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SKYE BANK: Lucky depositors, disgruntled investors and beguile public

By Henry Boyo

THE business license of erstwhile Skye Bank Plc was summarily revoked last month (September 2018) by Godwin Emefiele, the CBN Governor. The revocation came about two years after the financial regulator sacked the management in July 2016; the action followed the bank’s inability to meet the mandatory minimum key liquidity and capital adequacy ratios, which failure resulted in “the bank’s permanent presence at the CBN lending window.”

Nonetheless, prior to this revocation, the new management that CBN appointed in July 2016, had reportedly, successfully embarked on initiatives to restructure and reposition the bank, primarily, through cost management and optimization, as well as strategic divestments to improve the institution’s financial position.

The containment measures effected, also included branch rationalization, and review of service contracts and cash management operations.

Skye Bank
Skye Bank

Regrettably, despite the measures taken, the new management team appointed by CBN still failed to recapitalize the bank, until the Apex Bank stepped up once again, in collaboration with the NDIC to literally buy out Skye Bank, with a fresh capital injection of N786bn, before handing over the bank to AMCON to manage with the new name of POLARIS bank. The ultimate goal, according to Emefiele, is that the Bank will be sold to new private sector buyers, after it has been successfully repackaged and returned to a profitable business, in the next three years under AMCON management.

Notably, with this arrangement, depositors and customers of the defunct Skye Bank, can be assured that their deposits with the new Polaris Bank are safe, and also adequately insured under the NDIC Act. Furthermore, according to the NDIC, the adoption of the bridge bank model to replace Skye Bank, is also expected to guarantee that most of the employees of that bank will not lose their jobs, as they will be able to continue their employment with POLARIS Bank Ltd, albeit, under fresh contracts of employment.

The new arrangement, according to Governor Emefiele, therefore, means that the former shareholders of Skye Bank have lost their investments, while AMCON will run the bank until they find new investors with adequate capital, to become the new owners of Polaris Bank. Invariably, following this development, the trading of erstwhile Skye Bank Plc shares, in the stock market has, therefore, been suspended indefinitely, by the Securities and Exchange Commission.

Expectedly, holders of Skye bank shares which still traded at about 70 kobo/share, before the revocation, are not particularly happy with this development, and they may consider joint counter action against Skye Bank’s license revocation.

Naira trades at N364 against dollar

Nevertheless, some shareholders have wondered why CBN did not also sack the Board and Management that ran the erstwhile Skye Bank in the last two years before the license revocation, so that a new board and management would be reconstituted. Boniface Okezie, the National Co-ordinator of the Progressive Shareholders’ Association of Nigeria, therefore, warned that “this action of interfering and taking over of banks by CBN will create distortions in the capital market and banking sector and send wrong signal to investors.”

Similarly, Gbadebo Olatokunbo of the ‘Noble Shareholders Association’ also noted that “CBN should hold the directors of the bank responsible; they should not allow shareholders to suffer.” Furthermore, Patrick Ajudua, Chairman of the “New Dimension Shareholders Association” is also clearly unhappy and has questioned whether, according to Ajudua, “we (the ordinary shareholders) are the ones that granted the non-performing loans? Are we the cause of regulatory failures on the part of CBN, NDIC, NSE and SEC?”

A Chartered Stockbroker, Sola Oni has also noted that, although it was within CBN’s powers to revoke a bank’s license, nonetheless, “the development according to him is a sad commentary and capable of further putting investor confidence in a quandary.”

However, Tokunbo Abiru, the interim Managing Director of the defunct Skye Bank and now reinstated also the Group Managing Director/CEO of Polaris Bank, has pledged the commitment of the new Bank to deliver on its mandate to all stakeholders.

Nonetheless, some critics may still not be comfortable with Tokunbo Abiru’s assurances. The question is, where was the regulator when Skye Bank appeared locked into permanent borrowing from CBN for several years? Besides, are there no benchmarks established to immediately trigger CBN’s control measures before the situation becomes totally irredeemable as was the case with Skye Bank? The travails of the now defunct Skye Bank, certainly may not inspire much confidence, that CBN is on top of its job as an astute financial regulator.

It also curious that there has been no sanction on anyone in CBN management for the regulators’ apparent negligence in the Skye Bank debacle. Sadly, the investor seems to be the real fall guy or victim of CBN’s negligence. The question, however, must be from where does CBN earns the trillions of Naira that it pumps into the system to save ailing banks; after all, apart from trading in foreign exchange, like a bureau-de-change, there is little else the CBN does to build such reserves.

The answer of course is that the almost N1trn injected into POLARIS Bank, was really not earned, but simply printed paper money, that is not backed by any real asset. Consequently, expectedly, the N1trn injection was clearly an expansion in money supply, which will invariably dilute the purchasing power of the Naira currency. What, regrettably, is not always clear to the public is that CBN’s N1trn injection will also be multiplied many times over as multiple credits, depending on the rate of CBN’s mandatory Cash Reserve Ratio (CRR), which is currently 22.5 per cent (July 2018).

Ultimately, credit and money supply would become rapidly expanded, without collateral productivity. The inevitable result, will be too much money chasing fewer and fewer goods/services. Regrettably, all Nigerians will become victims of an inflationary spiral directly sponsored by CBN, which, ironically, has the constitutional mandate for stable prices.

Ultimately, in a seemingly altruistic step to reduce the threat of inflation, the CBN would offer Treasury bills for sale and pay between 11-17 per cent interest to banks or anyone who buys CBN’s Treasury bills. Consequently, the new POLARIS bank can also make money by lending their ‘funds’ directly to the same CBN, which provided the cash injection for its survival in the first place! Some would say this is a classic case of robbing Peter to pay Paul!

The really abominable part of this financial drama is that, despite the very high rates it pays, on Treasury bills, the funds borrowed by CBN will simply be sterilized in vaults and accounting records, so as to reduce the amount of liquidity and available credit, and thereby restrain spending and higher inflation rates. Who, dare I say is fooling who?


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