THE Central Bank of Nigeria (CBN) has delisted Express Discount Limited (EDL) from the league of discount houses in the country, in exercise of powers conferred on it by Section 2, paragraph D, of CBN Act 2007.

The move, which was predicated on two reasons of low capital adequacy and inability of the shareholders to shore up the capital base, was also aided by assessed failure on the part of the shareholders to exercise due diligence and oversight on the activities of the management of EDL.

According to a statement from the apex bank, signed by the Director of Banking Supervision, Tokunbo Martins, it noted that in 2006, the licences of some financial institutions, which were also shareholders of EDL were revoked due to inability to meet their capital requirements.

Again, some other shareholders, which controlled about 42 per cent of the EDL’s shares also had their licences revoked in 2011, with their assets being acquired after being adjudged to be in grave financial condition, which invariably led further to the deterioration of EDL financial position.

The statement also explained that further examination of the company revealed false and misleading claims in its books of account, huge exposure to margin loans and activities that contravene the guidelines for discount houses’ operations.

There were also indications of indulgence in distress borrowings, by sourcing funds at higher rates than it could earn through investing of the funds and negative shareholders’ funds, with arduous task of raising N21 billion minimum capital for the company to continue.

“However, the shareholders foreclosed any injection of fresh capital into EDL’s operations, but rather predicated the recapitalisation plan on bail-out plan possibility from CBN.

“CBN, however, did not see any justification for the injection of funds to rescue it, as total assets constituted only 0.3 per cent of the banking industry’s assets, hence the failure would not in any way precipitate a systemic crisis,” the statement added.

It noted that given the foregoing, the apex bank revoked the operating licence of EDL, which has taken effect since July 18, 2013, while a liquidator would be appointed for the company as required by law.

 

Source: The Guardian (by Chijioke Nelson)