By JULIUS ALAGBE

Poor performance on the path of the management and board put in place to run the affairs of the bridge financial institution, Polaris Bank, may be compromising the colossal N1.47trillion investment by the Central Bank of Nigeria, CBN in the institution, checks by Business Hallmark Newspaper have revealed.

The Bank, which was established by the CBN in September 2018 on the heels of the reported inability of the owners of the heavily encumbered and now defunct Skye Bank to recapitalize it, may however not have moved much further from the ditch in which its predecessor had been mired in.

Asked to comment on the steps taken so far to bring closure to the bridge bank, spokesman of the supervisory Assets Management Corporation of Nigeria, AMCON, Mr. Jude Nwauzor, affirmed that the corporation was doing everything it could do.

‘We have advertised that anybody that has any obligation to, or owes the bank should go and sort it out. This will enable us move further.’

But then as a bridge bank, Polaris’ brief was very clearly cut out for it. Its board and management was expected to, working with AMCON, essentially hold the fort as an ongoing concern, recover debts owed the bank and prepare it for new core investors to come in and take over the commanding heights of the business. The question now is: for how much longer would this transitional status persist?

When AMCON was asked in January to give a possible date on when the expected sale to new core investors would take place, the response was that this would be after the 2019 elections.

According to AMCON at that point:

“The election season has slowed down things. We would advertise for expressions of interest from investors after elections and commence the sale process.”

But even now, Business Hallmark checks are that not much has changed. Responding to a question on the same point about when Polaris would be sold last week, Nwauzor said:

‘’My MD has already said that the delay in taking action has been because of the election. But we may speed up things as soon as things begin to pick up again.’

While the AMCON response does not advance the discussion much further, checks by Business Hallmark indicate that there may indeed be a few but most significant hindering points in the overall transaction. The first is that not many of the debtors of the old Skye Bank (as well as the defunct Mainstreet Bank which Skye Bank had taken over in 2014) have voluntarily stepped forward as requested, to pay up on their obligations and debts as instructed by AMCON.

To try to force this into being, the Economic and Financial Crimes Commission has also waded into the issue and in one of these instances, the former Chairman of the Bank, Mr. Tunde Ayeni, MD/CEO, Timothy Ajani Oguntayo and two companies, Control Dredging Company Ltd and Royaltex paramount Ventures Ltd are facing trial on charges of ‘allegedly conspiring at different times to fraudulently divert depositors’ funds domiciled at the defunct Skye Bank Plc.’

Other than the lack of a viable response to the ‘pay up’ demand, a second snag is what an analyst describes as the persisting poor state of the bank’s books. To sell a rescued facility like Polaris, it has to be sufficiently attractive to would be buyers. Sources say that given the very many complications that had led the CBN to the extreme position of literally liquidating Skye Bank and setting up the brand new Polaris Bank in the first place, it would take a complete cleaning of the bank’s ‘bad books,’ the expansion of its assets base and generally very positive re-valuation to attract the kind of interest that would bring in new and prospective suitors. This is more so when there is no indication at the moment that the CBN is considering writing off the vast amounts that it has this far poured into the bank’s vaults.

Added to this is a third point about the murmuring that has greeted the retention of the Interim Management Board that the CBN had put in place to hold the fort at the embattled Skye Bank before its demise, and their transposition to also constitute the nucleus of the board and management of the new bridge bank in the continuing transitional period. While the CBN explained this away as being on account of the performance of the team in the first place, queries have however continued to be raised that if the board and management had indeed performed so well, then there would have been no need for a bridge bank in the first place!

State of Affairs

That the Nigerian lender, Polaris Bank continues to go about its regular business is not the news. It is opening its doors by the day to serve the banking public. It is also training staff for its operations, signaling that it is clearly not giving anyone any room to doubt its ongoing concern status.

Only a fortnight ago, it was engaged in signing a deal with Mojec International, a leading meter manufacturing company in the country, and in support of the Meter Acquisition Partners Project of the Federal Government. It is also reportedly engaged in the collection of outstanding unpaid loans from customers of the old Skye Bank that it had been established to replace, while also training and retraining its personnel to provide even better service to its customers.

What it is however not doing is that, along with its supervisors, AMCON, it has not communicated very explicitly on when the transitional period would end and bonafide new investors signed up to provide more competitive direction to the financial services player.

Genesis of the matter

CBN Governors in recent times have had their tenures outlined by the actions they take in respect of curbing situations of projected and occurring distress in the financial sector. In the Chukwuma Soludo era, the total number of deposit money banks, DMBs shrank from 89 to 26. In the Sanusi Lamido Sanusi era, Intercontinental and Oceanic were two more financial services players that were swallowed up. In the present dispensation, fresh investors have been found for Keystone. And now eyes are steadily being trained on Polaris.

