The Skye Bank conundrum

On Monday, September 24, Polaris Bank began operations nationwide as replacement for the defunct Skye Bank PLC.  Polaris Bank Limited was expected to open for business in 370 branches across the country.

Polaris Bank is a child of circumstance because on Friday, September 21 to be precise, the Central Bank of Nigeria (CBN) pronounced Skye Bank, defunct, and handed its assets and liabilities over to Polaris Bank.

The pronouncement by CBN brought to an ugly end many years of quandary, nay riddle that characterized the existence of Skye Bank whose former board members and management with some investors, saw as a vehicle to satiate their political and social appetite in the run up to the 2015 election.

The defunct Skye Bank lost billions of naira prior to the 2015 general election. Even before then, insinuations that it was grappling with monumental crisis occasioned by dearth of corporate governance and abuse of process that resulted to frittering away huge sums by its former board and management were rife.

Signs that Skye Bank was waiting to be defunct started showing in 2016 when customers who approached the bank for withdrawals were politely advised to wait until depositors had deposited money before they could be paid. It was that bad.

But for media management, Skye Bank would not have survived till recently when the apex bank wielded the big harmer.

The CBN governor, Godwin Emefiele had told the media that the operating licence of Skye Bank had been withdrawn.  One of the reasons Emefiele gave was that the bank was no longer a going concern, despite the intervention from the apex bank in 2016.

My reading of Emefiele’s lips is that the bank was no more viable. Bankers and those working in related disciplines will say the bank was no longer operating on liquidity lane. Simply put, defunct Skye Bank was illiquid.

In withdrawing the bank’s operating licence, the CBN said there was need to protect the depositors funds, hence the recourse to Polaris Bank, a bridge bank, to assume ownership of the assets and liabilities after due consultation with the Assets Management Company of Nigeria (AMCON) and Nigeria Deposit Insurance Corporation (NDIC).

But the apex bank had also retained the board members and management it constituted after the old ones were sacked. The board and management the CBN retained, with the old employees of defunct Skye Bank, will drive Polaris Bank.

Emefiele’s media address on the defunct bank reads:

Gentlemen of the Press

1. You will recall that on 4th July 2016, we took a regulatory action on Skye bank Nigeria PLC. Specifically, this action led to the resignation of the Chairman, all Non-Executive Directors on the Board as well as the Managing Director, Deputy Managing Director, and the two longest-serving Executive Directors on the Management Team.
2. At that time the proactive action was informed by 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.
3. The focus of the action then was to save depositors’ funds and to ensure that the bank continued as a going concern, being a systemically important bank. Part of our intention was also to stem the imminent job losses to staff if a liquidation option had been adopted. These objectives have been fully achieved and the bank has been able to meet customer obligations, having curtailed the liquidity haemorrhage and restored depositor confidence.

Indeed, the bank’s performance has improved considerably compared to the pre-July 2016 era.

4. The result of our examinations and forensic audit of the bank has, however, revealed that Skye bank requires urgent re-capitalisation 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 recapitalize it.
5. As a responsible and responsive regulator and in consultation with the Nigerian 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 Asset Management Company of Nigeria (AMCON) to capitalize the Bridge Bank and begin the process of sourcing investors to buy out AMCON. By this decision, the licence of the defunct Skye Bank is hereby revoked.
6. We wish to assure all depositors that under this arrangement, their deposits shall remain safe and that normal banking services shall continue in the new bank on Monday, 24th September, 2018, to enable customers to transact their businesses seamlessly.
7. Thus, all customers of Skye Bank shall be automatic customers of the new bank and their accounts and records duly purchased by Polaris Bank.
9. Given the good performance of the board and management, the CBN shall retain them. In addition, all employees of Skye Bank shall be absorbed by Polaris Bank under a new contract unless any employee decides to opt out.
11. We wish to assure the general public that the Nigerian banking industry remains safe and resilient and that the CBN will continue to live up to its responsibilities of promoting stability in the banking and financial system.

Thank you.

On Saturday, September 22, two directors of the CBN – Abdullahi Ahmad (Director, Banking Supervision) and Isaac Okoroafor (Director, Corporate Communications) – appeared on Channels Television programme, Sunrise, obviously to give more credence to the point earlier canvassed by their boss regarding the defunct Skye Bank.

As informative as their outing may seem, it nonetheless threw up matters of great concern to the public, including offering the audience the opportunity to interrogate the supervisory role of the CBN with regard to the troubled defunct bank, the coming of Polaris Bank and other issues relating to the CBN functions. I shall explain shortly.

From  the CBN directors outing, it was learnt that a total of N327 billion was injected in the defunct Skye Bank from July 2016 till when its licence was revoked, all in an attempt to shore up its liquidity status and enable the bank exit the troubled waters it found itself, pre-2016 CBN intervention.

While the sum of N100 billion was originally given to the defunct Skye Bank by CBN in 2016, the apex bank kept intervening from time to time such that over a period of time, from July 2016 till when the harmer eventually fell hard, N327billion had been given to the bank.

The CBN provided the lifeline (liquidity) to the bank in 2016 because it was technically insolvent. The idea was to help the new board and management the CBN put in place to stabilize and return the bank to profitability, on all sides.

Unfortunately, that did not happen. Ahead of the revocation of the licence and appointment of a bridge bank, the prudential ratios and the capital adequacy ratios of the bank were waning embarrassingly.

It therefore beats the imagination, the scandalous comments from Adetokunbo Abiru, the Group Managing Director of the Polaris Bank, himself the leader of the board and management that served as undertakers for the defunct Skye Banks’s final burial going by how much cash passed through their hands to revive it from 2016.

