NDIC Begins Verification Of Defunct Peak Merchant Bank Depositors

Twenty years and two months after the Central Bank of Nigeria (CBN) announced the revocation of its operating licence in line with section 12 [d] of the Banks and Other Financial Institutions Act (BOFIA) 1991 as amended on February 28, 2003, the Nigeria Deposit Insurance Corporation (NDIC), said it has commenced the verification of insured depositors of the liquidated bank.
This, according to a statement by Bashir A. Nuhu, Director, Communication & Public Affairs at the corporation dated April 25, 2023, “towards payment of their insured sums.”
The statement was however silent on reasons for the delay, but noted that the exercise is to enable depositors of the defunct bank cross-check and ascertain their account information as well as balances with the bank as at closure.
It assured further that the process is a prelude to the payment of insured sums to such depositors, urging the depositors to visit the bank’s old premises or the corporation’s office nearest to them with proof of account ownership and verifiable means of identification for the exercise.
The NDIC added that insured sum is the first and mandatory payment that depositors are paid, up to specified limit, if a bank fails. Depositors are paid amounts in excess of the insured sums subsequently, as liquidation dividends from proceeds of the closed bank’s assets as realised by NDIC as liquidator.
Recall that the bank was liquidated 12 years and two weeks after it was licenced and at the time of its closure had eight branches, with headquarters in Victoria Island, Lagos, and a staff strength of 100, comprising 26 and 74 senior and junior staff respectively, and a six member board chaired by Sir M. A. Oluokun, while Bolaji Oluokun, his son was acting Managing Director/Chief Executive.
Bank examiners had, according to a statement by the CBN at the time noted such weaknesses as “a huge net interbank takings of N2.2 billion as at September, 2001,” and current account that could not absorb the cash reserve requirement for the month of September 2001.
As cure, the bank was directed through a CBN letter dated November 16, 2001, “to take decisive steps to prevent further deterioration of its condition.”
The CBN had said it also received in 2001Q3 “a number of petitions, which sought the CBN’s assistance to recover deposits that were trapped in the bank. The volume of such petitions and the magnitude of the amounts involved prompted the CBN to conduct a spot check on the bank early in December 2001 to determine the extent of its liquidity problem with specific focus on the matured obligations, which the bank had failed to meet.
“The spot check revealed, among others, that the bank had a total of N1.127 billion overdue obligations that it could not meet as at December 3rd 2001.
“It was discovered in the course of the spot check that the proximate cause of the bank’s precarious financial condition included an abortive commodity [rice] importation into which it ventured in September 2000 resulting eventually in a loss of about N1 billion.
“The spot check also revealed that the bank’s financial condition was very precarious as the bank no longer performed core-banking operations. It no longer booked loans and advances but depended on interbank and distressed borrowings to fund some of the repayments it had to make.”
Following the spot check, the CBN met with the board and management of the bank on December 19, 2001 and ordered them within two weeks to take three steps.
These were that fresh funds be injected into the ailing bank that can take care of all matured obligations and regularize its overdrawn position with the CBN; enter into strategic alliance with any big bank; and sell off its good assets to interested parties to meet its maturing obligations, all of which the bank failed to comply with.
The CBN further noted that by year 2002, PMB’s prudential ratios had deteriorated to negative, such that from January to December of that year, its liquidity ratio (L/R) stood at –20.77%, compared to the minimum requirement of 40%; while its capital adequacy ratio (CAR) was even worse at –43.18%, against the minimum for banks of 8% at the time.
The risk assets did not look any rosy, with total risk assets [net of swapped risk assets] as revealed by a special examination report at N5,667,405,504 as as February 28, 2002, just as the report confirmed that a total of N4, 361,240,014 representing 76.9% of the total risk assets of the bank had become delinquent and classified appropriately in line with the prudential guidelines.
Arising from this was a total recommended provision for bad and doubtful debts of N2,778,877,241, following which the bank was required to increase its provision from the paltry sum of N544,286,495 to the examiners’ recommended provision of N2,778,877,241. Again, the bank reportedly failed to comply with this directive
A total of N494.31 million of the bank’s delinquent facilities, the CBN highlighted, was insider related (another phrase to say the amoung was borrowed by the owners/directors of the bank).
