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The Sad Inside Story Of Heritage Bank

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Three months ago Proshare had cause to commit resources to investigate and produce an hitherto unpublished Confidential Report on Heritage Banking Company Limited, in direct response to the promptings of the advisory board members who wanted to know the true state of the bank which had another financial institution handling clearing operations for it at some time.

By this time, and curiously; it wasn’t such a big news that some of the bank depositors had experienced recurring challenges with withdrawals and staff exits did little to help matters. Yet, the restraint was important in order to ensure and support financial system stability as well as give the institution an opportunity to execute its resolution strategies without hindrance. After all, the institutional frameworks were in place to protect depositors and the system in general.

The task involved a lot of stakeholder engagements including sources we understood to be in a position to recognize, appreciate and make informed decisions. The revelations offered little comfort from history to, interventions up to the current state. We limited ourselves however to facts, data and evidence and submitted the report.

Further to the completion of this initial review, and in the interest of giving the financial system an opportunity to resolve the bank’s challenges through normal regulatory intervention and management effort at recapitalizing the institution or determination of the banks going concern status through a merger and acquisition (M&A) arrangement; the report remained private.

The burden of a moral hazard however appeared a bigger burden than tolerable or envisaged, especially given the evident ‘sailors survival’ approach that appears to have kicked in as seen through senior management exit, non-improving conditions, non-progressing talks around mergers and acquisitions; and recapitalization plans.

It has become compelling to highlight concerns about the bank formally; with the hope that ‘some intervention’ can happen to alter the trajectory of an inevitability. and remove the spectre of a bank waiting to die that overshadows the institution, unfortunately.

Proshare’sinvestigation into the bank revealed a few major concerns related to corporate governance and operational stability/sustainability. The primary issues included, but were not limited to the following:

  • The acquisition of Enterprise Bank which is turning out to be a major strategic error;
  • HBL’s non-performing loans (NPLs) portfolio, which are amongst the most challenged in the industry. Impairment charges in H1 2018 was estimated at N37.5bn but by year end, we extrapolated that the figure should settle around N634.5m;
  • The bank posted an operating loss before tax of N38.5bn in H1 2018 and a loss of N4.4bn in the unaudited figures for the month of December 2018;
  • The bank’s leverage has been a major sore point for management. The banks debt to equity ratio was -0.17. The negative value reflected negative shareholders fund which could be impaired by as much as $1bn;
  • Equity capital has been virtually wiped out by accumulated losses, a legacy issue;
  • The bank’s regular recourse to the CBN’s short term borrowing window highlights persistent liquidity resolution issues;
  • Corporate governance has been a challenge as a number of the bank’s directors have allegedly been involved in a series of poor performing insider loan transactions, and little known about such resolutions (if any);
  • The bank’s 2018 unaudited financial figures shows a dire situation in several operational metrics; and
  • The bank has not been engaged in direct cheque clearing for a while, HBL’s instruments have been cleared through a third party first tier bank which got a full CBN guarantee against clearing loses.

IEI’s Pound of Flesh 

It is instructive to recall how this sorry pass all began. Records indicated that Heritage Bank was in a difficult place from the start. It’s managing director and chief promoter, Ifie Sekibo, was the former Executive Vice Chairman (EVC) of International Energy Insurance (IEI) Plc from where a sizable amount of the acquisition money for the old SGBN was raised. Sekibo has been in a stretch of back and forth with the Board of his former company on this subject, as the directors of the company insist that Heritage Bank should be considered as part of the assets of the Insurance group; going as far as alleging that Sekibo had invested the insurers money in the bank without the approval of then Board members; or indicating/stating IEI’s consideration in the bank acquisition, if any.

The matter of using IEI resources to acquire the former Societe Generale Bank of Nigeria (SGBN) which was renamed Heritage Banking Company Limited has been the subject of a longstanding Economic and Financial Crime Commission (EFCC) investigation and continues to hound the bank’s CEO till date. Our background work on the matter then, enabled us to sight documentations that lends credence if not validity to the role played by IEI as reflected in presentations made to its board.

Proshare Nigeria Pvt. Ltd.

Source: What Happened To The N8bn Raised by IEI Plc in 2007? – Shareholders – Proshare, May 11, 2015

Mr. Sekibo has over the past few years tried to work out an amicable settlement with the IEI Group and directors, but matters are still fluid with necessary concessions being made on both parts. That said, the CEO’s travails still continue as he has had to deal with a few other issues concerning related-party transactions that have crystallized and left the bank’s books in a difficult position.

