Nigeria’s banking regulator revokes licence after insider loans drown bank

Nigeria’s Skye Bank Plc. has failed to stabilize after several attempts by the banking regulator the Central Bank of Nigeria (CBN) to save it. The CBN has, therefore, created Polaris Bank to operate the failed bank until a buyer can be found for its operations. Thus, N786 billion has been injected into the new bank as the Asset Management Corporation of Nigeria (AMCON) commences the sale process.

The central bank had in 2016 sacked the Board and management of the bank due to lapses in corporate governance as well as its “persistent failure […] to meet minimum thresholds in critical prudential and adequacy ratios, which culminated in the bank’s permanent presence at the CBN Lending Window”. More so, the bank is a systemically important bank.

While the CBN agreed that Skye Bank’s performance has improved considerably compared to the pre-2016 era, the result of the regulator’s examinations and forensic audit 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 recapitalize it,” the statement signed by CBN Governor Godwin Emefiele said.

Hence, the bridge bank, Polaris, has assumed the assets and liabilities of Skye Bank.

“The strategy is for the Asset Management Company of Nigeria (AMCON) to capitalize 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,” Emefiele said.

Too little, Too late

The current board and management of Skye Bank have done well since taking over in 2016, suggesting that an earlier intervention by the central bank might have been enough to save Skye Bank. But usually, poor performing management of banks often find a way to cover up their acts until it becomes too late.

The CBN acknowledged the impressive performance of the current board and management of Skye Bank in July by renewing their mandate for an additional two years. The bank’s company secretary Babatunde Osibodu in a statement to the Nigerian Stock Exchange (NSE) at the time said “In the two years of the Board’s mandate, the team has stabilized of the institution, entrenched sound corporate governance and risk management practices, and restored depositors’ confidence”. The CBN agrees.

“Given the good performance of the board and management, the CBN shall retain them,” Emefiele noted. He also added that the CBN’s action will not lead to job losses as all employees of the failed bank shall be absorbed by Polaris Bank under a new contract.

Chairman!

When Nigeria’s central bank sacked the board of Skye Bank in July 2016, it was already impossible for the management of the bank to window-dress. In March 2016, the company had sent a notice to shareholders and investor community that it anticipated a decline in its full-year 2015 profit. The bank blamed the decline on “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.” That year, the bank reported a loss of N40.7 billion ($112.1 million). Its explanation about impairment made sense as it had reported a profit of N18.7 billion ($51.5 million) a year earlier, and it did not say that its directors are beneficiaries of some of the loans. However, despite the “economic headwinds” the bank spent more on its directors in its loss-making year than it did a year before when it made profit — N249 million in 2015, N240 million in 2014. Also, the number of directors who received fees and other emoluments — which do not include pension contribution and “certain benefit” — in the N5 million and above range increased to 8 in 2015 from 5 in 2014.

The Bank was at the same time contravening a lot of CBN regulations. The fines it paid for non-compliance jumped from N330 million in 2014 to N4.1 billion in 2015. All the bank’s fundamentals were going south and the CBN intervened after several warnings. But the Bank’s issues had gone too deep. It was unfortunate to have a chairman that turned the bank’s money to his personal investment fund.

In a series of letters and documents, one of which local news platform TheCable sighted, the management of Skye Bank which succeeded Tunde Ayeni, the chairman that saw Skye Bank fail, alleged that Ayeni paid for the public companies he bought with loans from the bank. Ayeni reportedly invested in power distribution companies Ibadan and Yola DisCos, as well as mobile broadband provider ntel.

The current board of Skye Bank had upon assumption of duty engaged KPMG to carry out a forensic audit of the bank’s IT platform and information systems of the bank to ascertain the true state of things. According to the letter, the forensic audit by KPMG revealed that the bank operated two sets of financial accountability/books which made it difficult for regulators and auditors “to detect the massive losses and infractions, particularly the balance of N280 bilion in suspense accounts”.

“The bank’s total exposure to Ayeni as of the date is about N70 billion. It is clear that he used his position as the chairman of the bank to obtain inside loans well above the regulatory thresholds for the acquisition of the following government enterprises: Ibadan Electricity Distribution Company, Yola Ibadan Electricity Distribution Company and Nitel/Mtel. All the facilities are presently seriously challenged.

“As of today, Ayeni’s total industry indebtedness, covering both Nitel and the Electricity Distribution Companies (Discos) is estimated at about N150bn, and little, if any, of these obligations, are being doubtful that he will ever be in a position to service these loans satisfactorily.” Another N33 billion was said to have also been traced to the former chairman.

Irredeemable

From all indications, the bank has sunk so deep that more than N100 billion injected into it by the CBN could not save it. And as far as we may know, Ayeni and others who are responsible for a significant of Skye Bank’s non-performing loans may breathe easy henceforth, with AMCON stepping in. When the body bought failed banks in 2010, it did so by acquiring their NPLs and it is still struggling to recover the loans. The MD of AMCON Ahmed Kuru blamed it on the country’s judicial process, which he says is easily manipulated by debtors.

“Though there is no template that guarantees that a loan can’t go bad, if banks approve credit strictly on the basis of their credit policy, the possibility of that credit going bad is highly limited and very slim.” Kuru said, adding “And when we review some of the reports in this regard, we see quite a lot of classic internal abuses. Some of those loans were booked ab initio with the intention of them not to be paid.”

Skye Bank was founded in 2006 following a merger of Prudent Merchant Bank Limited, IB International Bank Plc., Bond Bank Limited, Reliance Bank Limited and Co-operative Bank Plc. In 2014, the bank acquired Mainstreet Bank from AMCON. Mainstreet Bank was the bridge bank created to acquire the assets and some of the liabilities of Afribank to ensure continued operations and safety of depositors’ funds. At the time, analysts said if executed well, the acquisition of Mainstreet Bank could put Skye Bank in a position to enter the elite group of tier 1 banks. But like Afribank, Skye Bank has failed and its assets and liabilities — including foreign subsidiaries — have been passed on to Polaris Bank.

The shares of Skye Bank closed 4.05 percent higher at N0.77 on Friday.