CBN Takes Over Skye Bank | Independent Newspapers Limited
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CBN Takes Over Skye Bank

cbn; interbank, external resesrves
Posted: Jul 5, 2016 at 4:33 am   /   by   /   comments (1)

…Dissolves Management, Board

…Investors Shun Shares

…Shareholders Say CBN Can’t Remove, Appoint Management, Board


Bamidele Ogunwusi and Nicholas Uwerunonye

Lagos/Abuja – The Nigerian banking sector got a deep cut on Monday as the nation’s apex bank, the Central Bank of Nigeria (CBN), wielded the big stick when it dissolved the board and management of Skye Bank Plc after it deemed them unfit to continue to run the bank.

In the process, the CBN appointed Alhaji Muktar Ahmad and Tokunbo Abiru as chairman and managing director of the bank, respectively.

Aside the chairman and MD, the apex bank also appointed two executive directors and five non executive directors to replace the sacked board members which it said had resigned voluntarily.

The takeover of Skye Bank by CBN, according to analysts, may just be a dress rehearsal of impending crash of three or more banks in the country.

With public funding pulled from banks on account of Federal Government’s Treasury Single Account (TSA), drop in oil revenue accruing to the country and investors’ disinterest in the economy, analysts say that Monday’s decision may just be a major pointer to the distress in the money industry.

Vultures seem to be circling on the shares of the bank on Monday as an hour before the close of trading on the floor of the Nigerian Stock Exchange (NSE) there are 80 million units of Skye Bank shares on offer but not a single bid. This had caused the share price of the bank to tank at 95 kobo per share as 10.83 million shares changed hands at the close of trading.

Skye Bank had early last month sacked almost 200 of its workforce and has on its books non-performing loans of over N700 billion owing to its exposure to the oil and gas sector.

CBN governor, Godwin Emefiele, while addressing financial journalists in Lagos said the bank’s key ratios had dropped to a level that the CBN had to intervene.

Emefiele noted that the bank’s liquidity situation was such that it has a permanent presence at the CBN discount window, where banks resort to when they run out of cash.

Stressing that the bank is not in distress, he said key ratios such as non-performing loans, capital adequacy ratio and liquidity situation of the bank had warranted the step taken by the apex bank.

“What we have seen since around late 2013 into 2014 and 2015 is that these prudential and adequacy ratios have been weakening and we thought it is not right for us to allow these to weaken to the point where it becomes irreversible and that is why we decided to take this action.

“It has nothing to do with being distressed. What we are trying to say is that we don’t want the prudential ratios of this bank to get to a situation where depositors’ funds get into risk and that is why this is happening.

“These proactive moves have become unavoidable in view of the persistent failure of Skye Bank Plc to meet minimum thresholds in critical prudential and adequacy ratios, which has culminated in the bank’s permanent presence at the CBN lending window. In particular, Skye Bank’s liquidity and non-performing loan ratios have been below and above the required thresholds, respectively, for quite a while.

“To correct the anomalies in the bank, the CBN had several meetings with the management and board of Skye Bank as part of our strategy of close engagement whenever a bank’s financial or governance situation poses potential threats to the overall stability of our financial system. Despite the expectation of relevant regulators, market watchers, financial analysts and interested stakeholders that Skye Bank should be doing much better than it is right now, we have seen about the opposite in reality.

“Given the aforementioned issues and the fact that Skye Bank is a Domestic Systematically Important Bank (SIB) with significant interconnectedness, the CBN would be failing in its duties if it does not take immediate action to nip the steadily declining health of the bank in the bud and correct the situation. In view of the long grace period allowed the bank to correct the situation, we came to the conclusion that, although the existing board had done its best to steer the ship it had come to a realisation that it would be unable to bring the bank out of its present precarious situation. Fortunately, and in the overall interest of the bank, the chairman and some board members have decided to resign their appointments from the bank.”

Nigerian lenders have been shoring up their balance sheets in preparation for adopting stricter international requirements that analysts say could erode capital ratios by between 100 and 400 basis points to near the regulatory minimum of 15 percent.