Weak Governance and Control 

Heritage Bank’s problems have most certainly not been about Sekibo, alone. Far from it, the bank’s Board of directors (including former directors) has created a permissive culture that led to this.

Heritage Bank’s erstwhile chairman was also known to have used the banks tills to acquire two electricity distribution licenses’ the underlying cash flow difficulties of the businesses were subsequently and promptly transmitted to the bank, resulting in large repayment defaults. Indeed the loans have become ‘hardcore’ non-performing assets sitting on the bank’s books and creating both liquidity and profitability difficulties.

Managers of the bank, particularly branch managers, were in the past profligate in granting authorized and unauthorized loans to associates. Temporary overdrafts (TODs) routinely skipped repayment dates while structured loans also habitually missed the terms of the loan indenture, resulting into phantom profits and worsening liquidity.

Huge public sector deposits were beauties turned into beasts. The introduction of the Treasury Single Account (TSA) policy by the federal government in 2015 subsequently left the bank’s Asset and Liability Management (ALM) position in tatters.

The TSA policy did four things to undermine the bank’s fiscal stability:

  • Sharply reduced the bank’s deposits;
  • Significantly raised the banks cost of Funds (CoF);
  • Reduced the bank’s ability to give short term loans; and
  • Weakened the bank’s already fragile profitability.

Since the bank was already nurtured on a culture of entitlement, finding strategic options to wriggle from, under the weight of government policy and patronage became impossible.

Heritage Bank’s narrow retail base and its poor quality risk assets put inevitable pressure on profitability and liquidity. To compound matters, the bank’s internal control and compliance functions appears to have operated under a cloud of breaches than in the protection of standard corporate governance requirements, as directors willy-nilly violated single obligor limits. The poor internal control and audit process and administration at the bank thus complicated an already combustible bad loan and poor liquidity situation.

Coup de Foudre (Unintended Consequence) 

As a way out of its myriad of challenges, the bank fell in love with another entity, committing a tragic error. In a bold but ill-digested move, Heritage Bank decided to acquire the Asset Management Company of Nigeria’s (AMCON’s) legacy deposit money institution, Enterprise Bank, this was the decision that let all the evil spirits out of Pandora’s box. The acquisition of Enterprise Bank was the classic example of a Cobra Effect or a situation where a cure becomes worse than the original disease.

The decision to acquire Enterprise Bank for N56bn in 2014 resulted in unintended consequence. At the time, the bank’s Board rationale in acquiring Enterprise Bank from AMCON was to rapidly expand the retail end of HBL’s operations and reduce its cost to income ratio based on representations that informed their decision. That gambit has proven to be a disaster and a cautionary tale on acquiring distressed banks unfortunately.

The Enterprise Bank wedlock, as consummated, turned into a fiasco as it added a further two hundred (200) branches to the banks operations and cut interest expense while improving net interest income (see chart 1 below). This led to the following outcomes:

  • A sudden and significant rise in the bank’s bad debt to asset ratio;
  • A leap in the bank’s debt provisioning or loan impairment requirements;
  • A major rise in operational costs;
  • A rise in the banks cost to income ratio (99% in FY 2018, as against the 53% of a bank like StanbicIBTC). (See chart 2 below);
  • Stretching human capacity by lifting managers to their highest levels of administrative and technical (in)competence (The Peter Principle); and
  • Low Interest Income (as a result of slowing lending activities, (see chart 3) and high interest expense (as a result of a relatively low retail customer base, (see chart 4). 

Chart 1 Net Interest Income FY2018, Heritage Bank and StanbicIBTC Bank 

Proshare Nigeria Pvt. Ltd.

Source: Reported Financials Submitted / Estimated

Chart 2 Operating Expenses/Income FY2018,Heritage Bank and StanbicIBTC Bank

Proshare Nigeria Pvt. Ltd.

Source: Reported Financials Submitted / Estimated 

Chart 3   Interest Income FY2018, Heritage Bank and StanbicIBTC Bank

Proshare Nigeria Pvt. Ltd.

Source: Reported Financials Submitted / Estimated

Biting into the Heritage Saga – What The Report  Says

To understand the nexus between weak corporate governance, hubris, regulatory indulgence and Heritage Bank, the reader can send an email to research@proshareng.com for a copy of the report.

