What you should know about the transmutation of Skye to Polaris Bank

Weak asset quality, rising funding costs and increased customer wariness about the safety of their deposits and poor corporate governance have conspired to squeeze out the now defunct bank’s balance sheet and tear its profit figures to shreds leaving the bank in a life support situation.

Skye Bank’s challenge has been traced to the merger of weak financial institutions including Prudent Bank, Eko Bank, Bond Bank, Co-operative Bank Plc and Reliance Bank which merged in 2006.

The bank’s in ability to harmonize, the diverse cultures of the different banks did not help issues as each small unit bunched up and tried to propagate its culture and dominate the bigger institution. This lack of trust and superiority complex made it impossible to put the best hands at the more strategic positions.

The bank’s problem escalated with its acquisition of Mainstreet Bank at an outrageous price. Reportedly, Skye Bank had paid N126 billion to acquire a bank that experts and Even AMCON, had revealed was supposed to cost at most N80 billion to N100 billion.

This, experts said, was caused by lack of proper due diligence. The development which showed that Skye Bank did not have the capacity to accommodate this huge financial institution had done the bank in.

Skye Bank thereafter fell into trouble with the apex bank and was penalized for failing to remit the Federal Government’s fund into the Treasury Single Account (TSA) at a time it was struggling. N4 billion penalty was huge for a bank which did not have strong shock absorbers like UBA, First Bank among others that suffered similar fate but survived.

CBN First Intervention

On July 4, 2016, (CBN) announced the removal of its erstwhile chairman, Mr. Tunde Ayeni, who, it was claimed, had an overbearing influence over the bank’s credit process which in turn led to a hefty exposure to a faltering Oil & Gas sector in which Ayeni was known to be a major player.

Shareholders became furious at the information that the bank’s erstwhile chairman, Mr. Ayeni and another director, Dr. Festus Fadeyi, had borrowed huge loans from the bank to run other business concerns. Details showed that while Ayeni owes the bank as much as N36 billion and repaid only N6 billion, Fadeyi owed N98 billion.

Other directors that got the boot at the time were non-executive directors and its managing director, Mr. Timothy Oguntayo; deputy managing director, Mrs. Amaka Onwughalu; and two other executive directors. The clean sweep of the top echelon of the bank was designed to allow for a fresh start and a rejigging of the bank’s business model and the reconstruction of its credit portfolio.

The CBN governor, Godwin Emefiele, had said the regulator’s last intervention was necessary in view of the persistent failure of Skye Bank to meet minimum thresholds for critical prudential and capital adequacy ratios, which brought it repeatedly to the CBN’s lending window.

Emefiele told journalists that Skye Bank’s liquidity and non-performing loan ratios had been below and above the required thresholds respectively for quite a while.

But that intervention from the apex bank was not enough. Skye Bank contended with serious liquidity challenges. Achieving its target and return to good health in the short term hung in the balance as not even the seeming strong and healthy banks which have made it clear that the times are hard, are surviving well.

The bank had unsuccessfully mooted the idea of raising additional capital. The unfavourable operating environment and the woeful performance of the bank’s shares was not encouraging for any company to do public offering let alone Skye Bank which had been wobbling for over three years.

CBN Second Intervention

The Central Bank of Nigeria (CBN) in its second major intervention, revoked the licence of Skye Bank and transferred the liabilities, assets and management of the distressed bank to a newly licenced entity, Polaris Bank, to be driven by the Asset Management Corporation of Nigeria (AMCON)

Polaris Bank will be getting a single digit interest, long-term facility of N786 billion from the Assets Management Corporation of Nigeria (AMCON) to ensure the bank continues as a going concern.

Speaking at a press conference to announce the revocation of Skye Bank’s licence, Governor of the CBN, Godwin Emefiele, said the decision was reached following the inability of the owners of the bank to shore up the capital of the distressed bank which had earlier received a N350 billion intervention in July 2016.

“Skye Bank requires urgent recapitalization as it can no longer continue to live on borrowed time with indefinite liquidity support from the CBN. We have decided to establish a bridge bank, Polaris Bank, to assume the assets and liabilities of Skye Bank.

“The strategy is for AMCON to capitalise the bridge bank and begin the process of sourcing investors to buy out AMCON. By this decision the licence of Skye Bank is hereby revoked.”

shareholders,

What saying

experts are

Investors in Skye Bank stock have been unsettled since its management team was sacked and replaced in July 2016.

Chief Adesiyan who claims to own substantial share in the bank said: “We no longer understood the developments in the bank since the Central Bank of Nigeria took it over. We don’t seem to own anything in the bank again.”

Prof. Joseph Ajibola, former president, Chartered Institute of Banking of Nigeria (CIBN) opined that there was an understanding by the public that the shareholders of Skye Bank, including Lagos State Government, would beef up the capital base of the bank to enable it operate profitably and meet the critical regulatory ratios.

“This was not to be as the bank continued to rely on borrowings from the CBN to remain in operation. Hence the decision of CBN to close its lending window against Skye Bank,” he noted.

“The reasons given by the regulatory authorities are difficult to controvert. If the existing shareholders are not able to inject additional capital even after the capital base of the bank had been eroded by losses, it means that they have lost any claims on the bank and therefore the withdrawal of the license is simply a confirmation of an existential condition,” he said.

Moses Ojo, Head, Research and Business Development, PanAfrican Capital Plc said: “It was good that the Central Bank has taken steps to sustain the going concern of the bank by protecting depositors’ funds while ensuring that jobs were protected.

“Therefore, to all intents and purposes, what CBN has done is to make it clear to the shareholders of Skye Bank that their investment has been completely eroded and therefore they no longer have any claims.

“What is left is for the regulatory authorities to embark on aggressive enlightenment programme to ensure that all stakeholders are on board.”

NDIC’s assurances

The Managing Director and Chief Executive of the Nigerian Deposit Insurance Corporation (NDIC), Umaru Ibrahim, who was also at the briefing said the option of a bridge bank was to ensure that the depositors of the bank are taken care of and deposits are not lost.

Ibrahim further said the bridge bank would also ensure that there would be no job losses as Polaris Bank would retain all staff of the distressed bank under a new contract.

Similarly, the management of the distressed Skye Bank would be retained to continue to manage the newly licenced Polaris Bank based on their good performance.

Consequently, Polaris Bank Limited, has been issued operating license by the CBN and shall commence banking business from the 21st of September 2018; while the operating license of Skye has been revoked by the Governor of the Central Bank of Nigeria and the NDIC has commenced the processes for its liquidation.

The NDIC assures depositors and customers of the defunct Skye Bank PLC that their deposits are safe and encouraged them to continue to transact their normal banking business with Polaris Bank Limited.