By Aduragbemi Omiyale
The revocation of the operating licence of Heritage Bank by the Central Bank of Nigeria (CBN) on Monday, June 3, 2024, did not come as a surprise to many observers but the action took a toll on the stock market, especially the banking index.
The withdrawal of the lender’s licence by the regulator triggered selling pressure in the banking sector on the floor of the Nigerian Exchange (NGX) Limited yesterday, as its index slumped by 0.84 per cent, joining forces with the industrial goods and consumer goods sectors to bring down the market by 0.18 per cent.
This occurred because of the reactionary action of some investors, who felt it was better for them to reduce their exposure to banking equities, fearing that other financial institutions could be affected.
However, analysts at Meristem Research have allayed the fears of investors, emphasising that the CBN’s hammer on Heritage Bank was “aimed at strengthening public confidence in the banking system and… also send a strong message to other banks that they must adhere to regulatory requirements and maintain sound financial performance.”
It was stated in the note obtained by Business Post that Heritage Bank’s underperformance had become a substantial threat to financial stability, and the CBN’s intervention ensures that its assets and liabilities are managed to minimise further financial risks.
It was stated that before the operational licence of the bank was taken away, its operational inefficiency had been a persistent issue, as its cost-to-income ratio was hovering around 99 per cent, indicating that nearly all of its operating income was consumed by costs, which is not healthy for any organisation.
In its conclusion, Meristem Research said, “We do not anticipate that this liquidation will trigger any contagion risk within the banking sector as the bank’s financial challenges and regulatory breaches were specific to its operations and management, and are not reflective of widespread vulnerabilities in the banking system.”
The apex bank, in its circular yesterday, explained that it stopped Heritage Bank from continuing banking operations in Nigeria because of its persistent breaches of Section 12(1) of the Banks and Other Financial Institutions Act (BOFIA) 2020.
There have been reports that before the central bank’s action on Monday, some customers of Heritage Bank had been having difficulties withdrawing their funds, with the company’s Automated Teller Machines (ATMs) unable to dispense cash.