Nigeria: CBN Revokes 224 Micro-Finance Bank’s Licences

Sep 2010
Lagos, Nigeria, September, 25 2010 - THE Central Bank of Nigeria (CBN) has revoked the licences of 224 micro-finance banks in Nigeria. This was disclosed Friday in Abuja at a press briefing by CBN’s deputy governor, Financial System Stability (FSS), Dr. Kingsley Chiedu Moghalu.

He said: "A significant number of the micro-finance banks (MFBs), were deficient in their understanding of the micro-finance concept and the methodology for delivery of micro-finance services to the target groups.

"Many of them lost focus and began to compete with regular commercial banks for customers and deposits, leaving their target market unattended to, in spite of efforts of the regulatory authorities to put them back on track".

In addition, Moghalu argued that "the impact of the global financial crisis on MFBs had been more severe than anticipated. Credit lines dried up, competition became more intense and credit risk increased, as many customers of MFBs were unable to pay back their credit facilities owing to the hostile economic environment".

The combination of these factors, the CBN chief explained, "significantly weakened the micro-finance sub-sector and its ability to achieve the policy objective of economic empowerment at the lower end of the market".

As a result of this scenario and following market reports about the failure of some MFBs to meet their matured obligations as well as several petitions received from aggrieved depositors, the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC), he said, embarked on a target examination of all MFBs in Nigeria.

This, he said, was to identify the problem and ascertain the scope as well as the extent of damage done to the affected institutions. The exercise started in February 2010 and was concluded in June 2010.

The target examination, he revealed, "was conducted on 820 MFBs across the country. A total of 224 (27%) MFBs were found to be ‘Terminally Distressed’ and ‘Technically Insolvent’ and/or had closed shop for at least six months".

He gave the factors that contributed to the unsoundness of the MFBs as:

-  High level of non-performing loans, resulting in high portfolio at risk (PAR), which had impaired their capital; gross under-capitalisation in relation to the level of operations.

-  Poor corporate governance and incompetent boards; high level of non-performing insider-related credits, and other forms of insider abuse •Heavy investments in the capital market, with the resultant diminution in the value of the investment after the meltdown, among others.

Following this huge failure on the part of the MFBs, the financial sector regulators, the CBN chief said, resolved to revoke the operating licences of the 224 MFBs that were found to be ‘Terminally Distressed’ and ‘Technically Insolvent’ pursuant to S.12 of BOFIA 1991 (as amended).

Technically insolvent or terminally distressed MFBs banks had negative shareholders fund, negative liquidity ratio and negative capital adequacy ratio. 46 MFBs fell into terminally distressed category, 148 fell into technically insolvent category, some failed to submit their reports to regulatory authorities and a few did not reapply for licence as demanded.

As an insured institution, the NDIC has been mandated "in line with its statutory responsibility" to pay up to the maximum insurance coverage of N100,000 per depositor, while "the bank directors and management of the closed banks that have abused their positions would be handed over to the Law Enforcement Agencies for investigation and prosecution, and those found culpable would be blacklisted accordingly".

He assured the public that they would not allow the activities of few individuals that ran their institutions aground to derail the noble objectives of the microfinance policy stressing that all "necessary steps have been taken to protect depositors of the affected banks".

Source : The Nation

Research Analysis Tools

The fund indexes, institution benchmarks and other market information displayed here are all Symbiotics designed analysis tools, created in-house by our analysts and experts. Symbiotics has one of the oldest track records in microfinance investment analysis dating back to the late 1990s; its indexes and benchmarks have been regularly used as markers by investors, asset managers, financial institutions and practitioners. These, as well as several other research products, are available through the Research Account. Click on the link below to find out more.

Learn More