Gloating on Arise News Television over his outstanding achievement in stabilizing the bank, Abiru said: “Our major achievement was being able to stabilize the bank. If you recalled, when the intervention was done in July 2016, there was a major run on the operation of the bank, and part of what we have been able to do, is to find a way to stabilize the bank.

“Today, that has been achieved. We have also been able to bring a sense of corporate governance to the operation of the bank, and we have also been able to recover lots of loans. And as we speak today, we have been able to recover over a hundred billion naira; that is a major achievement.

“We don’t even stop at that. We have also been able to improve on the collateral documentations on the performing loans, which have made lots of debtors to come in terms of repayment structure. To a very large extent, that is why the regulator, CBN, has confidence in us.

“If you look at what happened in the past, it was as a result of lack of corporate good governance and challenges created by insider-related loans of the former bank, but this has been corrected in the last two years we have been in the bank.

“All we need to do is to make sure all those values are maintained and make sure the bank is run on a very creditable basis and with a very sense of corporate good governance.”

Perceptive Nigerians are trying to make sense of the CBN’s retention of the same board and management which had clear mandate on how to exit the now defunct Skye Bank from that of a dying bank to one of profitability, which they could not, and yet, they were named the drivers of the bridge bank, Polaris.

Point is, if those board members and their management were indeed turn-around artists, how come the bank still died in their hands? How come under their watch the cumulative N327 billion the CBN injected in the defunct Skye Bank as liquidity support could only produce a name change?

If the so-called board and management that the CBN has lauded so well for doing a good job and still wants them to continue piloting the Polaris Bank affairs were actually successful, how come they were unable to attract the desired investors they needed so badly to give the bank all the stability it deserved and save its licence from being withdrawn?

From the announcement the CBN made regarding Polaris Bank, the apex bank had already advanced N786 billion to it as take-off grant, and to enable the same board and management that failed to resurrect the defunct Skye Bank from death, to function effectively and consolidate on their gains. Wonders shall never end!

Methinks the CBN is complicit in the entire defunct Skye Bank dilemma that produced Polaris Bank. By imposing the same board and management it appointed which finally ran the bank aground (Yes, they ran it aground) on a new one and even entrusting bigger resources in their care suggests nothing other than that the CBN is an interested party for the wrong reason. It casts huge doubt on its unbiased supervisory role.

On a face value, it does appear the CBN had solved the problems that led to the death of Skye Bank. I do not think so. Many also will not think so. Instead, the apex bank may have succeeded in throwing up bigger issues around ownership of the Polaris Bank as we may likely experience in future regardless of the NDIC and AMCON involvement in the emergence of the bridge bank.

I do not see how a man who invested, say  N200 million in a bank few years ago should be asked to go home and forget such huge investment simply because  the supervisory bank had empowered the board and management it put in place to determine the new investors and perhaps, with an understanding with NDIC, ANCON and CBN.

The argument that the shareholders were not ready to recapitalise the defunct bank is neither here nor there because as the regulatory body, the CBN owed the investors all the genuine explanations and necessary reassurance that could have assisted them in parting with their funds again after their initial investment was mismanaged.

If the defunct Skye Bank investors were not given such opportunities, would you expect them not to fight the new order?  This observation is germane based on what Ahmad said, that Polaris Bank is not defunct Skye Bank and that shareholders of defunct Skye Bank are not shareholders of Polaris, and that AMCON is.

Is it not said that when one is bitten by the snake and one sees the head of the lizard, one will mistake it for that of the snake and flees. It will take the full loyalty by the customers of the defunct Skye Bank to mass into the books of the Polaris Bank as automatic customers going by the CBN’s calculation. You can only take the horse to the river, but the choice of drinking the water from the river is exclusive to the horse.

If you add the N327billion the CBN injected in the defunct Skye Bank to the N786 billion it had doled out to Polaris Bank now, you will be talking of N1.113 trillion that had passed through the hands of the same board and management since 2016, yet what they have to show for it which the apex bank leadership is praising to the high heavens is that they stopped the haemorrhaging of the bank.

Ahmad and Okoroafor as CBN directors deserve no commendation over the defence they tried to put up on television. For Ahmad in particular, it goes to show the effectiveness or otherwise of his department.

There is no better way to also describe such justification of CBN regulatory faux pas and that of the Department of Banking Supervision in than the open sale of new currency notes at the bus stops, market squares, event centres, churches, mosques and other places not permissible by law which the officials have shown lack of capacity to contain and contend.

The CBN Act is very clear on the abuse of currencies which of course includes open sale of it as we have recently experienced.

Whatever happens to Section 21, Subsection 1-5 of the CBN Act of 2007 and why the will to implement the provisions in the light of glaring abuses is something Ahmad and his team owe Nigerians explanation, moreso, when it is clear that new currencies find themselves on the streets from the vaults of the bank’s strong rooms.

A regulatory body that is unwittingly promoting failure or incompetence will see the stoppage of sale of new Naira notes at obscure places as the least of things to worry about.

A director of banking supervision who does not care a fig that new currency notes that are supposed to be solely found in the banking halls are being sold at every nook and cranny of the country by currency hawkers does not deserve to be taken seriously.

One was therefore not surprised at the fleeting reasons and excuses they bandied about during the Sunrise programme, some of which brought out their underbelly as directors.

Suffice to say that the CBN directors who appeared on the pogramme left the audience without any doubt they came to defend policies of colleagues lacking in both commitment and dexterity, variables which application in the positions they hold is extremely unavoidable.