Why you shouldn’t be alarmed if your bank closes shop

Two weeks ago, people with money in Heritage Bank got a scary message that the bank was going to shut down because its license had been revoked by the Central Bank of Nigeria (CBN), the apex regulatory body for all banks and financial institutions in Nigeria which has the power to issue and revoke banking licenses.

It was said that the bank failed to comply with the CBN’s requirements under the Banks and Other Financial Institutions Act as it failed to improve its financial performance and had no reasonable prospects of recovery, making it one of the over 50 other defunct banks in Nigeria.

Under the provisions of Section 12(5) of the Banks and Other Financial Institution Act (BOFIA), when a bank’s license is revoked, the bank has the option to challenge the action in court within 30 days after the revocation has taken place.

It should be noted that revocation is not something that comes up as a matter of whims but laid down procedures. And in the case of Heritage bank, it wasn’t the first time it has had issues with CBN; in 2006, Heritage bank was closed down for failure to meet the capital requirement of N25 billion set by the CBN but it successfully challenged the closure and the CBN was ordered to reissue the bank’s license in December 2012.

And when a bank closes down, there should ordinarily be no cause for alarm as there are steps to be taken in such situations; when a bank stops operating, the Nigeria Deposit Insurance Corporation (NDIC) steps in as a liquidator (someone that has the legal authority to sell the assets of a company that is winding-up in order to raise capital to settle the company’s debts and carry out all other purposes before the company is dissolved) of the bank in line with Section 12 (3) of the BOFIA.

The NDIC is like an insurance company for banks which guarantees payment of deposits up to the insured sum to a depositor in a bank in the event of the failure of the financial institution. It operates under the Nigeria Deposit Insurance Corporation Act 2006 to insure deposits in financial institutions, supervise banks in order to protect depositors, resolve failures of financial institutions and liquidate failed institutions.

So upon failure of any insured financial institution, the NDIC is required to commence the liquidation of the institution and the payment of depositors within 30 days and the bank’s customers will be required to visit the nearest branch of the bank with certain documents:  proof of ownership of account, verifiable means of identification such as driver’s license, permanent voter’s card, etc; alternate account for the payment to be made to and Bank Verification Number (BVN) for the verification of their deposits.

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