Nigerian Regulator Ousts Skye Bank Board on Capital Concerns

  • Lender failed to comply with liquidity and capital rules
  • Exotix sees uncertainty over asset quality as ‘big issue’

Nigeria replaced top management at one of its lenders for breaching cash and liquidity ratios, a move that may signal stresses are deepening in the banking industry of Africa’s biggest economy.

The chief executive officer, chairman and 10 other directors on the board of Skye Bank Plc, resigned on Monday, the announcement of which was preceded by the biggest drop in the company’s share price in more than six months. The stock of Nigeria’s eighth-biggest lender by assets won’t trade until Thursday as Nigerian markets are closed for a holiday.

The West African country’s lenders are struggling to make money and extend credit with unpaid loans on the increase in an economy headed for a recession, hurt by the plunge in oil prices and a lack of foreign investors. Skye Bank has failed to report annual earnings for 2015 after it combined its operations in June 2015 with Mainstreet Bank Ltd., which was rescued by regulators during Nigeria’s banking crisis of 2009.

“It’s a surprise because up until now, the central bank had always said the banking system was OK,” said Esili Eigbe, head of West African research at Exotix in Lagos, on Monday. “Uncertainty around asset quality is a big issue. And this could be a signal of potential stress in the system. I wouldn’t be surprised if other banks’ stock prices take a hit.”

Nigeria’s banking system remains healthy, Governor Godwin Emefiele told reporters in Lagos on Monday. Regulators didn’t want prudential and capital adequacy levels to worsen to the point where depositor funds are at risk, spurring them to act. “Skye Bank is not in distress and remains a healthy bank in the system.” 

Skye’s liquidity and non-performing loan ratios had been outside the required thresholds for “quite a while,” the central bank said in a statement. It had a “permanent presence” at the the regulator’s lending window designed to provide cash for lenders struggling to borrow from other sources, the regulator said.

“A significant capital injection should be anticipated in a best case scenario, which will materially dilute existing shareholders,” Renaissance Capital Ltd. analysts Adesoji Solanke and Olamipo Ogunsanya said in a note. “The prospects of a rights issue are dim, given that recent efforts at recapitalizing the institution have been unsuccessful.”

Skye’s market value has dropped 86 percent in the past five years to 13.1 billion naira ($46 million). It’s shares have lost 40 percent this year, making it the worst performer among the nation’s banks. The securities slid 9.5 percent, the most since Dec. 15, to 95 kobo on Monday.

‘Healthy Bank’

Chief Executive Officer Timothy Oguntayo and three of the bank’s eight other executives resigned, along with Chairman Olatunde Ayeni and seven other non-executives, Emefiele said. Alhaji Ahmad was named as new chairman and Adetokunbo Mukhail Abiru, a Harvard Business School graduate who headed investment banking at First Bank of Nigeria Ltd., was appointed CEO.

For a past story on the outlook for Nigerian banks, click here.

The resignations “pave the way for a new team to further the new strategic direction of the bank in the retail and commercial business space,” the Lagos-based lender said in a separate statement distributed by the Nigerian Stock Exchange. “The challenge of accelerating growth in the new strategic direction becomes more urgent and compelling, given the poor performance that we recorded in the 2015 financial year end.”

‘Substantial Loss’

Skye was fined 4 billion naira by the Central Bank of Nigeria last year for delaying transfers on government deposits. By March, the lender was forced to delay its annual financial statements as it struggled to complete the audit necessary after it combined its operations with Nigeria’s Mainstreet Bank in June last year.

“The news flow suggests that the bank recorded a substantial loss in full year 2015, possibly driven by a spike in impairments on risky assets,” Lagos-based Chapel Hill Denham research analysts Tajudeen Ibrahim and Aderonke Akinsola said in a note on Monday. “This could have depressed the bank’s capital adequacy ratio to below the regulatory minimum of 16 percent.”

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