Litigation delays payment to depositors of Fortune, Triumph, Peak Merchant Banks
….. As NDIC liquidates 425 banks in 32 years
Payment to Depositors of failed Fortune International Bank, Triumph Bank and Peak Merchant Bank was put on hold as at the end of 2019 due to litigation challenging the revocation of their operating licences, the Nigeria Deposit Insurance Corporation has said.
The Central Bank of Nigeria (CBN) revoked the licence of Fortune Bank Plc, on January 16, 2006, Peak Merchant Bank on February. 28, 2003, and that of Triumph Bank on January 16, 2006, having found them insolvent to carry on banking operations.
The NDIC had said then that due to court actions instituted by some of the closed banks’ shareholders challenging the revocation of their banks’ licences, it was unable to conclude the closing exercise and initiate the payment of deposits to depositors of the banks.
But the Corporation has so far liquidated 425 financial institutions since its incorporation in 1988.
John Abiodun, an Assistant Director, Insurance and Surveillance Department of the Corporation who made the disclosure said 51 of the liquidated institutions were Deposit Money Banks; 325 were Micro Finance Banks while 51 were Primary Mortgage Banks.
He said the liquidation of institutions through revocation of their operating licences becomes the last option when all resuscitation efforts by the shareholders and authorities fail.
Abiodun was speaking weekend at the 2020 Finance Correspondents Association of Nigeria forum which held in Abuja.
He said through efficient and diligent liquidation activities, the Corporation has successfully paid in full the deposits of customers of 18 DMBs that were both insured and uninsured.
“But payment to Depositors of Fortune International Bank, Triumph Bank and Peak Merchant Bank was put on hold as at the end of 2019 due to litigation challenging the revocation of their operating licence,” he stated.
He said insider abuse, abusive ownership and weak board of directors, weak corporate governance, poor risk management process, inadequate capital, weak regulatory and supervisory measures as well as economic and political factors are primary reasons why some of these banks failed.
“Once a bank’s license is revoked, NDIC takes over for liquidation,” he noted.
But in the course of supervision, the corporation looks out for early warning signals which could eventually lead to a bank not being able to meet its obligations.
According to him, some of those signals include aggressive growth and excessive competition for deposits, shareholder’s squabbles, frequent changes in management and ownership, change in major business lines.
Others are failure to meet the minimum Capital Adequacy Ratio of ten per cent, rising non-performing loans to total credit ratio of above five per cent, failure to meet the prevailing minimum liquidity ratio of 30 per cent, high total expense to total income ratio and high incidences of fraud.
Speaking on the resolution mandate of the NDIC, Abiodun said the corporation had faced a lot of challenges in effectively carrying out this role.
He listed delays in revocation of the licenses of terminally distressed banks, depositor and creditor apathy and ignorance, delay in filing claims, and recovery of debts owed the failed banks as some of those challenges.
Delays in amending the NDIC which has dragged for a few years has also been another challenge, Abiodun mentioned.
He also raised the NDIC concerns on the legal actions of owners of closed banks; protracted litigations; disposal of low quality physical assets of the closed banks and provision of timely liquidity support.
Onyinye Nwachukwu, Abuja