The Skye challenge: A renewed mandate
I have been tracking what I named “The Skye Bank Challenge” since the Central Bank of Nigeria (CBN) intervened in the board and management of Skye Bank Plc in July 2016. My first comment on the matter published on this page in August 3, 2016 just over two weeks after the regulatory action noted that post-consolidation Skye Bank had grown to become a Systemically Important Bank emerging out of the combination of Prudent Bank, Eko International Bank, Bond Bank and others. The bank appeared from outside to be well-managed, with an interesting brand and from the customer perspective seemed helpful and friendly.
The CBN, you will recall, stunned the markets and Skye Bank’s customers and counterparties when it removed the board and executive directors of the bank (with the exception at the time of some recently-appointed executives) due to lapses in corporate governance and deteriorating prudential ratios. In my analysis, Skye had grown its industry relevance, branch network, electronic channels and franchise over the past decade till 2016, but it had also embraced some level of unrestrained ambition, making aggressive acquisitions especially of Mainstreet Bank and growing its loans and assets at the expense of prudential, risk management and governance considerations! I expressed the hope that the CBN-mandated management led by M.K Ahmad as Chairman and Adetokunbo Abiru as GMD/CEO had the professional competences and more importantly, integrity to give the bank a chance of surviving the challenge.
One year later on July 19, 2017, I did a follow up “The Skye Bank Challenge-An Update” in which I recognised that Ahmad, Abiru and their team had “restored relative depositors confidence and significantly stemmed the outward flow of deposits”…“settled a significant portion of the inherited trade and counterparty obligations…”…“significantly improved the quality of loan security and collateral documentation”as well as “recovered more than N57.5billion of overdue loans” in one year. The management team had also focused on optimising the bank’s cost structure.
As the second anniversary of its intervention approaches, CBN recently in effect declared a strong vote of confidence in the management team by extending the tenure of the board for another two years till June 2020 as well as renewing its various regulatory support for the institution.
This CBN assurance is predicated on improvements in the bank’s liquidity leading to its exit from the CBN Short Term Lending Facility (SLF); substantial recovery on non-performing loans reaching N94 billion between July 2016 and March 2018; repayment of over $300 million inherited obligations to correspondent banks; significant cost savings with a 31% year-on-year (YoY) reduction in operating expenses in 2017; and substantial cash realised from divestments from subsidiaries. Investments in business development are also showing positive results-transaction volumes and value is witnessing steady growth across platforms including ATM, internet and mobile channels;alternate channel adoption rate is improving with 11% and 15% growth quarter-on-quarter in transaction value and number of subscribers respectively; and the bank continues to retain its reputation for good customer service and customer experience.
In effect the M.K Ahmad and TokunboAbiru led team have justified the mandate of the CBN and the trust of depositors. In Nigeria, where assets held under defacto or dejure government control are routinely exploited for personal benefit by those to whom they are entrusted, the improvements in Skye Bank are heart warming and should be commended.
As I pointed out in my update of last year, “The key concern of the management…should be and indeed is around assuring the future of the institution.” Clearly that would require re-capitalising Skye Bank and that is where the attention of the bank’s management and the regulator are now focused. I’m aware the bank has appointed a leading investment bank and a team of professional advisers to advice and lead execution of options for recapitalising the bank. Industry information confirms management is working closely with the regulators and government to conclude this process expeditiously. Management expects the process may commence in Q3 2018 but clearly resolution of the recapitalisation process and assuring future profitability and sustainability will require continued strong support from government and the CBN.
Two years into their mandate, the CBN-appointed board of Skye Bank has normalised the institution, restored its prudential stability, embraced proper risk management and corporate governance and most importantly restored customers’ and depositors confidence, earning a well-deserved renewal of their mandate. All stakeholders, especially the management, regulator and government must now focus on a final resolution of the recapitalisation imperative within the management’s extended tenure.
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