PURCHASE & ASSUMPTION(P&A) TRANSACTIONS
ECOBANK NIG PLC EXPERIENCE
OUTLINE
1.0 Introduction2.0 Action taken by the Bank upon winning the bids3.0 Conflict Resolution4.0 Customers Reaction to the P& A scheme5.0Challenges6.0Conclusion7.0Our Advise- Recommendation
1.0 Introduction
Ecobankcarried outP&Atransactions on:a. AllStates Trust Bank- Private Sector Deposit Liabilities and selected fixed assets (branch locations and motor vehicles);b. HallmarkBank - Private Sector Deposit Liabilities, selected Risk Assets and Fixed Assets;Weare also serving as paying agent for NDIC onthe Insuredand dividend payments to public sector depositors of the two banks statedabove.
Introduction- Objectives in bidding for the Transactions
a. Togrow the bank’s branch network inorderto cover locations where the bankwasnot present;b.Toincrease the bank’s deposit liabilitiesandinvariably increase the customer baseofthe bank
2.0 ACTIONTAKEN BY THE BANK UPON WINNING THE BIDS
a. Taskforceset up in-house to facilitate the absorption/migration of customers andtheaccounts of the defunct banks into the Ecobank system;b. Recruitmentof staff for the branches of the defunct banks. Consideration was given for some staff of the defunct banks especially All States Trust Bank to provide necessary experience, continuity andguidance. TheBank was not however obliged to recruit them;
2.0 ACTION TAKEN BY THE BANK UPON WINNING THE BIDS cont’d
Placementof Adverts in various national newspapers and radio inviting the customers of the defunctbanksto visit the former branches of the defunctbanks;now Ecobank branches to carry out the verification of their accounts and balances therein. The NDIC also complemented this by their own advert as well.d. Usingthe documentation guidelines and deposit register provided by NDIC; verification commenced in all location across the country simultaneously. References were made to the mandate files collected from defunct banks in the process of verification to verify the customer signature and image. Evidence of account with the defunct banks such as passbook, unused cheque books were obtained as well.
2.0 ACTION TAKEN BY THE BANK UPON WINNING THE BIDS cont’d
e. Accountswere opened for all verified accounts where the verified amount is credited upon updating the KYC documents of the customers.f. Chequebook(for Current accounts) or Withdrawal booklets (for Savings) issued to the customers for the accounts to complete the process of absorption;g. Monthlyreturns on all verified accounts and credit into them rendered to NDIC.h. NDICconducts the review of all deposit listed in our returns and traced the deposit to the accounts opened for such customers. The insured deposit is then paid to Ecobank based on the amount certified by the NDIC review team;
2.0 ACTION TAKEN BY THE BANK UPON WINNING THE BIDS cont’d
Thereturns rendered to NDIC is collated and sent to CBN with our application for promissory notes for the total value of the returns;j. CBNreview team goes to all branches listed in the return/application to examine documents on each verification we did and amount credited to each accounts opened for the customers acquired. This formed the basis of the value of promissory notes that are issued to the bank;
3.0Conflict Resolution
i. CBNor NDIC sometimes decline re-imbursement on some of the payments. The rejections are thereafter represented to both CBN and/or NDIC after addressing issues raised.ii. Wesometimes have to reverse the credit earlier made into some of the customer accounts which in some cases result into debit position as the customer may have draw down on all or part of the initial credit. This is usually taken up with NDIC if the error resulted from information provided by thecorporation
3.0 Conflict Resolution cont’d
iii. Areaof conflict are usuallyClassification of some customers as private instead of public sector depositors;Errors on the part of NDIC on the amount stated against customer on the deposit register given to the bank;Inadequate documentation or inability of the review team- NDIC or/and CBN to sight documents on the accounts verified; For this we retrieve and represent to the team thereafter.
4.0 CUSTOMERREACTION
a. Customerswere initially skeptical about thescheme, since no P & A transaction had beendoneprior to then.b. Asa result, no initial massive turn up forverificationuntil later in the process;c. Uponverification, immediate sweep of allamountscredited to the accounts by thecustomers; again based on the skepticism;d. Asthe verification progressed and theirpaymentrequests on the amount credited totheiraccount were beinghonoured, some ofthecustomers began to operate theiraccountsby returning some of the fundsearlier withdrawn
5.0CHALLENGES
a. Inadequateunderstanding of the operative principles of Purchase & Assumption on the part of the general public hence their initialskepticismsb. Variationsbetween the amount contained in the Deposit Register provided the bank by NDIC and the amount claimed by some customers: Often resolved by referring the affected customers to NDIC forresolutionc. Omissionof some customers names from the deposit register: Often resolved by referring the affected customers to NDIC forresolutiond. Unwillingnessonthe partof some customers to complete the verification procedures before payment: This is resolved through explanations and persuasions.
5.0CHALLENGES cont’d
e. Unnecessarylitigation from some creditors/customers of the defunct Banks due to inadequate understanding of the principles underlying the P& A. Such litigants often assume that the Banks were taken over as a going concern. For instance some customers of the defunct banks wrote to the bank for excess charge claims. This resulted in higher costs to the Bank in the form of solicitors fees to defend the actions.f. Pursuant to ‘e’above, inability of judges in the courts to understand the transaction even when presented with documentation. General erroneous perception is that the P & A is an outright acquisition.g. PromissoryNotes issued to the bank by the CBN are not back valued to the dates the promissory notes request were made to CBN but bear the date verification is concluded by the CBNexaminers
5.0CHALLENGES cont’d
Overvaluationof risk assets due to capitalization ofinteresti. Overvaluation of Fixed Assets such as buildings and motor cars, furniture and fixtures.j. Inabilityto find the old mandate cards of some customers; we had to request for the bankers confirmation from such customers before we could pay;k.Definitionof Depositor; By NDIC definition, Depositors exclude Walk In customers hence they considered their funds as not part of the insured deposits: For instance some customerswhopurchased drafts from the defunct Allstates for their wards school fees are categorized as walk-in customers. It means that they will be treated as creditors. We often find it difficult to convince the customers while they cannot be paid. We simply refer them to NDIC.
5.0CHALLENGES cont’d
l. Somerisk assets purchased are not collectable due to absence of documentation as well ascollateralm. Somefixed assets that were purchased are not usable and were over valued.n.Distinctionbetween Public and Private sector depositors. This was further reviewed through a joint CBN/NDIC committee on accounts classification.
5.0CHALLENGES cont’d
o. Thelimited due diligence of less than a month did not give bidders sufficient time to review the Risk asset portfolio adequately.
6.0Conclusion
Innovativeand quick process for resolution of depositors funds trapped in failed banks;Superiorto dividend payment by liquidator which is cumbersome and time consuming. In both banks close to 50% of depositors in value received payment within 6 months of the scheme;c. Ithas enhanced confidence people have on the banking sector and invariably the regulator ;
7.0Recommendation
Public sector deposits should be considered for inclusion in P& A in order to provide full confidence to all category of depositors;Adopt the scheme for other financial institutionse.gMicro Finance Banks to further enhance the confidence on the financial system in the country
THANK YOU
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