Something About Skye Bank’s Letter Of Promise To Shareholders | Independent Newspapers Limited
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Something About Skye Bank’s Letter Of Promise To Shareholders

skye bank
Posted: Apr 25, 2016 at 3:37 am   /   by   /   comments (0)


When Skye Bank issued a profit warning last month as did several other banks it just maybe dispatching a note to shareholders that though the economic headwinds hit really hard, it is taking remedial steps to cover the gaps.

“While this cautious approach has been adopted, we have designed and commenced appropriate remedial processes to salvage the affected assets as soon as possible,” the bank had promised in its March 23 release.

Since that announcement, shareholders, indeed, all stakeholders have been anxious to see the bank’s full year report so as to determine how to place their bets within and outside the banking sector. The bank had already missed the central bank deadline, as did several others.

Feelers suggest that much of the delay involves approval processes by the CBN, the auditors and understandably, the Financial Reporting Council.

But the profit trend for banks, according to analysts, privy to unaudited reports say on average, banks’ turnover growth (as at April 12, 2015) stood at 12 percent and profit margin of 16 percent with an attendant surge in impairment charges and bad loans. Though, the NPL ratio remains impressive at average of 2.9 percent so far.

Skye Bank’s bottom-line is expected to take a shave along those lines, owing to asset erosion from exposure to the twin sectors of oil and gas and real estate. Heavy fines it had had to absorb recently and treasury single account (TSA) compliance issues may also impact on bottom-line.

Analysts also point to the bank’s recent expensive acquisition of Mainstreet Bank as being expected to ‘have driven up the operating expenses as suggested by the bloated posture of cost-to-income ratio at above 70 percent as at Q3’15.

“The sustained growth pattern in impairment charges coupled with continued growth in both interest and operating expenses would remain a key burden on the profitability posture of the bank.”

Also, market watchers point to high cost of funds, of loss of revenue from public sector funds, fines and integration costs on the one hand and a real estate market in a flux as reasons that could depress the bank’s revenues.

Investment bankers polled by the Financial Times (FT) seem confident of Skye Bank’s near term performance notwithstanding.

“As of April 15, 2016, the consensus forecast amongst nine polled investment analysts covering Skye Bank Plc advises investors to hold their position in the company. This has been the consensus forecast since the sentiment of investment analysts deteriorated on November 5, 2015. The previous consensus forecast advised that Skye Bank Plc would outperform the market,” says FT.

Usually, when investment bankers advise stockholders’ to hold a security, it is an indication that the share price would appreciate over time.

The bank’s share price though has been oscillating between 99 kobo when the profit warning was issued and one naira on Wednesday April 20, and now 98 kobo as at Friday, April 22.

The observed volatility is an industry wide occurrence, which analysts say is an indication of investors becoming averse of the sector owing to the central bank and “government reform policies which for years lifted asset prices, are now hurting them; and in some cases, created disruptions.”

The global environment is so inclement that profit warnings have become the order of the day. An FT report on Sunday, April 24 said, “Corporate profit warnings are running at their highest rate since the financial crisis as UK companies struggle to ensure that stock market expectations reflect more precarious economic conditions.”

For Skye Bank, the “precarious economic condition” was seen in oil and gas and its real estate portfolio.

In its March 23 statement, it revealed “the expected decline in performance is attributable to management’s decision to recognize increased impairment on loans to sectors severely affected by the prevailing economic headwinds which are yet to abate, especially the lull in oil & gas and real estate sectors.”

Though, a finger cannot be pinned on its total exposure to the sectors at the moment since, its fourth quarter report is yet to be released, Proshare analysts say the bank’s total exposure to oil and gas in the third quarter could be as much as 26 percent as 28 percent of bad debts are also from that sector.

“We envisage that 26 percent of total loan portfolio in Q3’15 was in oil and gas while the same troubled sector owns 28% of total non-performing loans (bad debts) as revealed in its Q3’15,” Proshare says.

The solution, according to Proshare, is that the bank will have to deal with its significant exposure to an elongated commodities-price slump that has sparked defaults for it in the oil & gas, power and real estate sector(s).

The bank on its part had assured that “we remain committed to our focus on supporting the growth of the retail and SME sectors amongst others. In 2015 we made substantial improvements to our risk management framework with a view to ensuring that our risk assets portfolio remains solid and of good quality. Our cost containment, internal efficiency and process improvement measures remain on track.”