The report is an attempt at a  holistic look at the banks realities and lays bare the challenges that occur when individuals and institutions fail to live up to the exacting standards that are required to turn fragile ideas into enduring legacies.

The report was carried out as an intervention guidance to prompt action from the various parties and interested entities; all in the overall interest of the financial system.

To protect the financial system from contagion, the Central Bank of Nigeria (CBN) may need to move into the affairs of Heritage Bank and any of three actions are now plausible:

  • Wind up the institution with shareholders losing their money (as things stand today shareholder’s funds have been completely eroded) while depositors resort to the National Deposit Insurance Corporation (NDIC) for part recovery of deposited funds;
  • Find fresh investors interested in the institution and intermediate a best effort basis sale of exiting shareholder interest and recapitalization of the institution as a going concern; and
  • Liquidation of the institution and the running of the bank under a new franchise as a legacy institution managed by AMCON and available for purchase by third party investors.

The preferred solution would appear to be either the second or third options.

The second option would be of particular preference as it would not involve heavy ‘menu cost’ by way of rebranding but would involve a new ownership – Board of Directors and management staff. The fresh capital inflow would eliminate the need for initial treasury support from public coffers and would likely result in fresh/foreign capital inflows which would be beneficial for the local currency while also protecting domestic employment. This approach would appear plausible given that the CBN recently gave out new licenses to start up banks; premised on their understanding that there exist room for new entrants with fresh ideas and approach.

The CBN would however have to work fast if Heritage Bank is not to be a blight on the Governors no-failure record.

From indicators received, there is a small window to achieve a technical resolution of the Heritage Bank situation, lest it could find itself taking remedial action(s) at a much higher economic cost later than it would now.

Heritage banks weak liquidity, impaired shareholder funds and high loan impairment, according to analysts, needs action not tolerance. The time to act is now!  

Source: Proshare NG

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Sola Sobowale, Patience Ozokwor in battle for supremacy in new Glo TVC

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The perennial rivalry between Nollywood jewels, Sola Sobowale aka “Toyin Tomato” and Patience Ozokwo alias “Mama Gee”, has been taken to new heights in the new television commercial recently released by Nigeria’s number one corporate promoter of Arts and Entertainment, Globacom.

In the commercial titled “Baby Babble”, Globacom demonstrates the exceptional speed, quality, reach and efficiency of the Glo 4G service. The duo re-enacted the petty jealousies and animosities underpinning relationships among some female traders who tried to “out-do” each other in all areas of endeavour.

The conflict took place in a supermarket where Sola Sobowale claimed that Patience Ozokwo was stalking her and called her “Follow-follow”. A clash then ensued first with the trolley race which Patience won when Sola was blocked by a cleaner preventing her from getting to the cashier point first.

On getting to the cashier, they both struggled to placate a tearful child with Patience saying, “she does not want over ripe things” and Sola labeling her “dudu by nature”. Patience, thereafter, put a call to her daughter, acted by Uche Nwaefuna, to send her a child’s placatory video which landed instantly on her phone and I-pad which was downloaded in a jiffy. It was a smart way to show the efficiency of the Glo data network. Sola Sobowale took Patience’s ipad and used it to lull the baby. The child was comfortedand even laughed at the video, while the appreciative mother (Bimbo Thomas) who suddenly realised that the baby had gone quiet, thanked Sola Sobowale for the gesture, thinking that she was the owner of the i-pad.

The video elicited laughter from the child.  Patience, on realizing that her rival was having the upper hand, snatched the ipad,  leaving Sola Sobowale with a smug smile of victory in the “who can lull the baby” challenge.

Patience Ozokwo and Sola Sobowale have regularly been cast as alter egos in films, skits and television commercials where they antagonize each other to entertain the audience with compelling stories enacted to resonate with the target audience.

The new TVC is a sequel to an earlier one which featured the duo and Juju musician, King Sunny Ade.

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Tambuwal, Reps Members, Other Top Nigerians Storm 20th El-Amin International School Graduation Day

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It was a 2-day programme to mark the 20th Graduation day of the El Amin International Schools, Minna. Undoubtedly, the school founded by the late First lady, Maryam Babangida has not only outlived her but has continued to grow in leaps and bounds.

The first event, for parents was the pre-graduation dinner party which was  well attended. Then came the graduation day proper.  His, Excellency the Governor of Sokoto State, Aminu Tambuwal was the Guest of honour at the event and chief launcher of the school’s KS 2019 magazine .

