Inclusifund Confirms that First Bank has successfully recovered a ₦456 billion loan extended to Heritage Bank. This repayment concludes a critical financial maneuver that prevented potential impairment charges for First Bank.
Background of the Bailout Loan
The recovered loan was part of a “bailout loan” arranged during the tenure of former Central Bank of Nigeria (CBN) Governor Godwin Emefiele. The CBN facilitated the credit to First Bank, ensuring the tier-one bank avoided significant financial distress prior to revoking Heritage Bank’s license.
License Revocation and Financial Collapse
On Monday, the CBN revoked Heritage Bank’s license, citing continuous financial distress and a lack of recovery prospects. This decision came after the bank’s prolonged struggle with financial instability, which began in 2019.
Details of the Payment
Verified sources indicate that First Bank received the full repayment of ₦456 billion, ending a seven-year period of financial uncertainty. This payment is expected to be reflected in FBN Holdings’ half-year financial statements, bolstering its cash positions.
First Bank’s balances with other banks stood at ₦688 billion as of March 2024, down from ₦735 billion in December 2023. These balances include clearing exposures to other deposit money banks.
Efforts to Recover the Loan
Recovery efforts intensified as Heritage Bank’s financial condition worsened over the years. A resolution was reached earlier this year when a new board and management took over Heritage Bank. The amount was credited to First Bank ahead of the official license revocation announcement, concluding the seven-year wait.
Financial Impact on First Bank
This repayment will be reflected positively in FBN Holdings’ financial statements, preventing a potential loan write-off. FBN Holdings reported a pre-tax profit of ₦358.8 billion in the first quarter of 2024, with an impairment provision of ₦227.4 billion.
Heritage Bank’s Financial Distress
Heritage Bank’s financial troubles began in 2019, facing severe distress and near collapse. Under Governor Emefiele, the CBN pursued a policy to prevent bank failures, supporting Heritage Bank through various measures.
First Bank was authorized by the CBN to backstop Heritage Bank’s clearing obligations. Clearing is a critical process in Nigerian banking, ensuring the correct transfer of funds between accounts. Heritage Bank’s exclusion from the clearing process indicated its financial distress.
Regulatory Support and Loan Guarantees
The CBN issued a “Letter of Comfort” to First Bank, guaranteeing the loan repayment and preventing significant provisions. Despite auditors’ requests for a loan provision, the CBN’s guarantee ensured First Bank’s financial stability.
Heritage Bank’s Financial Statements
As of December 2021, Heritage Bank had a negative reserve of ₦230.8 billion, with a share capital of ₦53.9 billion and accumulated losses of ₦459.3 billion. The bank reported balances due to other banks totaling ₦247 billion, with First Bank as the sole creditor.
CBN’s License Revocation and NDIC Liquidation Process
The CBN revoked Heritage Bank’s license due to persistent financial instability and regulatory breaches. The Nigeria Deposit Insurance Corporation (NDIC) has begun liquidating Heritage Bank, ensuring depositors are protected. The NDIC is verifying payments to customers, up to ₦5 million per depositor.
CBN’s Assurance of Financial System Stability
In light of the regulatory action against Heritage Bank, rumors emerged about potential license revocations for other banks. The CBN has denied these allegations, assuring the public of the robustness and resilience of Nigeria’s financial system.