PUBLIC SENSITIZATION:

EFFECT OF WITHDRAWAL OF BANK LICENSES IN NIGERIA UNDER THE BANKS AND OTHER FINANCIAL INSTITUTIONS ACT (BOFIA)

Section 12(1) of BOFIA 2020 grants the Central Bank of Nigeria (CBN) power to revoke banking license if a bank fails to comply with financial regulations, or poses a threat to financial stability.

“The CBN may revoke a banking license due to a bank’s breach of financial regulations, poor financial performance, its financial performance continues to deteriorate, or it poses a threat to financial stability. Its mandate is to promote a sound financial system in Nigeria and ensure the safety and soundness of the financial system.”

Revocation Process:

The CBN may engage with a bank and prescribe supervisory steps to address financial issues before revoking its license. If the bank fails to improve, the CBN may revoke its license.

Appointment of Liquidator:

Section 12(2) of the Banks and Other Financial Institutions Act (BOFIA) 2020 provides that the Nigeria Deposit Insurance Corporation (NDIC) may be appointed as liquidator of the bank, responsible for managing the bank’s assets. The section provides thus:

“where the licence of a bank has been revoked under this Act and the Governor is satisfied that it is in the public interest to do so, the Governor may, subject to the approval of the Board and without waiting for any period prescribed for doing anything under this Act or any law to lapse, appoint the Nigeria Deposit Insurance Corporation (in this Act referred to as ‘the Corporation”) as a liquidator of the affected bank and the Corporation shall have the powers conferred on a liquidator by or under the Companies and Allied Matters and shall be deemed to have been appointed a liquidator by the federal High Court for the purpose of this Act.”

Furtherance to this, the same Section 12 allows the NDIC to immediately proceed with the liquidation of the bank whose licence has been revoked and make payments of assured deposit liabilities as provided for under the NDIC Act.

The NDIC ensures that customers’ insured deposits are protected up to a certain limit, i.e. NDIC will pay insured sums to eligible depositors up to the maximum insured limit, and customers may need to follow the liquidation process to claim any additional funds. Also, Section 21(1) of the Act provides that where the license of a failed insured institution is revoked, payment of the insured deposit in such institution shall be made by the Corporation within 90 days.

THE EFFECT OF REVOCATION OF A BANK LICENSE ON LOAN REPAYMENT

The position of the law on loan repayments in the event a bank license is revoked is as follows:

1. Loan repayment obligations remain: Revocation of a bank’s license does not extinguish the borrower’s obligation to repay the loan. It may however lead to panic and disruption in the payment or servicing of the loan pending when the bridge bank is able to stabilize its operation/management of the acquired assets.

2. Assignment of loans: Typically, when a bank’s licence is revoked, the law allows for the appointment of another institution such as the Nigeria Deposit Insurance Corporation (NDIC) or a bridge bank to take over the assets and liabilities of the failed bank, including loan portfolios.

3. Loan recovery: The NDIC or bridge bank may continue to recover loans from borrowers.

4. Repayment terms: Borrowers must adhere to the repayment terms agreed upon in the loan agreement.

5. Legal action: The NDIC or bridge bank may take legal action against defaulting borrowers.

6. Loan restructuring: Borrowers may be able to restructure their loans with the NDIC or bridge bank. This may however come with changes in the terms of the loan agreement, such as the loan term, interest rate, payment schedules and duration, etc.

7. Loan forgiveness: In some cases, the NDIC or bridge bank may offer loan forgiveness or settlement options.

THE ROLE OF THE ASSET MANAGEMENT CORPORATION OF NIGERIA (AMCON) IN LOAN REPAYMENTS

“The Asset Management Corporation of Nigeria (AMCON) plays a crucial role in the stabilization of Nigeria’s financial system, particularly concerning non-performing loans (NPLs) and loan repayments when a bank’s license is revoked. Its primary focus is to minimize the impact of the bank’s failure on the financial system, protect depositors’ funds, recover debts to the fullest extent possible, and to facilitate the revival of the banking industry.”

In clear term, the role of AMCON is as follows:

1. Asset Takeover: Section 5(c) of the AMCON Act, 2010 as amended empowers the Corporation to manage, realize and dispose of Eligible Bank Assets (EBA), including the collection of interest, principal and capital due and takeover the collateral securing such assets, in accordance with the provisions of the AMCON Act. These EBA are Non-Performing Loans (NPLs) which the Corporation was created to resolve as a means of stabilizing and re-vitalizing the Nigerian economy.

2. Debt Recovery: AMCON works to recover the debts from borrowers, including those whose loans were previously written off.

3. Loan Restructuring and Management: AMCON has the authority to restructure acquired loans and to manage assets efficiently by negotiating with debtors, restructuring loan terms, and, if necessary, liquidating assets to recover debts. After acquiring the NPLs, AMCON works with debtors to restructure the repayment terms. This may involve extending the loan tenure, reducing the interest rate, or any other modification that can enhance the debtor’s ability to repay which helps in the recovery process while maintaining business viability.

4. Debt Resolution and Acquisition: According to the Provisions of the AMCON Act 2010, AMCON is empowered to acquire non-performing loans from banks. This act of acquiring loans from banks involves purchasing these bad loans at a discounted rate, which helps the banks clean up their balance sheets and regain financial stability, thus allowing them to reduce their burden of bad debts. This not only improves the liquidity of the banks but also bolsters their ability to lend to the economy, thereby fostering overall economic growth.

5. Legal Action: Under Section 51 of the AMCON Act 2019, as amended, AMCON is vested with the power to take legal actions against debtors who default on their restructured loan agreements. This includes the right to sue, foreclose on assets, and enforce judgments. When restructuring efforts fail, AMCON resorts to legal means to recover the debts which includes initiating lawsuits, seizing assets, and auctioning properties.

6. Collaboration with Regulatory Bodies

AMCON is empowered to collaborate with the Central Bank of Nigeria (CBN) and other regulatory bodies in fulfilling its mandate. AMCON works closely with the CBN and other financial regulators to ensure coordinated efforts in stabilizing the banking sector to align strategies and implement policies that enhance financial stability.

“The role of AMCON in loan repayments in Nigeria, especially involving banks, is multifaceted. It involves acquiring non-performing loans, restructuring debt, enforcing repayments through legal means, collaborating with regulatory bodies, and managing and disposing of recovered assets.”

The AMCON Act 2010 provides the legal framework that empowers AMCON to execute these functions effectively, contributing significantly to the stability and resilience of Nigeria’s financial sector.

Relevant laws:

– AMCON Act, 2010

– BOFIA, 2020 Sections 12, 60, and 62

– NDIC Act, Sections 2, 20, and 21