Skye Bank: Shareholders Call on CBN, Others to Strengthen Regulation

Moody’s backs revocation of bank’s licence

As shareholders of the defunct Skye Bank Plc begin to come to terms with the reality of the revocation of the bank’s operating licence by the Central Bank of Nigeria (CBN), which led to the establishment of Polaris Bank Limited, regulators in the financial system have been urged to strengthen their roles and enforce rules to protect investors.

About 27 months after the CBN intervened in Skye Bank, the apex bank revoked the licence and established a bridge bank last Friday.

This is as Moody’s Investor Service, one of the global rating agencies, yesterday welcomed the decision by the CBN and the Nigeria Deposit Insurance Corporation (NDIC) to revoke the operating licence of Skye Bank as well as the creation of Polaris Bank Limited.

According to the CBN Governor, Mr. Godwin Emefiele, the result of recent examinations and forensic audit of the bank revealed that the defunct Skye Bank required 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 recapitalise it. As a responsible and responsive regulator and in consultation with the Nigeria Deposit Insurance Corporation (NDIC), we have decided to establish a bridge bank, Polaris Bank, to assume the assets and liabilities of Skye Bank. The strategy is for the AMCON to capitalise the bridge bank and begin the process of sourcing investors to buy out AMCON,” Emefiele had said.

However, reacting to the development, investors urged the CBN and other regulators to step up their game by taking proactive actions that will protect both shareholders and depositors.

The President, Association for Advancement of Rights of Nigeria Shareholders (AARNS), Faruk Umar, said rather than merely revoking the licence of Skye Bank Plc and setting up a bridge bank, CBN must enforce its regulation regarding insider related credit, which he said perhaps were the main reason for distress in banks.

According to him, the lesson from what happened to Skye Bank was that regulators and shareholders should always ensure

strict compliance with corporate governance rules of companies.

“Also, the CBN must re-examine the issue of insider related credit which is perhaps the main reason for distress in banks. The single obligor limit is sometimes violated, and banks are just fined. The regulators must force directors who violate the rules to resign to deter others from violating the rules.

“The maximum tenure for non-executive directors must be reduced to nine years as is the case in some European countries, if sanity is to be brought to the governance structure in Nigeria,” Umar said.

According to the Chairman, Ibadan Zone Shareholders Association, Mr. Eric Akinduro, the decision of the CBN was not in the interest of shareholders of the defunct bank. “Investors’ fate was not mentioned. Also, the action is politically motivated to satisfy some set of people that are looking for ways to acquire a bank. If you read CBN governor’s statement, he said the board and the management are doing well.

“What is the key responsibility of the board, is it not to oversee the affairs of company? The present board and management are to continue even with new buyer. A group of people that could not salvage the bank with and no published result for the period.

“Are they not accountable to the Nigerian investment community? The board should make their report known before now. It is the best time for investors to challenge the decision of CBN. Poor people are paying for the rich to ride,” Akinduro said.

Another shareholder, Mr. Boniface Okezie of Progressive

Shareholders Association of Nigeria, said: “Why must it be the investors that will be made to suffer the misdeed of regulators be it Securities and Exchange Commission (SEC), CBN or NDIC, when they have failed to discharge their duties creditably?”

Mrs. Bisi Bakare of Pragmatic Shareholders Association of Nigeria described what happened to the defunct bank as unfortunate. She urged the CBN to improve its regulation of the banking sector.

“And what has happened in Skye Bank Plc will further dampens investors’ confidence because it means that you can just wake up one day and see all your investments gone. The regulators should do their jobs and enforce rules guiding operations of banks to avoid situations like this going forward,’ Bakare said. Meanwhile, Moody’s Investor Service, one of the global rating agencies yesterday welcomed the decision by the CBN and the NDIC to revoke the operating licence of Skye Bank as well as the creation of Polaris Bank Limited.

Moody’s Vice President and Banking Analyst, Akintunde Majekodunmi, explained in a statement that the move by the regulators would help limit likely systemic failure in the banking system.

He added: “Taking away Skye Bank Plc’s licence 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”.