PURCHASE & ASSUMPTION
(P&A) TRANSACTIONS
ECOBANK NIG PLC EXPERIENCE
OUTLINE
1.0 Introduction
2.0 Action taken by the Bank upon winning the
bids
3.0 Conflict Resolution
4.0 Customers Reaction to the P& A scheme
5.0 Challenges
6.0 Conclusion
7.0 Our Advise- Recommendation
1.0 Introduction
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
2.0 ACTION 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;
2.0
ACTION 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.
2.0
ACTION 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;
2.0
i.
ACTION TAKEN BY THE BANK UPON WINNING
THE BIDS cont’d
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;
3.0 Conflict 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
3.0 Conflict 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.
4.0 CUSTOMER REACTION
a.
b.
c.
d.
Customers were initially skeptical about the
scheme, since no P & A transaction had been
done prior to then.
As a result, no initial massive turn up for
verification until later in the process;
Upon verification, immediate sweep of all
amounts credited to the accounts by the
customers; again based on the skepticism;
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
5.0 CHALLENGES
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.
5.0 CHALLENGES 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
5.0 CHALLENGES 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.
5.0 CHALLENGES 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.
5.0 CHALLENGES 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
THANK YOU