Nine leading Deposit Money Banks have earmarked N383.42bn for the payment of claims that may result from ongoing legal disputes between them and their customers.
This Annual results of the financial institutions filed with the Nigerian Exchange Limited revealed.
The financial institutions analysed include; 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.
The banks, in their statements, explained that the legal disputes emerged as part of regular business operations, encompassing various actual and potential claims, lawsuits, and other proceedings about alleged errors, omissions, and breaches.
It was also highlighted that while the directors were confident, based on current information and counsel advice, that none of the outcomes from the proceedings would significantly impact the bank’s financial position, monetary provisions were set aside to resolve these claims.
However, publicised legal battles can damage a bank’s reputation, increase regulatory scrutiny and operational disruptions leading to loss of customer trust, potential investors, and business confidence, according to analysts.
“The Group litigation portfolio as of 31 December 2023 consisted of 416 cases and the aggregate value of monetary claims was N275,274,345,488.90; USD$4,468,675.78 & GB £74,284.64,” it said.
In the period under review, GTBank reported a provision of N9.1bn for litigation claims from 1,060 cases.
In the cases; as a defendant (31 December 2022: 943) and 486 as a plaintiff (31 December 2022: 483).
Similarly, FCMB Group, according to its unaudited report for 2023, reported a loss of N6.33bn, while Access Bank reported a loss of N3.46bn from numerous legal actions arising out of its normal business operations.
The report further stated that Fidelity Bank earmarked N1.19bn for legal dispute claims; Wema Bank N1.14bn; and Sterling Bank N10m.
Zenith Bank, which got a total loss of N33bn within one year. The tier-one bank said the total amount claimed in the cases against the Group is now estimated at N1tn from N967bn recorded as of 31 December 2022 but affirmed that none of the aforementioned cases would likely have a material adverse effect on its banking activities.
UBA reported 1,649 legal cases and provisioned N320.12bn for potential claims.
It also stated that “The group, in the ordinary course of business is currently involved in 1,649 legal cases from 1,422 cases in 2022. The total amount claimed in the cases against the Group is estimated at N986.247 billion from N666.124 billion in 2022, highlighting an increase of N320.12bn.
The directors having sought the advice of professional legal counsel, think that no significant liability will crystalized from these cases beyond the provision made in the financial statements.”
The increased reporting of litigation claims by banks probably followed sanction threats by the Financial Reporting Council of Nigeria to sanction companies hiding or underreporting the value of legal claims.
According to FRC, such sharp practice violates IAS 37, a part of International Financial Reporting Standards set up by the International Accounting Standards Board.
As a result, FRC said that going forward, it would hold any accounting professional or company responsible for any breach of its governance codes.
According to Dr Rabiu Olowo, the executive secretary and chief executive officer of the council, any accounting professional who goes against the core of conduct will be barred from practice.
Olowo said, “So, one of the things we could do is to make sure that we do not allow any professional who goes against the core conduct that is expected in the profession to practice.
“If you look at FRC and what the ACCA stands for; we are not just about promoting the works of accountants; we want to make sure we promote and oversight credible work that would lead to credible financial reporting. It’s the kind of alignment that we share as FRC and the ACCA.”
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