OUTLINE 1.0Introduction 2.0Action taken by the Bank upon winning the bids 3.0Conflict Resolution 4.0Customers Reaction to the P& A scheme 5.0Challenges 6.0Conclusion 7.0Our Advise- Recommendation
1.0Introduction Ecobank carried out P&A transactions on : a.All States Trust Bank- Private Sector Deposit Liabilities and selected fixed assets (branch locations and motor vehicles); b.Hallmark Bank -Private Sector Deposit Liabilities, selected Risk Assets and Fixed Assets; We are also serving as paying agent for NDIC on the Insured and dividend payments to public sector depositors of the two banks stated above.
Introduction- Objectives in bidding for the Transactions a.To grow the bank’s branch network in order to cover locations where the bank was not present; b. To increase the bank’s deposit liabilities and invariably increase the customer base of the bank
2.0ACTION TAKEN BY THE BANK UPON WINNING THE BIDS a.Taskforce set up in-house to facilitate the absorption/migration of customers and the accounts of the defunct banks into the Ecobank system; b.Recruitment of 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 and guidance. The Bank was not however obliged to recruit them;
2.0ACTION TAKEN BY THE BANK UPON WINNING THE BIDS cont’d c.Placement of Adverts in various national newspapers and radio inviting the customers of the defunct banks to visit the former branches of the defunct banks; 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.Using the 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.
2.0ACTION TAKEN BY THE BANK UPON WINNING THE BIDS cont’d e. Accounts were opened for all verified accounts where the verified amount is credited upon updating the KYC documents of the customers. f.Cheque book(for Current accounts) or Withdrawal booklets (for Savings) issued to the customers for the accounts to complete the process of absorption; g.Monthly returns on all verified accounts and credit into them rendered to NDIC. h.NDIC conducts 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;
2.0ACTION TAKEN BY THE BANK UPON WINNING THE BIDS cont’d i.The returns rendered to NDIC is collated and sent to CBN with our application for promissory notes for the total value of the returns; j.CBN review 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.CBN or 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. We sometimes 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 the corporation
3.0Conflict Resolution cont’d iii. Area of conflict are usually – Classification 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.
4.0CUSTOMER REACTION a.Customers were initially skeptical about the scheme, since no P & A transaction had been done prior to then. b.As a result, no initial massive turn up for verification until later in the process; c.Upon verification, immediate sweep of all amounts credited to the accounts by the customers; again based on the skepticism; d.As the verification progressed and their payment requests on the amount credited to their account were being honoured, some of the customers began to operate their accounts by returning some of the funds earlier withdrawn
5.0CHALLENGES a.Inadequate understanding of the operative principles of Purchase & Assumption on the part of the general public hence their initial skepticisms b.Variations between 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 for resolution c.Omission of some customers names from the deposit register: Often resolved by referring the affected customers to NDIC for resolution d.Unwillingness on the part of some customers to complete the verification procedures before payment: This is resolved through explanations and persuasions.
5.0CHALLENGES cont’d e.Unnecessary litigation 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.Promissory Notes 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 CBN examiners
5.0CHALLENGES cont’d h.Overvaluation of risk assets due to capitalization of interest i.Overvaluation of Fixed Assets such as buildings and motor cars, furniture and fixtures. j.Inability to find the old mandate cards of some customers; we had to request for the bankers confirmation from such customers before we could pay; k.Definition of Depositor; By NDIC definition, Depositors exclude Walk In customers hence they considered their funds as not part of the insured deposits: For instance some customers who purchased 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.Some risk assets purchased are not collectable due to absence of documentation as well as collateral m.Some fixed assets that were purchased are not usable and were over valued. n. Distinction between Public and Private sector depositors. This was further reviewed through a joint CBN/NDIC committee on accounts classification.
5.0CHALLENGES cont’d o.The limited due diligence of less than a month did not give bidders sufficient time to review the Risk asset portfolio adequately.
6.0 Conclusion a.Innovative and quick process for resolution of depositors funds trapped in failed banks; b.Superior to 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.It has enhanced confidence people have on the banking sector and invariably the regulator ;
7.0 Recommendation 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 institutions e.g Micro Finance Banks to further enhance the confidence on the financial system in the country