Polaris: Experts hail Emefiele, caution against banking sector crisis

Godwin Emefiele, CBN Governor

OKEY ONYENWEAKU

Experts have expressed support for the effective and professional measures taken by the Governor of

the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele to save Skye Bank from sinking into an

unimaginable mess.

There appears to be a consensus that the timely intervention of the apex bank was strategic to

avert an imminent banking sector crisis, which would have destabilised the whole financial system at

a time of political and economic uncertainties.

Some analysts hinge their praises for the apex bank on the fact that no depositor of the bank will lose

money.

Polaris Bank, the legacy institution, which was set up to take over the assets and liabilities of defunct

Skye Bank recently took out pages of adverts in major national dailies to assure bank customers that

their savings and deposits were safe.

It will be recalled that in a move that took bank customers and even shareholders and other financial

industry stakeholders by surprise, the Central Bank of Nigeria (CBN), a fortnight ago announced the

winding up of business activities of the much harried and cash strapped Skye Bank Plc, which had

found itself undergoing major challenges keeping its operations healthy. The bank had repeatedly

borrowed money from the CBN despite a variety of soft support arrangements to keep it liquid and

viable. Apparently, the efforts were too little too late, thereby requiring the prudential authority to

pull the plug on the bank and set up its new incarnation called ‘Polaris’ as a so-called bridge

institution.

Emefiele had in 2014 when he was appointed as the helmsman of the CBN vowed to be professional

as well as ensure financial system stability. Industry observers appear to cheer his creative policies so

far to navigate the current challenging economic and political environment.

Commenting on the takeover, Dr. Afolabi Olowokere of Financial Derivatives Company Limited, told

Business Hallmark on a telephone interview that the CBN had taken the best option given the grave

circumstances instead of liquidation the bank.

Olowokere argued that the liquidation option was capable of wrecking the financial system and

resulting in confidence crisis.

‘’Depositors will lose their monies; there will be huge job losses and the financial system can crash if

the CBN fails to come in the way it did,’’ he extolled the timely intervention of the CBN.

A Lagos based shareholder activist, Mr. Boniface Okezie said whereas the option of saving the bank

from liquidation was impressive, he argued that the CBN was late in realising the danger the

condition of Skye Bank had become for the banking industry.

Okezie argued that Skye Bank, as weak as it was, should not have been allowed to acquire Mainstreet

Bank, which was three times its size. He concluded that further delay in taking the recent measure by

the apex bank would have plunged the financial system into a deep crisis.

For the safety of the financial system, Yinka Ademuwagun, a research analyst at United Capital said,

“Apex bank took over the board of the bank due to unacceptable corporate governance lapses and

its persistent failure to meet minimum thresholds in critical prudential and adequacy ratios. Overall,

all customers of Skye Bank will be automatic customers of the new bank with their accounts and

records duly purchased by Polaris Bank. Also, the CBN further stated that it plans on retaining the

existing board and management members while offering a new contract to all employees of the

defunct Skye Bank under the name of Polaris Bank.’’

The CBN admitted that because of the shaky outlook of the defunct Skye Bank, it had no option

than to intervene because results of forensic audit of the bank’s books revealed that it required

urgent recapitalisation as it could no longer continue to survive on life-support (indefinite

liquidity support).

The monetary regulator said the new lender, Polaris Bank, will operate as a bridge bank in the meantime.

A bridge bank is an institution created by a national regulator or central bank to operate a failed bank until a buyer can be found for its acquisition.

A bridge bank is usually established to ensure seamless continuity of banking operations. For the

continued survival of the new bridge bank, Polaris, the CBN has injected N786 billion into its

operations from which it will deduct an earlier support facility of just over N300 million.

Analysts observe Nigeria’s banking system has been here before.

A similar scenario occurred in 2011, when the Central Bank of Nigeria revoked the licences of three

failing institutions, namely: Afribank, Spring Bank and Bank PHB and in their place established the

bridge banks: Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited.

