Skye: Don’t spare other sick banks, experts tell CBN
Banking industry experts have said it was obvious Skye Bank will fail as it was on life support of the Central Bank of Nigeria (CBN) for a long time, and advised the apex bank against shielding other distressed banks.
The experts however said the bridge bank, stop gap action by the CBN and the Nigerian Deposit Insurance Corporation (NDIC) was better than outright liquidation of the bank.
Recall that CBN had on September 21, 2018 revoked the licence of Skye Bank over insolvency issues. Consequently, Polaris Bank Limited was granted operating licence by the CBN and commenced business from September 21, 2018.
The capitalization of Polaris Bank Limited (the bridge bank) is being done by the Assets Management Corporation of Nigeria (AMCON) through the injection of N786bn to return the bank to soundness and profitability to enable its subsequent sale to credible and financially sound third party acquirers.
Commenting, Prof. Uche Joe Uwaleke, a Professor of Capital Market and Head of Finance Department, Nasarawa State University Keffi said “the CBN has taken the right step in the case of Skye Bank with a long history of financial ill health and should not hesitate to extend the same treatment to any other sick bank in the overall interest of the financial system stability.’’
He also said: “The bridge option is in the interest of financial system stability. Outright liquidation would have been very devastating for the financial sector. It would have meant loss of customers’ deposits except for the compensatory sums from the NDIC; loss of jobs, huge losses by the shareholders and creditors as well as waning confidence in the Nigerian banking industry.
“The bridge option has secured customers deposits by allowing them to continue their normal business transactions. It will also ensure that not many employees lose their jobs as a result.’’
According to him, “shareholders losses have also been minimized through the technical suspension imposed on the shares of Polaris Bank which permits no change in its share price.”
“AMCON’s involvement will speed up the recovery of bad loans. Despite the hurdles on the path of the corporation, it is still in a better position to do so than Polaris Bank,” he said.
Also speaking to our correspondent, Mr. Rislanudeen Mohammed, a former acting Managing Director/CE of Unity Bank, said the final decision of the CBN to revoke the license of Skye Bank did not come as a surprise to industry watchers.
“You will recall that with the acquisition of Mainstreet Bank by Skye Bank around 2015, it graduated to what CBN categorized as systemically important bank or ‘too big to fail’ with minimum required capital adequacy ratio of 15 percent as against 10 percent for medium and smaller nonsystemically important banks.
But the 2015 CBN stress test found Skye Bank with weak capital adequacy and liquidity ratios as well as corporate governance issues and the apex bank sacked the board and management and replaced them with their appointees in 2016.
Skye Bank was unable to make important recoveries and/or injection of fresh capital that will improve its capital adequacy ratio and liquidity. It was on CBN life support since then, hence CBN have no option than to revoke their licence,” he explained.
On why the bridge bank option rather than outright liquidation, he said” “The option of liquidation as per CBN Act is not economically wise as Nigerian depositors will suffer for no fault of theirs. NDIC will only pay the meagre insured amount and depositors will have to wait for asset disposal before they can possibly recover some part of their deposits.
“Outright liquidation is also politically unwise as the AMCON option was implemented from 2009 to 2013 and no Nigerian suffered loss of deposits.’’