First Bank has confirmed the full repayment of a N456 billion loan extended to Heritage Bank. This repayment concludes a seven-year saga initiated during the tenure of former Central Bank of Nigeria (CBN) Governor Godwin Emefiele. The bailout loan, part of a broader strategy to stabilize Nigeria’s banking sector, was repaid just before the CBN revoked Heritage Bank’s license.
According to top sources within First Bank, the repayment was credited to their accounts shortly before the CBN’s official announcement on Monday regarding Heritage Bank’s license revocation. The CBN cited the bank’s ongoing financial struggles and bleak recovery prospects as the reasons behind the decision, thereby averting what could have been a substantial impairment charge for First Bank.
Nairametrics confirmed that First Bank received the full N456 billion, marking the end of a protracted wait since the loan was initially extended to support Heritage Bank’s clearing obligations. This recovery is expected to be reflected in First Bank’s half-year financial statements, strengthening its cash position and preventing the need for a write-off.
As of the first quarter ending March 2024, First Bank’s financial statements showed balances with other banks amounting to N688 billion, down from N735 billion in December 2023. These balances include clearing exposures to other deposit money banks within Nigeria, underscoring First Bank’s role in providing crucial clearing services.
The push for loan recovery intensified as Heritage Bank’s financial health deteriorated over the years. However, a resolution was achieved only after new management took over the holding company earlier this year. The CBN’s credit to First Bank ahead of Heritage Bank’s license revocation was a strategic move to prevent financial fallout.
Heritage Bank’s financial distress became pronounced in 2019, nearing collapse. Under Governor Emefiele, the CBN adopted a policy of preventing bank failures, providing various support measures to Heritage Bank. First Bank was authorized to backstop Heritage Bank’s clearing obligations, a critical process in maintaining the banking system’s integrity and efficiency.
To mitigate the risk to First Bank, the CBN issued a “Letter of Comfort,” assuring repayment of the loan. This prevented auditors from insisting on a provision for the loan, as the letter guaranteed the loan’s recovery. This intervention showcased strategic financial management and regulatory measures to ensure sector stability.
Heritage Bank’s audited financial statement in 2021 revealed a negative reserve of N230.8 billion and accumulated losses of N459.3 billion, rendering it technically insolvent. The bank had N247 billion due to other banks, primarily First Bank. The repayment to First Bank likely includes accumulated interest. Heritage Bank has not yet published its 2022 and 2023 financial statements.
In a press release on Monday, the CBN revoked Heritage Bank’s license, citing persistent financial instability and regulatory breaches. Despite several supervisory interventions, Heritage Bank failed to improve its financial health. The Nigeria Deposit Insurance Corporation (NDIC) has commenced the liquidation process, assuring depositors of protections up to N5 million.
Meanwhile, the CBN has denied allegations of plans to revoke the licenses of three additional banks. Following Heritage Bank’s license revocation, rumors of further regulatory actions surfaced. However, the CBN reassured the public of the robustness and resilience of Nigeria’s financial system, emphasizing ongoing stability in the sector.