Nine major Deposit Money Banks have allocated N383.42bn to cover potential claims arising from current legal disputes with their customers.
The information was derived from the annual financial reports submitted by various financial institutions to the Nigerian Exchange Limited.
The institutions included in the 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 the banks' statements, the legal disputes arose as part of their regular business activities, involving a range of actual and potential claims, lawsuits, and other legal proceedings related to alleged errors, omissions, and breaches.
It was noted that although the directors were confident, based on current information and legal advice, that none of the outcomes from these legal proceedings would have a significant impact on the financial position of the banks, monetary provisions were set aside to address these claims.
However, it was also pointed out that publicized legal battles can harm a bank's reputation, increase regulatory scrutiny, and disrupt operations, leading to a loss of customer trust, potential investors, and business confidence, as stated by analysts.
Stanbic IBTC Bank disclosed a total litigation claim of N12.43bn.
“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 crystalise 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 the Executive Secretary and Chief Executive Officer of the council, Dr Rabiu Olowo, any accounting professional who goes against the core of conduct will be barred from practice.
Olowo emphasized the importance of preventing professionals who go against the expected conduct from practicing.
He highlighted the alignment between FRC and ACCA in promoting and overseeing credible work for credible financial reporting.