By Michael Okejimi, Esq.
On January 10, 2024, the Central Bank of Nigeria (CBN) took action by dissolving the Board and Management of Union Bank, Keystone Bank, and Polaris Bank. This decision was prompted by the non-compliance of these banks and their respective boards with specific sections of the Banks and other Financial Institutions Act, 2020 (BOFIA), namely Section 12(c), (f), (g), and (h).
The CBN, in a press release signed by Sidi Ali Hakama (Mrs.), the Ag. Director of Corporate Communications, assured the public that depositors’ funds are safe and secure. However, concerns have been raised regarding the safety of funds held in these affected banks.
To address public concerns, it is important to clarify that the CBN has not revoked the licenses of these banks. Instead, the CBN has taken over the management of the banks by appointing new executives.
According to Section 12(1) of BOFIA, the Governor of CBN, with the approval of the Board of Directors, has the authority to revoke a banking license under certain conditions. These conditions include if a bank ceases to operate its specified banking business in Nigeria for a continuous period of six months, goes into liquidation, fails to comply with the conditions of its license, has insufficient assets to meet its liabilities, conducts business in an unsound manner, poses a threat to financial stability, or fails to comply with obligations imposed by the BOFIA or CBN Act, among other reasons.
If the licenses of the affected banks were indeed revoked, the provisions of subsections (2) and (3) of Section 12 would apply. Subsection (2) allows the CBN Governor, with the approval of the CBN Board, to appoint the Nigeria Deposit Insurance Corporation (NDIC) as a liquidator for the affected bank. The NDIC would then have the powers of a liquidator under the Companies and Allied Matters Act (CAMA) and would be considered a liquidator appointed by the Federal High Court for the purpose of the Act.
Even if a bank’s license is revoked, depositors’ funds are still protected by the NDIC under subsection (3) of BOFIA. This means that if the CBN revokes a license and appoints the NDIC as a liquidator, the NDIC is responsible for initiating the liquidation process and ensuring the payment of insured deposit liabilities in accordance with the Nigeria Deposit Insurance Corporation Act. This protection remains in place regardless of the provisions of BOFIA, CAMA, or any other law.
In the event of a revoked license, the NDIC is required to make payment of insured deposits within 90 days. This payment can be made in cash, through negotiable instruments, or by transferring the deposit to another insured institution in an amount equal to the insured deposit of the depositor, as stipulated in Section 21 (a) and (b) of the Nigeria Deposit Insurance Corporation Act, 2006.
If a bank’s license is revoked by the CBN, any legal challenge against the revocation must be filed in the Federal High Court. Such challenges and any subsequent appeals will be expedited and heard promptly. Additionally, no action relating to the revocation of a bank’s license can be filed or maintained unless it is initiated within 30 days of the revocation, as specified in Section 12 (4) and (5) of BOFIA.
While affected banks have the right to challenge the revocation of their licenses in court, it is important to note that no restorative or similar order can be granted against the CBN or the Governor in relation to the revocation under the Act. The remedy available to claimants or applicants in such cases is limited to monetary compensation, which cannot exceed the equivalent value of the bank’s paid-up capital at the time of the license revocation. In other words, once the CBN revokes a bank’s license, the court cannot order the restoration of the license.
The only available remedy for the affected bank is monetary compensation, as outlined in Section 12 (6) of BOFIA.
Michael Okejimi, Esq., is a Legal Practitioner and Managing Partner at Law Empire, Abuja.
Michaelokejimi@lawempirenigeria.com
