Exclusive… Unity, Sterling banks at war over N2b facility

In from Ali Smart…

Sterling Bank Plc and Unity Bank Plc are currently embroiled in a feud over the payment of a N2billion credit facility. The matter is said to be generating so much tension between both banks that the Bankers’ Committee was prevailed upon to wade into the crisis.

At issue is that Unity Bank had served as a guarantor for one of its customer who approached Sterling Bank for a credit facility which the customer failed to redeem at the expiration of the facility’s tenor.

Ripples can authoritatively report that the two companies at the centre of the raging controversy are Quintec Ltd and LOH Or Construction Nig. Limited.

Specifically, Quintec Ltd, a customer of Sterling Bank Plc was awarded a contract by the Central Bank of Nigeria for the development of a branch building at Lafia, Nasarawa State with the original completion date of April 25, 2014, which was later extended to March 27, 2015 by the CBN vide letter dated March 31, 2014.

**To fast track the completion of the project, Quintec reportedly sub-contracted a portion of the project to Messrs LOH & OR Construction (Nig) Ltd, a customer of Unity Bank Plc.

Subsequently, LOH & OR Construction Nigeria Ltd approached Unity Bank for the issuance of the APG and PB in favour of Quintec and their bankers – Sterling Bank Plc, which was issued on June 26, 2013.

On the strength of the Advanced Payment Guarantee (APG) and Performance Bond (PG) the beneficiaries (Sterling Bank/Quintec Ltd) released the sum of N1,038,463,521.66 to the bank (Unity Bank) for onward disbursement to the customers.

However, due to the delay and the threat by the CBN to enforce contractual sanctions culminating in the termination of Quintec’s services, the contractor was constrained to request a call on the guarantees and on May 5, 2014, thus Sterling Bank issued a Notice of Default to Unity Bank advising a seven day period for LOH & OR Construction to remedy the breach failing which the guarantees would be called in.

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The sub-contractor’s (LOH & OR Construction (Nig. Ltd) bank (Unity Bank) responded vide letter dated May 14, 2014 requesting 21 days to enable its customer resolve the issues.

But indications that things had turned sour emerged when Sterling Bank Plc petitioned Unity Bank Plc for failure of Unity Bank Plc to settle obligations arising from Guarantee Nos UB/APG/338/Makurdi/6978/06/2013 and UB/PB/338/Makurdi/6977106/2013 issued in favour of Quintec Ltd/Sterling Bank Plc on behalf of LOH & OR Nig. Ltd. Both guarantees were each for the sum of N1, 038,463, 521.66.

Both parties were unable to resolve the issue amicably, prompting the Bankers’ Committee to intervene.

Findings by Ripples revealed that at the end of last month’s meeting of the Bankers’ Committee’s Investigation Panel in Abuja, both banks were accused of allowing the otherwise simple matter to degenerate.

The Investigating Panel at the meeting of March 24, 2015, raised the following posers:

· How was the value of N282 million due to Sterling Bank determined?

· Why did Sterling Bank demand an APG/PB from Unity Bank and why did Unity Bank refuse to honour its guarantee?

· What led to the determination of Loh&Or Construction’s contract?

The Investigation Panel, Ripples gathered, directed both banks to “go back and discuss amongst themselves as they had not shown sincerity on the matter.”

Ripples was reliably informed that at the June 2015 meeting of the Ethics and Professionalism Sub-Committee of the Bankers’ Committee, the Panel ruled that Unity Bank was under obligation to honour its APG to Sterling Bank and that Unity Bank should provide certificate of work done during the life of the APG by its customers to be able to ascertain the amount outstanding on the APG which could be legitimately claimed within the validity period of the APG.

The banks’ customers were subsequently admonished by the Investigating Panel “to act in an ethical manner” and frowned at one of the customers LOH &Or Construction for failing “to do what was expected of it and also failed to honour the invitation of the Arbitrators that were appointed in line with the contract.”

The Sub-Committee on Ethics and Professionalism of the Bankers’ Committee also took the same position with the Investigating Panel on the case, as it queried the rationale behind Unity Bank’s refusal “ to honour its guarantee, as guarantees are payable on demand.”

The Sub-Committee also ruled that “the amount covered by the guarantee shall, however, be progressively decreased in terms of the value of work executed by the contractor within the life of the guarantee” implying that the claims made by Sterling Bank needed to be reviewed.

Contract financing gone sour

Based on the insistence of Quintec, Sterling Bank Plc in a letter dated 23 May, 2014 demanded the liquidation of the guaranteed sum within the 14 days.

“However, Unity Bank in an acknowledgement letter dated June 2, 2014 requested an extension of the APG and Performance Bond for 120 days from July 2014 on behalf of its customer – LOH & OR Construction, who promised to resolve issues with Quintec Ltd.”

Unity Bank was advised of Sterling Bank’s inability to accede to the request in a letter dated June 5, 2014 on account of the contractors’ position, stating that the demand notice dated May 23, 2014 would lapse on June 6, 2014 and that Unity Bank was expected to make good its obligation.

Follow up letters dated June 17, 2014 and June 25, 2014 were subsequently sent to Unity Bank stating Sterling Bank’s intention to refer the matter to the Sub-committee on Ethics & Professionalism for redress.

It was on the basis of this that Sterling Bank approached the Sub-committee for redress, stating that Unity Bank’s liability under the APG was PB N841,402,974.73 as at June 6, 2014.

Besides, Sterling Bank said Unity bank’s failure to meet the said obligation after the 14-day notice period gave rise to the interest obligation which accrued at the commercial rate of 23 per cent per annum.

Sterling Bank added that the materials delivered in respect of the sub-contract financed by it “was N197, 060,547.27 based on the sub-contractor’s pricing. The client paid N285, 620,232.67 in respect of the work of which N270, 000,000.00 was deposited at Sterling Bank” and as a result, “Unity Bank was liable for sum of N841,402,974.73 plus accrued interest at 23 per cent per annum from June 6, 2014.”

Their investigations they said: “revealed that there were disputes, accusations and counter-accusations between the customers and Quintec which resulted in the frustration of the contract.”

This informed Unity Bank’s request on the customer’s behalf for an extension of the APG and PB to allow some time to sort out these issues while the customers continued with their obligations.”

Unity Bank insisted that its “obligation under the APG and PB was for the payment of the sum outstanding not defrayed from the sum advanced to the customers as a result of the customer’s default.

However when contacted, a staff of Unity bank who asked not to be named because he was not permitted to speak to the press confided in Ripples that “Unity Bank has taken advantage of the opportunity given by the Sub-Committee for us to bring up fresh facts that could lead to the change or retraction of the decision. Accordingly, the decision of the Sub-Committee will not yet be binding on the Bank, since the Sub-Committee still has to review the fresh facts provided by the Bank. We are confident that the outcome of the review will be favorable to the bank.”

The Unity Bank official added that “the issues relating to the settlement of obligations under the guarantee is already subjudice, in view of existing litigations and Arbitration known to all the parties. Therefore all parties should refrain from actions and making statements that could be contemptuous.”

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He noted “as soon as the Bankers’ Committee gets our letter revealing fresh facts of another suit, we are confident that the Sub-Committee will rescind its decision and allow for the legal process to take its natural course.‎”

A staff of Sterling Bank, who would not be named, confided in Ripples last night that Unity Bank was merely grabbing at straws.

According to him, “Obviously there is a breach of agreement. Thankfully, we’re (Sterling Bank) already seeking legal redress in this matter. I can tell you we’re ready to pursue this case to the highest court of the land in our quest for justice.”

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