, 17 tweets, 5 min read Read on Twitter
BREAKING: Heritage Bank – The Game Is Up

According to @proshare, @heritagebankltd (former SGBN) is in deep waters. The banks financials look as untidy as any bank's books can and its corporate governance standards is as poor as they come.



- Acquisition of Enterprise Bank was a major strategic error
- The bank's non performing loans (NPLs) are amongst the worst in the Industry.
- Impairment charges in H1 2018 was N37.5bn but by Year-end the figure had settled to N634.5m
- The bank posted an operating loss before tax of N38.5bn in H1 2018 and a loss of N4.4bn in the unaudited figures for December 2018;
- The banks debt to equity ratio was -0.17. The negative value reflected negative shareholders fund which could be impaired by as much as $1bn;
- Equity capital has been virtually wiped out by accumulated losses
- Liquidity challenges with The bank’s regular recourse to the CBN’s short term borrowing window
- Corporate Governance: Directors involved in insider loan transactions
- 2018 unaudited figures doesn't look good
- The bank has not been engaged in direct cheque clearing for a while, HBL’s instruments have been cleared through a third party first tier bank which got a full guarantee from the CBN against clearing loses.
For those who don't know how we got from SGBN to Heritage bank, read the background history here. By 2013, International Energy Insurance (IEI) Investments Limited, led by Ifie Sekibo, put together a consortium to resurrect the SGBN license under a new name, “Heritage Bank”

PBT as at Dec 2018 was N285.7m, but they made a loss of N4.37b in Dec 2018. Most of the loss came from operating expenses far exceeding operating income. By H1 2018 HBL had already incurred a loss of N38b 99% of which came from what it termed, 'other impairments'.
Operating Efficiency

Heritage Bank has a high operating cost with its operating cost to income ratio at 99%, meaning that virtually all operating income goes out as costs. From an operational standpoint Heritage Bank is inefficient.
Financial Leverage (Debt/equity)

HBL has a negative debt to equity ratio. This means that the shareholder's funds have been completely eroded. For the Year ended Dec 2018, the bank had a debt/equity ratio of -16.8%. What this means in a nutshell is that shareholders owe money
Corporate Governance

Insider corporate abuse. Members of the bank's Board of Directors collected huge sums of poorly collateralized loans for transactions of dubious viability. A case in point is the Keystone story where a director used his clout on the board to secure a loan...
...for a client who used the money to purchase a bank under AMCON receivership - Keystone Bank. HBL was used as a conduit for allegedly round-tripping AMCON cash. The Financial-hoop skipping was deliberate, unprecedented and in complete disregard of best governance practices.
In another example, a director in HBL was also known to have used the banks tills to acquire 2 electricity distribution licenses. The underlying cash flow difficulties of the businesses were subsequently and promptly transmitted to the bank, resulting in large repayment defaults.
To protect the financial system, the CBN may need to take over HBL and do any of the following:

1. Wind up the institution with shareholders losing their money (as it stand today, shareholder’s funds have been completely eroded). Depositors will resort to NDIC for part recovery.
2. Find fresh investors interested in the institution and intermediate a best effort basis sale of exiting shareholder interest and recapitalization of the institution as a going concern; and

3. Liquidation and running of the bank under a new franchise managed by AMCON.
Option 1 is a no-no as it will mean depositors will loss all or part of their funds

Option 2 will likely involve the CBN or AMCON recapitalizing the bank to make it "sell-able". This means the treasury or tax pay takes the bill.

Option 3 is the most viable option with less cost
Time is of the essence. According to @proshare "Heritage banks weak liquidity, impaired shareholder funds and high loan impairment, according to analysts, needs action not tolerance. The time to act is now!"

You can download the full report here: proshareng.com/admin/upload/r…
Correction. Option 2 should have been Option 3. I meant to say Option 2 is the best option.
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