THE FAILURE OF NIGERIA MERCHANT BANK PLC
The collapse of Nigeria Merchant Bank never came to the Nigeria Deposit Insurance Corporation (NDIC) as a surprise. That was because the bank was comatose for some time before the eventual revocation of its license by the Central Bank of Nigeria (CBN) in 1998 and subsequent handover to the NDIC for liquidation. The resolution of the bank, which began in 1998 along with 25 other distressed banks served as an acid test and a challenge on the capacity of the NDIC to undertake multiple liquidation of banks. The failure of 26 banks at the same time in the system, resulted in the overstretching of the Corporation’s manpower to the extent that it had to seek for the assistance of the CBN, in addition to having to firm out part of the closing assignment to some reputable accounting firms in the country.
The license of Nigeria Merchant Bank was revoked on January 16, 1998 and as at that date, it had N68,979,981.33 in deposits and N2,037,866,325.93 in loans and advances. Out of the bank’s total deposits of N68,979,981.33 as at the time of closing, only N4,847,130.12 was insured. The gap between insured and uninsured deposits of the bank at the time of liquidation could be explained by the fact that the bank was involved in wholesale banking (Merchant Banking), dealing mainly with high net-worth individuals and corporate bodies while the maximum insured amounts at that time was N50,000.00.
The size of the bank in terms of deposits, loans and advances and branch network informed the NDIC’s choice of pay-out option in winding its affairs at least cost to the deposit insurance fund (DIF). The same resolution option was used in winding the affairs of other 25 banks that were put into liquidation at that time.
The aim of this case study is to review the circumstances surrounding the failure of the bank, examine the measures taken by the regulatory/supervisory authorities to avert the failure, what issues arose in the course of winding up the affairs of the bank and the lessons to be learnt from the failure of the bank.
The Nigeria Merchant Bank Ltd could be considered to have belonged to the first generation banks in Nigeria, as it was incorporated as a company in 1960 but could not commence operation as a Merchant Bank until 1973. It was a wholly indigenous bank that was owned by the Federal Ministry of Finance and United Bank for Africa (UBA) Limited in the ratio of 60:40 respectively. It had its head office in Lagos and had a financial year end of March 31. The bank was bedeviled with the problem of high and sticky nonperforming loans over time, with the figure peaking to N1,804,469,637.34 out of a total loans and advances of N2,037,866,325.93. Majority of the credits were granted since 1982 and many of the accounts became court cases while some of the debtors were either deceased or untraceable.
Nigeria Merchant Bank was subjected to series of on-site examinations by the supervisory authorities (CBN & NDIC) either individually or jointly as well as off-site surveillance, which was done on a more regular basis. In 1992, the bank was declared technically insolvent following the examination by the CBN.