By Olivier Holmey
Skye Bank has become the first private bank in Nigeria to fall under central bank control since 2008, following what the central bank says was a persistent failure to meet minimum capital requirements. While some of the challenges it faces are common to all Nigerian banks, observers say that Skye had other problems that made it uniquely vulnerable.
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Muhammad Ahmad |
Speculation over the state of Skye picked up in April, when the bank failed to publish its annual results. The Central Bank of Nigeria (CBN) cleared the air on the evening of July 4, when it informed the public that it was replacing much of the board and management of Skye, including its chairman Olatunde Ayeni and managing director Timothy Oguntayo. The central bank called the move “unavoidable”, as Skye’s capital issues had “culminated in the bank’s permanent presence at the CBN lending window” and the CBN estimated that existing management was “unable to bring the bank out of its present precarious situation”. Skye’s liquidity ratio had been below the required threshold of 30%, while its non-performing loan ratio was above the regulatory maximum of 5% “for quite a while”, the CBN said in that same statement. In Skye’s latest published results, for the third quarter of last year, the bank’s non-performing loans, liquidity and capital all appeared to be in line with regulatory requirements.
The CBN added that the bank’s health was “steadily declining”, justifying its intervention. The CBN appointed former head of the National Pensions Commission, Muhammad Ahmad and former First Bank executive director, Adetokunbo Abiru, as chairman and managing director respectively.
The central bank’s intervention and its public criticism of the bank’s condition led to an 8.4% fall in Skye’s share price the day after the announcement.
That Skye was having difficulties was not in itself a surprise, however.
“This is a bank that has been trying to raise capital since 2013,” says Ronak Gadhia, African banks analyst at Exotix. “They haven’t announced full year 2015 numbers and they announced a profit warning earlier this year. So it’s not surprising; I was expecting their numbers to be on the lower side, or below the minimum [regulatory requirements].”
Surprise
Of the CBN’s intervention, Gadhia says: “That is a bit of surprise. But obviously, without the 2015 numbers, it’s difficult to tell what position the bank was in, what the central bank would do.”
From an early 2013 peak at N5.38 (now equivalent to $0.018) a share, the stock had, by the time of the central bank’s announcement, fallen 82% to N0.95. It fell further after the announcement, to a low of N0.60 on July 15, before recovering somewhat, reportedly on news that a large debtor to the bank, Integrated Energy Distribution and Marketing, may yet be able to repay it.
Olubunmi Asaolu, head of equity research at FBNQuest, says the main sources of concern around Skye have been the bank’s incapacity to raise capital, its 2014 acquisition of Mainstreet Bank from state bad bank Amcon, its heavy exposure to the energy sector and the risk to its already weak capital ratio of a falling naira.
Other banks share Skye’s energy and naira concerns, market participants say. Lower oil and gas prices are causing a worsening of asset quality in the sector. The parallel devaluation of the naira could worsen capital ratios because, as Fitch noted last month, total risk-weighted assets are inflated when foreign currency assets are translated back into naira, while capital is denominated in local currency. Meanwhile, president Muhammadu Buhari’s war on financial crime in Nigeria has moved to the banks, putting extra pressure on the sector.
“The macro environment remains very challenging,” says Gadhia. “If it continues to remain challenging, most banks will come under pressure.”
Danger
But Skye seemed to be struggling even more than others, demonstrated by its relatively weak capital position, while its exposure to oil and gas was disproportionately large. Asaolu says Skye’s loan book exposure to oil and gas is 26%, more than GTBank’s 20% and Zenith’s 10%, although those two banks are much larger.
“For Skye to have an exposure higher than GT is dangerous,” says Asaolu, saying a smaller institution like Skye would be less able to deal with the shock of a low oil price.
“For now, I think it’s specific [to Skye],” Gadhia adds of the bank’s issues.
Skye blamed the delay in publishing its 2015 results on the need for “additional external audit work” after the merger with Mainstreet, which was completed in June last year.
A rival banker adds that the central bank is helping improve Skye’s liquidity, but is unlikely to inject new capital into the institution. He speculates that Skye may need to do a rights issue, or merge with another bank.
Following the CBN’s intervention in Skye, rumours spread in Nigeria that Skye and other banks were in distress, or about to be.
The central bank responded to these rumours, calling them “unfounded” and “malicious”. It added that “neither Skye Bank nor any other bank in the industry is in distress”.
Skye had, by July 25, still not released its full year 2015 results. Skye’s 2014 results also came out later than other banks, in May 2015.