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 Skye Bank Management in July 2016; that 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.”

The Central Bank thereafter, reportedly injected about N100bn into Skye Bank and appointed a new Board of Directors, with a new Chairman and Managing Directors, to steer the affairs of a bank which had conspicuously eroded its asset base of about N1.4tn in 2014 to a negative net figure of N786bn before Skye Bank ultimately lost its license in September 2018.

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. 
Regrettably, however, 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 around 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.

Nevertheless, according to a Vanguard Newspaper report of September 24th 2018, 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 asked whether 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 as the new 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 proactively working to ensure financial stability in the system. The question, therefore, is which bank will be the next to go?

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. 

Although the new Finance Minister has demanded the investigation of the major players in the defunct Skye Bank, we may not expect anything more than a slap on the wrist as punishment for anyone indicted, i.e. if past experiences are anything to go by.

The question however, must be from where CBN earns the trillions of Naira that it gleefully 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 reality of course is that the almost N1trn injected into POLARIS Bank, was really not earned, but simply printed paper money, that was not backed by any real asset or productivity. Consequently, the N1trn injection into Skye Bank was clearly an expansion in money supply, which will invariably dilute the purchasing power of all Naira incomes. What is regrettably not always clear to the public however, is that CBN’s N1trn injection will also be multiplied many times over as multiple credit, depending on the rate of CBN’s mandatory Cash Reserve Ratio (CRR), which is currently 22.5 percent (July 2018). In other words, this N1tn cash injection may ultimately translate to over N4tn credit expansion.

Instructively, when credit and money supply become rapidly expanded, without collateral productivity, the inevitable result, will be too much money chasing fewer and fewer goods/services. Regrettably, not only Skye Bank investors will suffer, indeed, 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 altruistically step to reduce the threat of inflation, the CBN would thereafter offer Treasury bills for sale and pay between 11-17 percent interest to banks or anyone who buys the 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 consumer demand and  higher inflation rates. Who, dare I say, is fooling who?

Although, depositors may indeed smile that their deposits in Skye Bank/POLARIS are safe, but the Naira incomes will also inevitably buy less as a result of inflation, directly fueled by the regulatory authorities!