Moody’s Investor Service says the decision of the Central Bank of Nigeria (CBN) to nationalise Skye Bank and inject new capital in Polaris, the bridge bank created to take over the assets and liabilities of Skye Bank, was important as it will limit the threat of contagion to Nigeria’s banking system. The ratings agency also says it expects the central bank to continue supporting banks that are struggling, especially the systemically important ones.
The central bank revoked the operating licence of Skye Bank after attempts to save the bank from collapse failed. Akintunde Majekodunmi, a Moody’s vice president and banking analyst says the CBN did what was best for the industry.
“Taking away Skye Bank Plc’s license and transferring its assets and liabilities to Polaris Bank, a newly created bridge bank, will limit the threat of contagion to Nigeria’s banking system from the failure of a Systemically Important Bank; this shift is credit positive in that it will contain systemic risks for the Nigerian banking system as a whole,” Majekodunmi said.
Peter Mushangwe, banking analyst at Moody’s also told The Nerve Africa that “taking away Skye’s licence will be credit positive as it is removing a systematically important bank that could have negatively affected competition and the banking system’s stability.”
“Some banks and other creditors might have exposure to Skye as a failing counter-party,” Mushangwe adds, “but the amounts are likely to be manageable as the regulator sent early signals and handled the situation over a period of time.”
Mushangwe notes that the Skye Bank situation is a wake up call to other banks in Nigeria to “strengthen aspects of their governance”. However, he believes boards and management of banks in Nigeria have been better since the last crisis in the Nigerian banking industry.
Having already released N200 billion to Skye Bank before it eventually revoked the Bank’s licence, the CBN has injected another N786 billion into Polaris Bank. Asked how sustainable this practice of CBN is, Mushangwe says the central bank is strong enough to support banks in trouble. “The proportion of Nigeria’s banking assets to GDP is low at around 30 percent,” he says, stressing that it shows the Bank has sufficient capacity to continue bailing banks out.
“We (Moody’s) expect the cost of capitalising Polaris Bank to be manageable.”
“The likelihood that banks will receive future funding support will depend on the willingness of the government. We especially expect the government’s willingness to support Nigeria’s systemically important banks to remain high because of their role in the economy and national payment system,” Mushangwe adds.
When the CBN announced last week that it had revoked the licence of one of Nigeria’s systemically important Banks Skye Bank Plc., one of the questions the average Nigerian asked was about deposits and investments. It was easy to assure customers of the failed bank that their money was safe and could be easily assessed through the usual means, but from a different bank Polaris, the bridge bank created to cater to issues like that. But for shareholders, it was a different story.
Despite being in dire financial straits, the Nigerian Stock Exchange allowed the shares of Skye Bank to continue trading. In fact, at a point in February 2018, the shares sold at N1.43 each. The last time the value went that high was before the 2016 crisis which led to an initial intervention by the CBN. To several shareholders, the worst was over. Even in its last few weeks, the stock was rising, finally closing at 0.77, about 0.20 higher than Wema Bank Plc., a bank believed to be performing better.
Skye Bank is gone, so are its shares, but internal finance expert Dr. Ikpenmosa Uhumuavbi does not expect the shareholders of the failed bank to lose their entire investment.
“Worse case scenario is liquidation,” he tells The Nerve Africa. “Even in cases of liquidation, shareholders, depending on their ranking, are entitled to Parri Passu share in the insolvent assets,” he adds.
“At this stage, Skye Bank is under Administration. This means shareholders’ full entitlement to investments are contingent on the ability of the Administrators to bring the Bank back to full profitability.”
“The value/price of the shares at the time of sale to potential buyers of Polaris Bank will depend on a number of factors. First, the shares can be sold at the market price of the shares at the time of sale if Polaris Bank is successfully managed back to profitability. This will also depend on its potentials in comparison with prices of shares of other banks within the same category.”