Omodele Adigun
Just like a python that swallowed up mother elephant, the swallow of Mainstreet Bank in N126billion acquisition deal, as well as reckless inside-related loans, has become the albatross that finally grounded Skye Bank Plc.
The cusp of its failings, as inferred from its 2016 take-over by the Central Bank of Nigeria (CBN), was the failure of the bank to meet the regulator’s minimum key liquidity and capital adequacy ratios.
Skye Bank, a product of merger of Prudent Bank Plc, EIB International Plc, Bond Bank Limited, Reliance Bank Limited and Co-operative Bank Plc during the 2005 banking consolidation and recapitalisation, had to shell out over N126billion in 2014 to acquire Mainstreet Bank Limited (formerly Afribank Plc) from Asset Management Corporation of Nigeria (AMCON).
It was also revealed that one of its former chairmen used his position to take huge loans from the bank. In fact, the bank’s total exposure to the chairman was put at over N70billion.It was also alleged that another N33 billion was traced to him. This was aside the indictment of some of its directors in financial sleaze. Due to the actions of these stakeholders, the balance sheet of the bank was all but plunged into the red and crippled the lender from fulfilling its statutory obligations.
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Mr. Godwin Emefiele, the CBN governor alluded to this last Friday while sounding the death knell of the bank: “You will recall that on July 4, 2016, we took a regulatory action on Skye bank Nigeria Plc. Specifically, this action led to the resignation of the chairman, all non-executive directors on the board as well as the Managing Director, Deputy Managing Director, and the two longest-serving executive directors on the management team.
“At that time, the proactive action was informed by unacceptable corporate governance lapses as well as the persistent failure of Skye Bank Plc to meet minimum thresholds in critical prudential and adequacy ratios, which culminated in the bank’s permanent presence at the CBN Lending Window.”
That year, Standard & Poor’s (S & P) Global Ratings also suspended Skye Bank’s ratings, citing lack of sufficient, reliable and timely information after its prolonged delay in releasing its financials.
At the time of the suspension, the global and local scale ratings on Skye Bank were ‘CCC-/C’ and ‘ngCCC-/ngC’ and these ratings were on CreditWatch negative. In short, the liquidity haemorrhage suffered by the bank was better captured in its 2015 financials, released in August 2016 after many postponements delay and the last ever.
The report showed a loss after tax of N40.7 billion – a significant deviation from the nine-month profit of N12 billion. Although gross earnings was up by 12 per cent year-on-year (y/y), supported by the impressive 19 per cent y/y rise in interest income, non-interest income was down by 21 per cent y/y, having recorded a net expense of N2.7 billion in fourth quarter (Q4) of 2015 standalone following an impairment charge of N7.1 billion recorded on other financial assets.
Furthermore, in a bid to shove up its customer deposit, after the withdrawal of public sector’s fund into Treasury Single Account (TSA), the bank had to issue time deposit notes at relatively high rates.
Consequently, it reported significant rise in interest expense, up by 73 per cent y/y. Also, following a modest N1.1 billion loan loss provision recorded in the third quarter ( Q3) of 2015, the bank suddenly reported a significant N21.1billion provision in Q4 of the same year, 2015.
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As a result of this, operating income declined by 36 per cent y/y to N50.4billion. The bottom line pressure was, however, intensified further as operating expense (opex) rose by 50 per cent y/y to N88 billion. The opex pressure was largely driven by the doubling of staff cost due to the acquisition of Mainstreet Bank.
Announcing the withdrawal of its operating licence, Emefiele stated:
“The result of our examinations and forensic audit of the bank , however, have revealed that Skye bank requires urgent recapitalisation as it can no longer continue to live on borrowed times with indefinite liquidity support from the CBN. The shareholders of the bank have been unable to recapitalise it.
“As a responsible and responsive regulator and in consultation with the Nigerian Deposit Insurance Corporation (NDIC), we have decided to establish a bridge bank, Polaris Bank, to assume the assets and liabilities of Skye bank. The strategy is for the Asset Management Company of Nigeria (AMCON) to capitalise the Bridge Bank and begin the process of sourcing investors to buy out AMCON. By this decision, the licence of the defunct Skye Bank is hereby revoked.
“We wish to assure all depositors that under this arrangement, their deposits shall remain safe and that normal banking services shall continue in the new bank on Monday, September 24, 2018, to enable customers transact their businesses seamlessly.
“Thus, all customers of Skye Bank shall be automatic customers of the new bank and their accounts and records duly purchased by Polaris Bank.
“Given the good performance of the board and management, the CBN shall retain them. In addition, all employees of Skye Bank shall be absorbed by Polaris Bank under a new contract unless any employee decides to opt out.
We wish to assure the general public that the Nigerian banking industry remains safe and resilient and that the CBN will continue to live up to its responsibilities of promoting stability in the banking and financial system.”
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