Meanwhile, poor capital conditions at home due to slowing economic growth have weakened domestic markets, analysts say.

Ano Anyanwu, former Deputy Managing Director, Mainstreet Bank, said: “What happened at Skye Bank is unbelievable. I am shocked as you are. I don’t think what happened only was because the bank bought my former bank, Mainstreet Bank. I think what happened was as a result of systemic breakdown.

“I am of the opinion that this is not a good development for the banking industry. Things like this shouldn’t be happening now that most Nigerians now have the belief that our banks are stronger and healthier”.

Shareholders in the country are of the opinion that the decision is another one meant to take their investment away from them like it was done in the past by the apex bank.

Sunny Nwosu, the National Coordinator of the Independent Shareholders Association of Nigeria (ISAN), said the decision was a surprise to shareholders and the dimension taken by removing and appointing is not their right.

“The right and duty of the CBN in this regard is to advise the board to remove any of the executive directors found wanting. When they now gave reason of capital adequacy, it is not something that goes overnight. Capital adequacy has to be reported to shareholders that this is the position of the capital of their investments. “The governor of the CBN is toeing the line of his predecessors who ended up destroying shareholders’ investments by appointing directors that are not loyal to the directors of shareholders.

“We in ISAN frown totally about it. The implication of this is that shareholders of Skye Bank will want to sell off their shares. If they even want to sell, they may not find buyers. I think it is very wrong for the CBN to remove and appoint boards unilaterally. This is an imposition. They have imposed a chairman on us and an MD on us”.

Explaining the implication of Skye Bank take over, Austin Onwudinjo, former branch manager, Access Bank, said that the decision of CBN is the right one as the bank’s distress signals what is happening in the money industry.

“It is clear that the loans in the bank are not performing. CBN’s takeover is a move to prevent bad situation from becoming worse,” Onwudinjo said.

Other analysts, however, said that the situation further mirrors the economic situation in the country. “You should expect bank takeovers and distress in an economy in recession,” explained Dr. Ibrahim Jibril, an economist based in Abuja. “The last time we had dwindling revenue from oil, our stock market crashed, five banks were taken over by CBN. But this situation is much worse given other indicators,” Jibril said.

Figures and statistics from the National Bureau of Statistics (NBS) show that the economy is already in a recession. Economic recession is usually defined as having two or more consecutive quarters of negative economic growth.

CBN has stated that its Purchasing Manager Index (PMI) for June 2016 showed that economic activities declined faster in June. This means the decline had been sustained for six consecutive months.

NBS had reported that the nation’s GDP in the first quarter of 2016 contracted by 0.36 percent, the first negative growth in many years.

The current CBN report states that in the manufacturing sector, “Production level, new orders, and employment level and raw material inventories declined at a faster rate, while supplier delivery time improved at a faster rate.”

In the non-manufacturing sector, “Business activity, new orders and employment level declined at faster rate while raw materials inventories declined at a slower rate.”

When Independent visited some of the branches of the bank, normal business activities were ongoing as customers continued with their transactions.

However, the shares of the bank were being dumped at the Nigerian Stock Exchange as shareholders fearing a nationalisation of the bank put up their stakes for sale.

Ahmad, a seasoned public sector executive with over 35 years of distinguished experience spanning the public sector and the financial services industry, had served as the pioneer Director General and Chief Executive Officer of the National Pension Commission (PenCom).

He was also a pioneer staff of the Nigeria Deposit Insurance Corporation (NDIC) where he rose to become a director. He has also served on the board of various companies and committees including banks and not-for-profit organisations. Similarly, Abiru is a seasoned accountant and banker and was until recently an executive director in First Bank Plc. He was also Lagos State Commissioner of Finance from 2011 to 2013. Abiru is a Fellow of the Institute of Chartered Accountants of Nigeria.


Comments (1)

  • Jul 5, 2016 at 7:43 am Osaze Igho

    This is one problem with inorganic growth. I am not sure this cab be explained away from the Mainstreet Bank purchase and of course insider related credits that have gone bust. None adherence to good corporate governance and more.

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