In attendance, were royal fathers from around the state, notable amongst them were the Emir of Minna and Emir of Agaie. It didn’t stop there. Members of the Federal House of Representatives, Commissioners, parents, guests and well wishers also came around. It was indeed a very colourful event.

The event was much as an epoch as it marked the 20th Graduation ceremony of students from the school as it was also important  in the life of the 47 young boys and girls who graduated.

Major highlights were the presentation of certificates to the graduates by the Governor of Sokoto State Aminu Tambuwal, the overall best student award which went to Zainab Malabu for being the best student in 7 major subjects. She got cash awards , a macbook laptop and a tablet courtesy of the Executive director. Earlier, in his Graduation Day Speech, the Executive Director of the Schools, Dr Muhammad Babangida , ‘This will be the tenth time we are gathering for an event like this following the demise of our visionary leader and founder of EL-Amin International Schools, the Late Dr. [Mrs.] Maryam Babangida, May Allah grant her Eternal rest in Aljanatu Firdaus.

Speaking further, he revealed that ‘when she established her schools in Minna and Abuja, over 24 years ago, one of her abiding vision was to provide quality education in an enabling and inspiring environment. While she lived this was being achieved; but now that she has gone the way of all mortals, the question has become, “Is her vision still on track ? I could answer that question with figures but I would rather mention it as I know best.’ According to him, the parents  and friends of the school are still here and their number are growing. Moreover, ‘there is an increased confluence of determination and enthusiasm to keep the founders flame burning. And the truth is that her Legacy is being sustained and enhanced and God willing by September 2019, El-Amin secondary school will be celebrating 25 years of purposeful Leadership and excellence in the Education Sector’.

Speaking further Dr Babangida revealed that ‘at El-Amin, we believe in inquiry-based learning. Students are challenged to go beyond the accumulation of factual knowledge and to address the greater questions that frame our world. We celebrate creativity and originality as vital qualities that equip individuals to reach new horizons of knowledge, appreciation and understanding. Students who leave EL-Amin are typically confident, gregarious, dynamic, entrepreneurial, and empathetic. They try new things; they ask probing questions; they dare.

This, according to him has helped in sustaining the big legacy the management inherited from founder

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Access Bank wins Karlsruhe Sustainable Finance Award

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Africa’s leading financial institution, Access Bank, has emerged winner of the 2019 Karlsruhe Sustainable Finance Awards for “Outstanding Business Sustainability Achievement” for the 4th consecutive time. The award was received in recognition of the Bank’s unwavering commitment towards embedding social, environmental and economic sustainability into its core business strategy that helps address issues across its business operations and value chain.

The prestigious award was presented to the Bank’s GMD/CEO, Herbert Wigwe at the award ceremony which took place on July 11th, 2019 at the City Hall of Karlsruhe, Germany and was attended by C-level executives, CEOs of leading global financial institutions, top German government officials, policy makers, regulators and key sustainability stakeholders.

The Global Sustainable Finance Awards in Karlsruhe honour financial institutions and related organizations and Presidents/ CEOs with significant contributions to the field of sustainable banking and finance. The awards also aim to promote the growth of sustainable financial instruments and markets worldwide, particularly in the fields of green finance and investments, financial inclusion and social finance, green equity and venture capital as well as the holistic integration of sustainability in financial institutions.

Wigwe stated that “the global finance sector plays a major role in the economy, as they provide huge amounts of capital and have the ability to influence other companies and customers across sectors through their products and services. Many banks are now placing a great deal of emphasis on driving sustainability as well as digitizing core business processes and reassessing organizational structures to be better prepared for the future of banking. This transformation illustrates the increasing desire to become a sustainable and digital bank.

“Access Bank has a corporate strategy and philosophy which places sustainability at its core. Together with our commitment to the United Nations Sustainable Development Goals, Access Bank recently launched a five-year tenured, fixed rate green bond worth N15 Billion which is the 1st Climate Bonds Initiative Certified corporate green bond in Africa”, he said.

Access Bank remains committed to setting standards for sustainable business practices, adopting innovative solutions to build a future that is desirable, as it becomes the World’s most respected African bank. The Bank continues to make positive contributions to people and planet, in effect paving the way for its own longevity and continued profitability, making the case for sustainability to businesses everywhere.

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