First Bank recovered N456bn loan granted Heritage Bank prior its license revocation

First Bank has successfully recovered the entire repayment of a N456 billion loan granted to Heritage Bank.

This repayment forms a component of a bailout loan structured during the tenure of former Central Bank of Nigeria, CBN, Governor, Godwin Emefiele.

As per reliable sources within First Bank, CBN credited the tier-one bank before opting to revoke Heritage Bank’s license. This action prevented what could have been a substantial impairment charge for First Bank.

On Monday, the CBN declared the revocation of Heritage Bank’s license, citing ongoing financial distress and the absence of reasonable prospects for recovery, ultimately resulting in the bank’s collapse.

First Bank received a total of N456 billion, marking the culmination of a seven-year period since First Bank assisted Heritage Bank in clearing.

According to First Bank’s financial reports, the bank held balances with other banks totaling N688 billion as of the first quarter ending March 2024, a decrease from N735 billion in December 2023.

According to First Bank, these balances comprise clearing balances held with other deposit money banks. First Bank offers clearing services for select banks in Nigeria, and the current balances within Nigeria encompass clearing exposures to banks as of December 31, 2023.

Efforts to recover the N456 billion loan intensified as Heritage Bank’s situation deteriorated over the years. However, a resolution was not achieved until a new board and management assumed control of the bank’s holding company earlier this year.

The sum was ultimately credited to First Bank before the official announcement of Heritage Bank’s license revocation, concluding the seven years of anticipation.

This payment is anticipated to be showcased in FBN Holdings’ half-year financial reports, enhancing its cash reserves and averting the necessity for the bank to write off the loans.

In the first quarter of 2024, FBN Holdings disclosed a pre-tax profit of N358.8 billion, accompanied by an impairment provision of N227.4 billion.

Heritage Bank encountered difficulties starting in 2019, experiencing severe distress and teetering on the brink of collapse. However, under Godwin Emefiele’s leadership, the CBN implemented a policy aimed at preventing bank failures, offering support to Heritage Bank through diverse measures.

The CBN granted First Bank approval to support Heritage Bank’s clearing obligations.

In line with Emefiele’s policy, the CBN assisted Heritage Bank through First Bank, providing what was termed a Letter of Comfort to the tier-one bank. This guarantee alleviated the need for First Bank to make substantial provisions for the loan.

Auditors frequently urged for a provision for the loan, but this request was consistently waived owing to the CBN’s letter guaranteeing loan repayment.

This effective loan recovery marks a substantial financial maneuver for First Bank, underscoring strategic financial management and prompt intervention by regulatory authorities to uphold stability within Nigeria’s banking sector.

According to details outlined in the bank’s 2021 audited financial statement, Heritage Bank had a negative reserve of N230.8 billion as of December 2021. With a share capital of only N53.9 billion and accumulated losses amounting to N459.3 billion, the bank was deemed technically insolvent.

As of 2021, Heritage Bank reported a balance of N247 billion as amounts due to banks in Nigeria. At that time, First Bank was identified as the sole bank owed this amount. The N456 billion paid to First Bank likely includes accumulated interests.

Heritage Bank as of the time of this report is yet to disclose its financial statements for the years 2022 and 2023 to the public.