Six Nigerian Banks Facing Nearly N2tn in Legal Claims Amid Rising Litigation Risks

The Nigerian banking sector is currently grappling with a surge in legal claims, with six prominent banks facing a combined total of N1.91 trillion in litigation as of June 2024. The legal battles encompass various lawsuits, with the banks maintaining that the potential financial impact remains minimal at present. However, these claims pose significant risks to their financial stability and investor confidence in the sector.

Zenith Bank Leading in Legal Claims

Zenith Bank Plc is at the forefront of these legal challenges, with claims amounting to N1 trillion. Despite the staggering figure, the bank is confident that the litigation will not have a material adverse effect on its financial health. In its financial report, Zenith Bank noted that these lawsuits are part of routine business operations, stating:

“The group is presently involved in several suits in the ordinary course of business. The total amount claimed in the cases against the group is estimated at N1 trillion (December 31, 2023: N1 trillion). The actions are being contested, and the directors think that none of the aforementioned cases is likely to have a material adverse effect on the group.”

Guaranty Trust Holding Company (GTCO) Faces Significant Exposure

Guaranty Trust Holding Company (GTCO) follows closely behind, facing claims totaling N600.7 billion spread across 1,047 lawsuits. Additionally, GTCO is contesting legal claims amounting to $82.09 million in foreign currency, further heightening its exposure. Despite this, GTCO’s legal team is optimistic about the outcomes, estimating that the probable liability may not exceed N9.39 billion.

Stanbic IBTC and Others Battling Legal Challenges

Stanbic IBTC reported litigation claims totaling N263.27 billion in the first half of 2024. The bank is actively defending 394 cases, with monetary claims amounting to approximately N263.27 billion, USD $1.94 million, and GBP £75,840.71.

Other banks facing substantial legal challenges include:

• First City Monument Bank (FCMB): Facing claims worth N39.54 billion.
• Wema Bank: Involved in lawsuits totaling N9.09 billion.

Access Holdings, another major player, did not disclose specific litigation claims but reported contingent liabilities amounting to N8.12 billion and commitments of N1.65 trillion. These figures, however, were not categorized strictly under lawsuits.

Potential Impact on Banks’ Financial Health

The outcome of these legal battles could significantly impact the financial health of the banks involved, potentially affecting their bottom lines and investor confidence. In May, it was reported that nine leading Deposit Money Banks had set aside N383.42 billion for potential legal claims arising from ongoing disputes with their customers. These banks include Access Holdings, FCMB, Sterling Financial Holding, Fidelity Bank, Wema Bank, Stanbic IBTC, GTCO, Zenith Bank Plc, and United Bank for Africa Plc.

Stakeholders’ Reactions and Expert Opinions

Ayo Kushimo, the spokesperson for Zenith Bank, acknowledged the situation but stated that an immediate response could not be provided at the time. Meanwhile, David Adonri, Vice Chairman of the Board at Highcap Securities Ltd, highlighted the potential risks, referring to the legal claims as contingent liabilities. He cautioned:

“These liabilities have not crystallized yet, but they conflict with a lot of stakeholders. The bank may win or lose some of these cases, but the risk appears to be very high. One can only pray that these risks do not crystallize, as it could potentially kill some of these banks.”

Professor Akpan Ekpo, an economist at the University of Uyo, also emphasized the need for intervention from the Central Bank of Nigeria (CBN) to prevent further damage. He expressed concern that the banks involved might not have sufficient assets to cover these liabilities if they crystallize.

Outlook for the Banking Sector

With litigation claims reaching nearly N2 trillion, the Nigerian banking sector is on high alert. These legal battles underscore the need for robust risk management strategies to safeguard against potential financial losses. As the outcomes of these lawsuits unfold, they will undoubtedly play a pivotal role in shaping investor sentiment and the overall stability of the sector.

For more detailed information, visit the original source at Punch News.

This article aims to provide valuable insights into the ongoing legal challenges faced by Nigerian banks, emphasizing the importance of monitoring these developments closely in the coming months.

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