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CBN settles N400bn First Bank loan as Heritage goes down

As Heritage goes down, First Bank scrambles to save N400bn loan

The Central Bank of Nigeria (CBN) has settled the over N400 billion owed to First Bank by the now-defunct Heritage Bank, according to the lender and sources familiar with the matter.

“First Bank had exited the exposure and CBN settled the Bank,” Ismail Omamegbe, the lender’s corporate communications manager, said Tuesday.

Another source confirmed that the CBN has paid off First Bank’s exposure to Heritage, given that its intervention was at the behest of the apex bank under Emefiele.

In the beginning

In 2018, First Bank, serving as the clearing bank for all Heritage Bank cheques, noticed an alarming discrepancy.

Of the cheques cleared for Heritage Bank, a substantial N200 billion remained unpaid. This revelation sent ripples of concern through First Bank’s boardroom.

The gravity of the situation was clear: allowing this debt to persist unaddressed posed a significant risk to the bank’s financial stability. However, the potential fallout from pulling the plug on Heritage Bank was equally daunting.

Read also: CBN revokes banking license of Heritage Bank Plc

Enter the emperor’s guarantee

Godwin Emefiele, then Governor of the Central Bank of Nigeria (CBN), stepped in amid the brewing crisis, with a bold proposition.

The emperor, as he was called in banking circles, offered a central bank guarantee on behalf of Heritage Bank, ostensibly to be executed in 2019. This move, a lifeline for Heritage Bank, was designed to assuage First Bank’s concerns and provide a safety net, backed by the Central Bank’s authority.

Broken promises

Fast forward to 2020, the situation took a dire turn.

During a pivotal board meeting, First Bank’s directors were confronted with a distressing notification from their auditors, PricewaterhouseCoopers (PwC).

The auditors revealed that the much-vaunted CBN guarantee was conspicuously absent. This revelation left the board in a state of shock. Questions were immediately directed at then-Managing Director, Adesola Adeduntan, who defended the bank’s position by asserting that Emefiele had given his word regarding the guarantee.

Despite Adeduntan’s reassurances, the absence of a formal guarantee was a glaring oversight that PwC could not overlook.

Compounding the problem, by this time, the debt had ballooned from N200 billion to N300 billion, exacerbating the financial strain on First Bank. The board’s patience was wearing thin, and they issued a stern directive to Adeduntan to secure the guarantee without delay.

Read also: Here’s what to know about Heritage Bank

Downfall of the Board

The unfolding debacle reached a climax when the board was unceremoniously sacked by Emefiele who had taken offence to the board’s insistence on a formal guarantee.

CBN hammer falls on Heritage

The CBN on Monday revoked the licence of Heritage Bank Plc with immediate effect following breaches of banking legislation.

The management “have not been able to improve the bank’s financial performance, a situation which constitutes a threat to financial stability,” it said in an emailed statement.

Heritage Bank has struggled with non-performing loans over the years.

An internal document released on Monday revealed that at least 90 percent of the bank’s active loan portfolio of around N700 billion was considered lost or doubtful as of March 31, 2024. The bank’s tier-1 capital comprising equity, reserves, and accumulated earnings was in a deficit of over N1 trillion.

Internal documents showed that less than 5 percent of outstanding loans were performing, with 90 percent classified as lost. Some of those loans date back to 2018 when the bank reported a loan impairment of N37.5 billion in the first half of 2018.

Depositors of the bank that have alternate accounts within the industry will be paid up to the insured amount of N5 million per depositor using their Bank Verification Number (BVN) to locate their alternate account. Depositors with funds over N5 million will be paid liquidation dividends upon realisation of the bank’s assets and recovery of debts owed to the bank.