In a move aimed at pre-empting potential legal disputes, nine major Deposit Money Banks (DMBs) in Nigeria have collectively set aside a staggering N383.42 billion. This provision is earmarked for the resolution of claims that may arise from ongoing legal battles between the banks and their customers, as revealed by an investigation conducted by The PUNCH.
These findings are based on the annual financial reports filed by the banks with the Nigerian Exchange Limited, shedding light on the extent of legal challenges encountered by the financial institutions. The banks included in this analysis are Access Holdings, FCMB, Sterling Financial Holding, Fidelity Bank, Wema Bank, Stanbic IBTC, Guaranty Trust Holding Company, Zenith Bank Plc, and United Bank for Africa Plc.
According to statements released by the banks, the legal disputes stem from regular business operations and encompass a wide range of claims, lawsuits, and other proceedings related to alleged errors, omissions, and breaches. While the directors express confidence, based on current information and counsel advice, that these disputes will not significantly impact the banks’ financial positions, monetary provisions have been set aside to address potential claims.
Legal battles, when publicized, can tarnish a bank’s reputation, increase regulatory scrutiny, and disrupt operations, ultimately leading to the erosion of customer trust, potential loss of investors, and diminished business confidence, according to industry analysts.
Among the banks, Stanbic IBTC Bank reported a total litigation claim of N12.43 billion, while GTBank allocated N9.1 billion for litigation claims arising from 1,060 cases. Similarly, FCMB Group reported a loss of N6.33 billion, and Access Bank recorded a loss of N3.46 billion due to numerous legal actions arising from their normal business operations.
Further, Fidelity Bank earmarked N1.19 billion for legal dispute claims, Wema Bank allocated N1.14 billion, and Sterling Bank set aside N10 million.
Zenith Bank, despite reporting a total loss of N33 billion within a year, saw an increase in the total amount claimed in cases against the Group, now estimated at N1 trillion. However, the bank affirmed that none of these cases would likely have a material adverse effect on its banking activities.
United Bank for Africa (UBA) reported 1,649 legal cases and provisioned N320.12 billion for potential claims. The bank, having sought legal counsel, believes that no significant liability will crystallize beyond the provision made in its financial statements.
The increased disclosure of litigation claims by banks follows threats of sanctions by the Financial Reporting Council of Nigeria (FRC) against companies hiding or underreporting the value of legal claims. Such actions are deemed to violate IAS 37, a part of the International Financial Reporting Standards set up by the International Accounting Standards Board.
Dr. Rabiu Olowo, the Executive Secretary and Chief Executive Officer of FRC, emphasized that any accounting professional found in breach of conduct will be barred from practice. The council aims to promote credible financial reporting and oversight, aligning with the standards set by professional bodies such as the ACCA.
