A Little Cautionary Advice

Between now and next year there will be some shake up in the banking industry, ahead of and after the proposed recapitalisation. There will be mergers and acquisition (not a problem) but also take over and liquidation of failed banks (not too good). Though most of our banks up till now are financially healthy and the NDIC was established to handle the latter case, to protect depositors in the course of liquidation of failed banks. Yet, it too has its own limitations as to what it can do, depending on the current liquidity of the bank’s assets and liabilities before failure. That’s why you must have heard of the limit of what it can refund for the moment in the recent case of Heritage Bank.

*Actions*

1. Make sure that you maintain accounts with *only* Tier-1 or Tier-2 banks. If you can, avoid Tier-3 banks.
2. Tier-1 banks are FUGAZ banks: FBN Holdings (First Bank), Access Holdings (Access Bank), GTCO (GTBank), UBA, and Zenith).
3. Tier-2 banks include FCMB, Fidelity, Sterling, Wema, Ecobank, Stanbic IBTC and Unity (there’s a reason for the last one). Union Bank is okay but under contention due to its affiliation with Titan Bank.
4. Tier-3 banks include most of those not listed above, especially those new ones whose names sound funny (I will not mention them) and whose ownership or board of directors aren’t clear, with issues of good morning corporate governance.
5. Try not to have up to or more than N5m in any of the banks in no. 3, otherwise move it to no. 2 and 1.
6. Bigger amount, especially parish / Local Church funds, should be moved to Tier-1 and Tier-2 banks unless you have a short-term more profitable transaction with others, this was an advise from unanimous contributor.

But our financial writer said this when asked to give a price of advice.

Tier ratings are often based on factors such as financial stability, size, regulatory compliance, and market presence. Tier-1 banks are typically the largest and most stable, often referred to as systemically important banks. Tier-2 banks are also relatively stable but may be smaller or have a narrower market presence compared to Tier-1 banks. Tier-3 banks are usually smaller banks that may have less established track records or face greater financial risks. 

Having funds in smaller banks like Heritage Bank can pose risks, especially in the event of liquidation. While the Nigeria Deposit Insurance Corporation (NDIC) provides some protection to depositors, there are limits to the amount refunded, as being done In the case of Heritage Bank, depositors received refunds but were capped at a certain amount (not more than N5 million). If you have more than the maximum paid amount in a failed bank, you may only receive up to the capped amount, and the remaining funds could be at risk of loss. It’s generally safer to spread larger amounts across Tier-1 and Tier-2 banks to mitigate such risks.