Reports reaching us from the Central Bank of Nigeria ,CBN says the apex bank has revoked the license of Express Discount Limited
A statement by the apex bank today said “Following the removal of the MD/CEO, the CBN directed the Board to take necessary steps towards ameliorating the situation, and this included the injection of fresh capital. However, the shareholders foreclosed any injection of fresh capital into EDL’s operation but rather predicated their recapitalisation plan upon a bail-out possibility from the CBN. The CBN, however, did not see any justification for the injection of funds to rescue the discount house as its total assets constituted only 0.3% of the banking industry assets. Therefore, its failure would not in any way precipitate or constitute a systemic crisis.
“Mindful of the fact that EDL no longer had sufficient assets to meet its liabilities, and the shareholders had been unable to inject the capital required for the continuation of its operations, the CBN, in exercise of its powers, revoked the operating licence of Express Discount Limited, with effect from 18th July, 2013 as contained in the Federal Government Official Gazette No. 49 Vol. 100 of 19th July, 2013. A liquidator will be appointed for the company as required by extant laws to resolve its assets and liabilities.
Read the CBN Statement below:
Revocation of the Operating Licence of Express Discount Limited
…Section 2 paragraph (d) of the Central Bank of Nigeria (CBN) Act, 2007 confers on the CBN, the responsibility of promoting a sound financial system in Nigeria. Under this mandate, the Banks and Other Financial Institutions Act (BOFIA) 2004, further confers on the CBN, the powers to supervise and regulate the banks and other financial institutions in Nigeria.
Pursuant to the foregoing, the CBN wishes to make the following statement with regard to Express Discount Limited (EDL):
Express Discount Limited (EDL), with headquarters at Marine Plaza View, 60 Marina, Lagos Island, was incorporated on the 25th of November, 1992, as a private limited liability company and was licensed by the Central Bank of Nigeria (CBN) on the 22nd of July, 1993 to carry on business as a discount house. It commenced operations on the 23rd of July, 1993.
MAJOR ISSUES IDENTIFIED WITH THE MANAGEMENT OF EDL
In 2006, the licences of some financial institutions, which were shareholders of EDL, were revoked due to their inability to meet the prescribed capital requirements. Furthermore, some other shareholders which held about 42% of the company’s shares had their operating licences revoked in 2011 and their assets acquired after being adjudged to be in grave financial condition. Over time, this led to the deterioration of EDL’s financial position. In addition to the foregoing, the shareholders failed to exercise the necessary due diligence and oversight over the activities of the Management of EDL.
CBN’s examination of EDL’s operations revealed that the company:
i. maintained false and misleading books of account
ii. had huge exposure to Margin Loans
iii. engaged in activities in contravention of Discount House guidelines
iv. indulged in distress borrowing by sourcing funds at rates higher than it could earn by investing the funds
v. had negative shareholders’ funds and required a minimum capital injection of N21 billion if the company was to continue operation.
In the light of these findings, the Board of EDL, in November 2011, relieved the Managing Director/Chief Executive Officer of his appointment.
Following the removal of the MD/CEO, the CBN directed the Board to take necessary steps towards ameliorating the situation, and this included the injection of fresh capital. However, the shareholders foreclosed any injection of fresh capital into EDL’s operation but rather predicated their recapitalisation plan upon a bail-out possibility from the CBN. The CBN, however, did not see any justification for the injection of funds to rescue the discount house as its total assets constituted only 0.3% of the banking industry assets. Therefore, its failure would not in any way precipitate or constitute a systemic crisis.
Mindful of the fact that EDL no longer had sufficient assets to meet its liabilities, and the shareholders had been unable to inject the capital required for the continuation of its operations, the CBN, in exercise of its powers, revoked the operating licence of Express Discount Limited, with effect from 18th July, 2013 as contained in the Federal Government Official Gazette No. 49 Vol. 100 of 19th July, 2013. A liquidator will be appointed for the company as required by extant laws to resolve its assets and liabilities.
Thank you.
TOKUNBO A. MARTINS
DIRECTOR OF BANKING SUPERVISION
CENTRAL BANK OF NIGERIA
ABUJA
26th July, 2013