Local commentators observe that Nigeria would have experienced the most disastrous banking

sector crash in her history save for the timely intervention of the CBN with bridge bank solution,

which has paid off in ensuring stability in the system.

Industry stakeholders believe that there is a number of challenges ahead of Polaris Bank. Whereas no one doubts the ability of the regulator to stabilise the new lender and save depositors of the new financial

institution, shareholders are still confused as to the implications of what has happened.

It has been argued that the new bank will lose some customers (depositors), who are edgy about

their deposits and have lost some trust in the old bank and by extension its successor. They will

migrate to other banks. The challenge of huge non-performing loans hanging over Polaris Bank, industry

observers believe cannot be wished away, despite the huge amount the CBN has injected in the bank.

Details show that the CBN has pumped over N1trillion into the bank; over N300billion when it

sacked and replaced its management and the recent intervention of N786billion.

But industry analysts seem comfortable with the new arrangement given the developments of 2009

when the CBN under Sanusi Lamido Sanusi, the current Emir of Kano, Muhammadu Sanusi II took over three commercial lenders.

In their place, the CBN through the Nigerian Deposit Insurance Corporation, NDIC, established bridge

banks and transferred the assets and liabilities of the three affected banks to the bridge banks as

follows: Mainstreet Bank Limited (Afribank), Keystone Bank Limited (Bank PHB) and Enterprise Bank

Limited (Spring Bank).

The Asset Management Corporation of Nigeria (AMCON) after intensive negotiations with NDIC

had on August 6, 2011, acquired the three bridge banks and provided sufficient capital to restore the

banks to the level of capital adequacy stipulated for their operations.

Indeed, these banks were operated and returned to sound profitability and stability as claimed by

AMCON.

The CBN and AMCON succeeded in selling the three bridge banks to core investors.

The development in fact, also attracted praises for the CBN for helping in midwifing the whole

transaction. Some market observers noticed that: First, no depositor lost money. Second, the risk

assets of the banks were also not lost. Thirdly, the teeming staff of the banks retained their jobs and

not many people were thrown into the labour market to increase unemployment. Fourthly, the

acquirers of the bank never complained of not having value for their money’s worth. The CBN also

received accolades for ensuring stability in the financial system from that time to date.

Before recent developments and the bank’s management crisis, the stage had been set for an epic

battle to save it from its own past.

Weak asset quality, rising funding costs and increased customer wariness about the safety of their

deposits have conspired to squeeze out the bank’s balance sheet and tear current profit figures to

shreds as its management tries to restore confidence and recover bad loans.

Recall the bank erstwhile chairman, Mr. Tunde Ayeni and another director Dr. Festus Fadeyi had

borrowed huge loans from the bank to run other business concerns. Details show that while Ayeni

owes the bank as much as N36 billion and repaying only N6billion, Fadeyi owed N98billion.

Skye bank is an amalgam of five former fringe players including Prudent Bank, Eko International Bank

(EIB), Bond Bank, Reliance Bank and Cooperative Bank. They were categorized as laggards which did

not have adequate capitalisation. The bank maintains a branch network of about 260 with most of

them located in the highbrow areas such as Abuja, Lagos, Port Harcourt and Enugu.

The bank has a strong market share in the Western region. Reports once revealed that most of its

branches are in the country’s South-West, South-South and South-East regions, which account for 82

per cent of its branches and 18 per cent located in the North. It was also reported that the bank is

strong in federal revenue collections, where it accounts for 10 percent of Federal Inland Revenue

Service (FIRS) collections; internally generated revenue collection and inter-switch transaction. It has

the largest market share of more than 19 percent of Lagos State revenue collection.

After projecting a good image and the following action plans earlier in a conference, the CBN had vowed to watch credit risks associated with the key banking products must be understood and managed.

It also emphasized that maturity profile of loan products interacts strongly with liquidity risk

management. But Skye Bank went belly up in due course.