With all of these, the CBN recalled also that PMB’s capital, which had earlier been completely eroded, had further deteriorated from a negative N543 million as at June 2001 to a negative N1.421 billion as at February 2002.
The bank was, therefore, directed to inject a total sum of N2,024,851,000 to bring up the capital to a level that would sustain its level of operation.
But this did not happen also, a situation the regulator said had made it clear that the shareholders of the bank had completely lost their investment in the bank.
Still eager to give the bank a chance, the CBN further recalled that another meeting was held with the board and management on April 2, 2002, where it was directed to submit an updated comprehensive list of its outstanding obligations; and detailed (strictly time bound) recapitalization and restructuring plan with specific proposals.
“However, a purported recapitalization/restructuring plan submitted by the bank in response to the directive lacked the vital ingredients required to turn around an ailing financial institution as most of the premises on which the plan was anchored were unrealistic and therefore, unacceptable. For instance, the recapitalization plan was predicated on an anticipated recovery of funds from the Overseas (France) court application it had filed in respect of its sunk shipload of rice.
“We had cautioned the bank that basing its recapitalization on the anticipated compensation from the abortive rice transaction was unrealistic as court proceedings could be protracted and the outcome unpredictable,” the CBN stressed further.
At yet another meeting with the board and management of Peak Merchant Bank on June 4, 2002, the CBN imposed further regulatory measures on the bank such as an injection of fresh funds of not less than N2billion to ensure the bank’s early recovery, rectify its significantly undercapitalized position and re-establish its viability; more aggressive debt recovery drive by the management to recover the large portfolio of nonperforming loans and advances, including in particular, the insider credits; and an immediate freeze on granting of new credits
Also, no new capital projects was to be embarked upon without clearance from the CBN; just as no new accounts must be opened and no new deposits accepted until further notice.
The bank was specifically given three months within which to inject fresh funds to the tune of N2, 024,851,000 and submit an acceptable restructuring plan, failing which its licence would be determined without further recourse to its board and management.
The deadline expired on September 3, 2002 without the bank, according to the CBN, making any serious efforts to meet the salient issues, but instead again requested for extension of time.
Following the interest shown by three foreign investors, the bank was granted a final extension of 60 days up to November 4, 2002 to enable it consummate the arrangements it claimed to have with the proposed investors. However, it failed to keep faith with this date despite reminder letters from the CBN.
Instead also, the CBN said it had at that point “been inundated with calls and letters from some prospective investors alleging that their negotiations with the bank had been deadlocked because of the Chairman’s unwillingness to accept their terms for fear of diluting his interest in the bank.
This situation, the apex bank lamented further, “was a sufficient reason to believe that granting a further extension of time to the Board of the bank to recapitalise might not yield any result.
“One of the foreign investors at whose instance the extension of time was granted, later informed the CBN, vide a letter dated 3/12/02, of its decision to withdraw from its proposed investment in the bank which it adjudged as highly risky.
“Even after the extension which expired on November 4th 2002, the CBN met with two other groups presented by the bank as its foreign consultant/investor, each proposing an investment of USD15 million, to recapitalise the bank.
“Neither of the two groups paid the proposed USD15 million to recapitalise the bank. As in the previous instances, the investors requested, for more time to fund the CBN foreign account designated for the purpose.
“There was, therefore, a clear lack of sincerity and seriousness of purpose on the part of the Board and Management of the bank to recapitalise it. The CBN, mindful of the possible contagious effect on the system would not wait indefinitely for the bank to be recapitalised and restructured, given its persistent failure to comply with regulatory directives,” it stressed further.
As if these were not bad enough, the statement added that Peak Merchant Bank Limited in its desperation to stay afloat, according an investigation of a petition received from the Federal Inland Revenue Service (FIRS) revealed that the bank resorted to unauthourized collection, clearing and conversion of the proceeds of revenue cheques with effect from January 2002.
An investigation conducted on the petition by the NDIC, showed that although Peak Merchant Bank was not an approved revenue collecting bank for FIRS, it collected tax revenue cheques totaling N1, 086,144,385.33, was were cleared through three commercial banks, converting the proceeds. The report found the bank’s management complicit in the fraud, following which the Police commenced criminal investigation of the fraud.