ON January 16, 2006, the Central Bank of Nigeria (CBN) under Prof Chukwuma Soludo revoked the licenses of 14 banks who could not meet up with the capital requirements.
For bank chiefs and workers, it was a big blow that their banks had failed. For customers, it was a shocking realisation that their loved financial institutions had gone under. Customers were worried about their money.
What was, however, clear from the process was that several Nigerian banks were poorly capitalised and managed. Some of them had chief executives and boards that were simply stealing depositors’ funds and investing in their private businesses.
The banks which lost their licenses after the recapitalisation were: Allstates Trust Bank Plc, Lead Bank Plc, Trade Bank Plc, Assurance Bank Plc, City Express Bank Ltd, and Metropolitan Bank Ltd. Others were: Hallmark Bank Plc, African Express Bank Plc, Gulf Bank Plc,, Eagle Bank Ltd, and Liberty Bank Ltd.
“In quantitative terms, the total Private Sector deposits of the 14 banks (in liquidation) assumed through Purchase and Assumption arrangement is estimated at N89.99 billion; of which N72.69 billion representing 80.77% had been assumed for payment to private depositors todate. Indeed, the above statistics are commendable given the enormous legal, logistic and financial challenges enumerated above, some of which were outside the control of the Bank and NDIC,” the CBN said in a circular of January 2008 signed by the Banking Supervision Department.
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“While admitting that the Bank maynot have fully achieved its set objectives of making depositors access their funds within six months of the closure of the banks, it had nevertheless, recorded great milestones in the process.”
The CBN said it was not unmindful of the pains the closure of the 14 banks had caused numerous citizens and organisations and was not relenting in its effort towards ensuring that all affected depositors were paid their monies without unnecessary delays.
“We wish to further reassure all private sector depositors whose funds were trapped in the closed banks that our promise to pay them is irrevocable and is on course. The Bank is firmly committed to a speedy and seamless conclusion of this exercise.”
Bad corporate practices
It is on record that some of the failed banks had bad corporate and fraudulent practices that made survival impossible. According to reports by the CBN and the Nigeria Deposit Insurance Corporation (NDIC), Allstates Bank’s governance structure concentrated excessive powers in the hands of its Chairman, who was also the chief promoter, a major shareholder and, at one point, the chief executive officer, Economy Post earlier reported.
This executive duality significantly undermined corporate governance. By 2003, the Chairman was the single largest shareholder, holding 12.11 percent of the bank’s equity, and effectively operated as an owner-manager throughout most of the bank’s existence, the report alleged.
The bank’s business model largely revolved around serving the interests of related companies. Key services, including information technology, security and catering, were provided by affiliated firms, making it impossible to maintain arm’s-length relationships. Bank examiners had criticised this practice as far back as 1997.
In addition to related-party transaction abuses, the bank developed a culture of persistent non-compliance with regulatory requirements. These included failure to constitute board committees in line with the Companies and Allied Matters Act (CAMA), operating with a board not approved by the CBN as required under BOFIA, and weak internal controls on money laundering.
Similarly, Assurance Bank Nigeria Limited, once a thriving bank with 23 branches across the country, officially closed its doors in January 2006 following a series of mismanagement and fraudulent activities that left depositors and regulators reeling, the NDIC report said.
An investigation by the NDIC revealed that some board members and executives had allegedly used the bank as a personal cash machine. According to the report, one director approved payments totaling N873 million to companies he controlled, far exceeding his N10 million approval limit.
In one notable case, N45 million intended for sundry services was diverted to settle a debt owed by a company linked to a board member, raising serious questions about the bank’s internal controls. Similar transactions involving C-Oil Services Limited and Allstates Trust Bank Plc used bank funds to settle third-party obligations without evidence of legitimate services rendered, the NDIC report said.
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The mismanagement triggered a severe liquidity crisis. By October 2004, the bank’s clearing account with UBA Plc was overdrawn by nearly N980 million, prompting the bank to secure a N300 million facility using shares of dubious ownership as collateral. Investigations revealed that the companies pledging shares were not even registered with the Corporate Affairs Commission (CAC).
Assurance Bank also violated regulatory rules, including improper forex transfers and engaging in the sale of GSM recharge cards without CBN approval. Its assets deteriorated sharply, with 81 percent of its credits classified as non-performing by September 2005, a clear signal of a failing institution.
Attempts at recapitalisation failed. Shareholders’ funds turned negative, and the bank did not comply with CBN directives to inject additional capital. By July 2005, the CBN intervened, blacklisting one director and forcing refunds totaling N535 million, while another resigned.
Which banks will survive recapitalisation
As the CBN’s recapitalisation deadline nears in March 2026, the question is, how many banks will survive, merge or consolidate? The CBN has not released sufficient details to determine banks struggling to raise capital, but the deadline will determine who will survive or not survive the deadline.
