First Bank has successfully recovered a “N456 billion loan” from Heritage Bank, just before the latter’s banking license was revoked by the Central Bank of Nigeria (CBN).
This recovery concludes a seven-year wait and averts a substantial impairment charge for First Bank.
According to sources within First Bank, the CBN credited the tier-one bank before announcing the license revocation of Heritage Bank. The CBN justified the revocation by stating that Heritage Bank had no reasonable prospects of recovery and had been suffering financially.
Details of the Payment
Report Afrique has verified that First Bank received the full N456 billion, which will be reflected in FBN Holdings’ half-year financial statements, bolstering its cash positions. The loan recovery ends a prolonged period of financial uncertainty for First Bank, which had been supporting Heritage Bank’s clearing obligations since a bailout arrangement during former CBN Governor Godwin Emefiele’s tenure.
First Bank’s financial statements showed balances with other banks amounting to N688 billion as of the first quarter ending March 2024, down from N735 billion in December 2023. These balances included clearing exposures to other deposit money banks.
Intensified Recovery Efforts
Efforts to recover the loan intensified as Heritage Bank’s financial condition deteriorated. The repayment was secured after a new board and management took over Heritage Bank earlier this year. This move by the CBN helped prevent a significant write-off for First Bank, which reported a pre-tax profit of N358.8 billion in the first quarter of 2024, alongside an impairment provision of N227.4 billion.
Heritage Bank’s Financial Distress
Heritage Bank’s financial troubles began in 2019, reaching a critical point where the bank appeared on the verge of collapse. Under Emefiele, the CBN pursued a policy of not allowing banks to fail, resulting in support for Heritage Bank through various measures, including a “Letter of Comfort” to First Bank, ensuring loan repayment guarantees.
Heritage Bank’s 2021 audited financial statement revealed a negative reserve of N230.8 billion and accumulated losses of N459.3 billion, indicating insolvency. As of 2021, Heritage Bank had balances of N247 billion due to banks in Nigeria, with First Bank being the primary creditor.
Regulatory Actions and Industry Stability
The CBN revoked Heritage Bank’s license due to persistent financial instability and regulatory breaches, as stated in Section 12 (1) of BOFIA 2020. Despite several supervisory measures, Heritage Bank could not improve its financial health, posing a threat to financial stability.
Following the revocation, the Nigeria Deposit Insurance Corporation (NDIC) commenced the liquidation process, assuring depositors of protection up to N5 million, depending on their deposits. Meanwhile, the CBN has denied rumours of plans to revoke the licenses of three more banks, affirming the robustness and resilience of the Nigerian financial system.
