CBN revokes license of discount house

The CBN accused the discount house of serial abuses.The Central Bank of Nigeria (CBN) on Friday revoked the operational license of Lagos-based Express Discount Limited (EDL) for serial abuses and failure to meet the required minimum capital base.

The Central Bank’s Director of Banking Supervision, Tokunbo Martins, said the revocation, which took effect from July 19, was in compliance with the provisions of Section 2(d) of the CBN Act 2007 and its mandate under the Banks and other Financial Institutions Act (BOFIA) 2004.

The Act confers on the Central Bank the responsibility of promoting sound financial system in the country, while the BOFIA empowers it to supervise and regulate the banks and other financial institutions in the country.

Mrs. Martins said that EDL, which was incorporated in November 25, 1992, as a private limited liability company, and issued the license to carry on business as a discount house, failed on several occasions to meet its statutory obligations, including its inability to meet the prescribed capital requirement, resulting in the withdrawal of licenses of some affiliate financial institutions in 2006.

EDL is owned by a group of financial institutions, including Bank Of Industry (BOI), Keystone Bank Limited, Fin Bank Plc (now part of FCMB Group), Omis Investment Limited, Nicon Insurance Plc, Niger Insurance Plc, Skye Bank Plc and Enterprise Bank Limited.

In 2011, Mrs. Martins said other shareholders that held about 42 per cent of the company’s equity had their operating licenses revoked, while their asset were acquired over “grave financial condition”, a development that worsened EDL’s financial situation.

The CBN blamed the failure of the bank on the inability of its shareholders to exercise due diligence and oversight over the activities of the management. The Central Bank’s examination had revealed that the management maintained false and misleading books of account and exposed the company to huge marginal loans.

Similarly, the director said the CBN had found out that the management was engaging in activities that contravened the guidelines of its operations as a discount house, adding that apart from indulging in distress borrowing by sourcing for funds at rates higher than its earning capacity, the company also kept a negative shareholders funds, which required capital reinjection in excess of N21 billion.

Following the findings, the CBN said the Board of the EDL was compelled to sack its Managing Director, while the new management was directed to take steps to restore normalcy, including the injection of fresh capital, a decision the shareholders kicked against, rather asking for a bailout from the Central Bank.

Mrs. Martins pointed out that the bailout option was not appealing to the CBN, which did not see any justification for the injection of funds to rescue a company whose total asset constituted just 0.3 per cent of the banking industry asset.

The director noted that the decision to revoke the operational license of the company followed a careful analysis of its books, which revealed that the company no longer possessed the sufficient asset to meet its liabilities following the inability of the shareholders to inject the required capital to sustain its continued operations.

While the revocation has already been published in the Federal Government Gazette No. 49, vol. 100 of July 19, 2013, the CBN said a liquidator would soon be appointed to handle the resolution of issues concerning the company’s assets and liabilities in line with the extant laws.