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 bank, originally established as Nigeria-Arab Bank (NAB) in 1962, became majority-owned by the Nigerian government under the country’s Indigenization Policy. In November 2002, Nigerian investors acquired the bank, with the Central Bank of Nigeria (CBN) expecting that it would be adequately recapitalised.

However, an investigation by the Nigeria Deposit Insurance Corporation (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.

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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.

The CBN also directed that the bank must disclose the identities of the owners of Tabony Ventures Ltd and Caliphate Ventures Ltd, asking the financial institution to refund to CBN $342,903.50 and $73,100.00, being illegal income made on foreign exchange dealings.

“Sequel to the aforementioned directives and the resignations of two nonExecutive Directors the Board was reconstituted and an Executive Director was appointed MD/CEO. Meanwhile, one of the Directors failed to refund N535.47million as directed by CBN,” the report noted.

“He also failed to refund an additional N204.50million which the bank claimed he misappropriated and demanded from him through its letter dated 15th September 2005. As a matter of fact, he issued a cheque for N204.50million which was returned unpaid due to lack of funds in his account. His action was a violation of the provisions of the Dishonoured Cheques Act.”

Facing insurmountable challenges, the board voluntarily surrendered the bank to the CBN in November 2005. An Interim Management Committee was appointed in December, and the bank’s license was officially revoked on January 16, 2006, along with 13 other banks that failed to meet the new N25 billion capital requirement.

Following the closure, NDIC facilitated a Purchase and Assumption (P&A) transaction, in which Afribank Nigeria Plc acquired the 23 branches and N5.47 billion in deposits from 105,302 customers.

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The collapse of Assurance Bank serves as a stark warning for Nigeria’s banking sector: weak corporate governance, poor oversight, and opaque transactions can rapidly erode even long-established institutions, threatening depositor funds and financial stability, the report noted.

“The failure of Assurance Bank provides some learning points for policy makers, regulators, shareholders, bank directors, bank management, and academics,” the report noted.

“Bank regulators should conduct rigorous due diligence on prospective bank managers in order to ensure that only ‘fit and
proper’ persons are appointed into senior management of banking institutions.

“One of the Directors antecedent at Citizens Bank suggests that the proposal to appoint him as a Director of Assurance Bank should have been declined by CBN,” the report said.

Mr Chika Mbonu was the Managing Director of Assurance Bank of Nigeria at this time. He was also the Managing Director of Citizens International Bank. Mr Mbonu was sacked by the CBN in July 2005 after being indicted by the apex bank’s investigation over an alleged fraud of about N500 million in Assurance Bank. He was later arrested by the EFCC. 

“The agonies of the investors in the private placement of the bank calls for robust cunsumer protection. Until the investors could not retrieve the monies subscribed, they were not aware that private placements were not under SEC’s regulatory purview. It behoves SEC to educate the investing public on the scope of its mandate. Consumer education should be a vital component of consumer protection,” the report added.