Nigeria Deposit Insurance Corporation (NDIC) has raised hopes that shareholders of the 14 closed banks may recover some of the investment in the form of liquidation dividends.

Managing Director/chief executive officer of the Corporation, Mr Ganiyu Ogunleye dropped this while fielding questions from journalist at the handing over ceremony of former City Express Bank to UBA PLC.
It would be recalled that at the expiration of the December 31st 2006 deadline given to banks to meet the N25 billion capital base, the Central Bank of Nigeria (CBN) revoked the licenses of the 14 banks that could not meet the capital base.

The banks include Trade Bank, Metropolitan Bank, City Express Bank, Lead Bank, Assurance Bank, Allstate Trust Bank, Hallmark Bank and Eagle Bank. The others are Gulf Bank, Fortune International Bank, African Express Bank, Liberty Bank, Societe Generale Bank and Triumph Bank.

However, in order to safeguard private deposits in these banks, the CBN decided to adopt the Purchase and Assumption model for their resolution. Under the Purchase and Assumption model which is also called cherry picking, banks are allowed to pick selected assets and assume specific deposit liabilities of the banks in liquidation. Model adapted by the apex bank is that the acquiring bank assumes the private sector deposits of the acquired bank in exchange for the branch location of the acquired bank.
Already six of the banks have been sold to three banks under this arrangement. They are Allstates Bank sold to Ecobank, Lead bank and Assurance Bank sold to Afribank, Trade Bank, Metropolitan Bank, City Express Bank sold to UBA PLC.

Responding to enquiries on the fate of the investment of shareholders of the closed banks under the arrangement, Ogunleye stated, “In the purchase and assumption that we conducted so far there is partial digression in the sense that only private deposits and assets, and these assets are only the banks’ premises and other infrastructures that have been acquired.
We still have the loan book of these banks, which we are still going to make efforts to recover, and when we recover we will use the proceeds to take care of the interest of others including public sector depositors. Don’t forget that the guarantee by CBN is only for private depositors.
And if you talk of a bank the major asset is the loan book. A bank is not a real estate that it will have much fixed asset that will be far in excess of the loan book. So the bulk of the asset is the loan book and we will make efforts to ensure we recover the debts and when we do that, after paying public sector depositors, creditors will also be considered before shareholders. In fact shareholders come last in the hierarchy of claims.”

Liquidation dividend is the proceeds from the liquidation of a failed bank’s assets that is paid to the depositors, creditors and shareholders of the failed bank.
It would be recalled that shareholders of the liquidated Nigeria Merchant bank received liquidation dividend of N55o million whereas they had N50 million equity subscription in the bank.