Diamond Leads Nigerian Banks Lower as Skye Falls to Record Lowby and
Central bank has assured depositors that lenders are safe
Risk of recession, tumbling oil prices pressure earnings
Most Nigerian banking stocks fell on Friday as the ousting by regulators of the top management at one of the country’s lenders spurred concern about the health of the industry.
Skye Bank Plc tumbled to a record low after the central bank replaced its chief executive officer, chairman and 10 other directors. Diamond Bank Plc led losses among the nation’s lenders on the Nigerian Stock Exchange All Share Index, falling the most since January last year on speculation it may struggle to stem non-performing loans.
“The market assumes there will be more challenges for the new management at Skye,” Olubunmi Asaolu, an analyst at Lagos-based FBN Quest, said by phone. Diamond faces “challenges” with its loan book, while investors will be seeking shelter in some of the country’s larger lenders, Asaolu said.
While authorities are telling depositors that none of its banks are in distress, an increase in unpaid loans, an economy headed for a recession, a weakening currency and tumbling oil prices are raising risks of an industrywide slump. The central bank said the intervention with Lagos-based Skye was unavoidable after its liquidity and non-performing loan ratios consistently breached required thresholds. The announcement came on July 4 before a three-day holiday and after the market had closed.
Ecobank Transnational Inc., Fidelity Bank Plc and Union Bank Nigeria Plc all dropped about 5 percent to their lowest levels in almost two months, while Access Bank Plc, Sterling Bank Plc, United Bank for Africa Plc and Guaranty Trust Bank Plc also declined. Stanbic IBTC Holdings Plc, a unit of Africa’s largest bank by assets, jumped the most since September, while FBN Holdings Plc, the nation’s largest lender by assets, Zenith Bank Plc, and Unity Bank Plc gained.
There are “a few” lenders that probably are not meeting prudential ratios in terms of liquidity, or bad loans or capital, Tokunbo Martins, the Central Bank of Nigeria director of banking supervision, said in an interview with Lagos-based Channels TV, without identifying any banks. The regulator monitors banks on “an ongoing basis to make sure it doesn’t get out of hand,” Martins said.
Neither Skye nor any other bank in the industry is in distress, the central bank said on July 6, urging against panic withdrawals.
Skye has failed to report annual earnings since combining its operations June 2015 with Mainstreet Bank Ltd., which was rescued during the 2009 crisis, when Nigerian regulators bailed out 10 banks, fired eight CEOs and stepped in to buy bad debts during the financial crisis.
“There is negative sentiment coming from developments around Skye,” Pabina Yinkere, an equity analyst at Vetiva Capital Management Ltd. in Lagos, said by phone. “It is having a ripple effect and creating apprehension among investors with regards to Nigerian banks, particularly the medium- and smaller-sized ones. People imagine that if one bank is having issues, others may be affected.”
It’s not correct that Diamond’s capital levels are a concern, a spokesman for the Lagos-based company said, adding that it is not borrowing from the central bank’s liquidity window.
The lender had a capital adequacy ratio of 16.2 percent at the end of the first quarter, compared with a 15 percent regulatory minimum.
FBN Holdings, owner of First Bank of Nigeria, rose as much as 9.5 percent, before closing 1.9 percent higher at 3.77 naira.
First Bank “does not need to raise more capital” and can generate enough earnings to support internal capital formation, acting Chief Financial Officer Ini Ebong said in an e-mailed response to questions. “Our liquidity ratio remains very strong..”