The transition of Skye Bank

ON Friday, September 21, the Central Bank of Nigeria (CBN), working in consonance with the Nigeria Deposit Insurance Company (NDIC), revoked the licence of Skye Bank Plc and in its place established Polaris Bank as a bridge to take over the assets and liabilities of the defunct bank. The apex bank had hinged its action on the liquidity challenge of the bank which had made it dependent on the regulator in the past two years. The CBN governor, Godwin Emefiele, said that the apex bank had carried out forensic audit on the bank and that the result revealed that “Skye Bank requires urgent recapitalisation as it can no longer continue to live on borrowed time with indefinite liquidity support from the CBN.”

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Since the regulator had supported the bank with so much money without the shareholders injecting fresh funds, the apex bank had to come to its rescue. Thus, the Assets Management Company of Nigeria (AMCON) has been mandated to recapitalise the bank after which it will be sold to new owners. But the CBN’s September 21 action was a continuation of its July 4, 2016 intervention when it sacked the former board and management of Skye Bank. The reason advanced by CBN at the time was the discovery of some “unacceptable corporate governance lapses as well as the persistent failure of Skye Bank Plc to meet minimum thresholds in critical prudential and adequacy ratios, which culminated in the bank’s permanent presence at the CBN lending window.”

Skye Bank was categorised by the CBN as a systemically important bank, so it had to be rescued when it hit the bottom, principally to protect depositors’ fund as well as save thousands of jobs. To be sure, the apex bank and the NDIC rose to the occasion. The tricky development has been handled with such dexterity that minimal damage, if any at all, has been caused. There has not been any run on the bank; depositors’ confidence in the bank has not ebbed because the transition from Skye to Polaris has been quite smooth.

However, the journey from Skye Bank to Polaris Bank has not been without befuddlement. According to the CBN Governor, while announcing the sack of Skye Bank board in 2016, “What we have seen since late 2013 to 2014 is that the capital adequacy ratio at Skye Bank has been weakening and we think it is not right for us to allow this to continue to weaken to the point where it gets to an irrecoverable situation.” Given the CBN’s observation, is it not intriguing that AMCON sold Mainstreet Bank to Skye Bank in 2014 without the CBN raising any objection as the regulator? How could a bank struggling with declining CAR have been allowed to take over a bridge bank?

The CBN also noted that the dire situation in which Skye Bank found itself was precipitated by insider abuse as executive and non-executive directors used their privileged positions to access bank facilities far beyond their limits. Apart from sacking the affected directors, nothing else has been done. Those found guilty of insider abuse have not been subjected to prosecution. So, after abusing their offices and running down the bank, they are free to go without any recompense? Where does that leave the small investors who are the real casualties of the Skye Bank debacle?

Apart from their dividends which had been infrequent and insignificant, the small investors had benefitted next to nothing  from their investments in the bank. Many of these people invested their life savings in the bank. Now that their investments have been wiped out, they are mortally wounded and cannot seek redress from any quarters, they cannot get any comfort from anyone and they are left to lick their wounds. Every good system protects its weakest members. What measures are in place to safeguard the interest of these hapless investors who had no role to play in the bank’s journey to illiquidity?

What the foregoing shows clearly is that the banking industry regulators need to up their game. Preventive measures are far better than corrective ones. If the regulators had been up and doing, Skye Bank would not have been drowned by illiquidity before rescue initiatives were taken.