Though it came more openly onto the scene eight months ago, the Polaris Bank saga is indeed much older than that. Prudent Bank, Bond Bank, Cooperative Bank, EIB International Bank and Reliance Bank had merged in the course of the Soludo consolidation to become Skye Bank. This remained the brand outline until the CBN intervention to bail out the troubled Skye Bank, first under its old name, and later as an entirely new bridge entity, Polaris Bank.

Indeed, the process of sacking Skye Bank began in July 2016 when it’s Chairman, Chief Tunde Ayeni, and Managing Director/Chief Executive Officer, Mr. Timothy Oguntayo turned in their letters of resignation. This was after they had come under severe pressure to work with the owners and shareholders of the financial institution to ensure its urgent and speedy recapitalization. They could not.

They were then promptly replaced by a Board and Management team that had  Alhaji Mohamad K. Ahmad as the new Chairman, while Mr. Tokunbo Abiru, a former Finance Commissioner in Lagos State was named as MD/CEO.

At the moment though not much is known in the public domain about how the new Polaris Bank is faring. With its suspension from trading on the NSE, the consequent lowering of its hitherto mandatory public governance caveats as well as the sole regulatory demand on it at the moment to send its performance reports almost exclusively to its supervisors in AMCON ahead of its sale to new core investors, the public can only be comforted for now by periodic ‘feel-good’ notes from the bank itself or assurances from its regulators at AMCON and CBN.

However, in the highly competitive arena of banking in Nigeria today, it is clear that until Polaris makes the full transition from bridge entity to core investor-driven banking, the issue would just not go away. So when would Polaris Bank be sold to a core investor?

Indeed and very clearly too, this much was confirmed by Business Hallmark to also be a burden that the regulators are not oblivious of. As Nwauzor put it, AMCON was only taking responsibility for this time in the life of the bridge bank and the ultimate plan remains to prepare it for divestment and sale to a new crop of core investors.

‘AMCON is in charge of the bank at the moment. And for us to go beyond there would require going through all of the laid-out processes. The experts have to do their work, a complete due diligence exercise has to be conducted, an expression of interest has to be called for and prospective investors have to emerge. It is a long and drawn out process and it simply has to be done right.’

Asked to suggest an exact time on when a sale could officially be called, he was however non-committal.

‘It is not as easy as that. We have to get the experts to first do their work and it is only when they are done that they would then recommend a timeline. But one thing we try to do is to be as meticulous and transparent as is possible.’

So what is the future of the bank?

Beyond Nwauzor’s explanations, Business Hallmark checks can report that feelers are that a number of potential core investors, including one that is reportedly linked to ‘insiders within the system’ may have already begun tyre-kicking.

But in the absence of concrete final reports from AMCON to work on, nothing definitive can be said to be on the cards yet.

Said one commentator:

‘Until we get to the point where there is a formal call for expression of interest, what any potential core investor has to work with in real terms are the results of the defunct Skye Bank. And given the circumstances that led to the CBN’s takeover of the institution, this is not too comforting.’

Not to be deterred, Business Hallmark made efforts to get the current performance reports of the new Polaris Bank, at least for Q4 2018 and Q1 2019. But those efforts which included checks with the Bank’s spokesman, Rasheed Bolarinwa, were unsuccessful as at press time. However, a source within AMCON confirmed that the corporation was receiving ‘progress reports’ on the performance of the bridge bank from its board and management. He would however not be categorical about the tilt of the figures.

The case of Skye Bank shareholders

Other than the issue of the current performance status of the bank, one other issue which commentators are pointing out relates to ‘the fate of the small investor in the nationalised Skye Bank.

Says an analyst:

‘As at now the trend is that if a bank is liquidated, its shareholders lose all that they had. In a situation of liquidation, all old shareholders lose their equity. The bank as a legacy deposit money institution is now owned in its entirety by AMCON. That suggests that AMCON can sell off the bank without recourse to pre-existing shareholders.’

Indeed while this is clearly a most worrisome situation on the face of things, analysts however point to the fact that there is a sense in which the shareholders themselves are not altogether excluded from the governance crisis that is at the bedrock of the crisis that had led to the eclipse of the old Skye Bank.

‘‘A major bane of the stock market is ignorance. For some strange reason shareholders believe corporations run on auto pilot. Shareholders need to be more engaged in monitoring company performances and raising questions when required. The more active shareholders get in questioning managements and their boards, the better it would be for the stock market. Activism needs to direct towards market transparency and proper corporate governance; this is yet to happen,’ our analyst added.

As things stand now however, commentators note that the whole process of determining an effective disengagement plan for CBN/AMCON to shed its current hold over the bank continues to be treated by the duo of CBN and AMCON as an in-house affair largely because, at the end of the day, the intention may very well be to put the best foot forward when they are ultimately being offered for sale. Preparing them for sale, they aver, would involve carrying out sundry valuations and associated pre-sales preparations processes to get a fitting bid price as well as the choice of a serious core investor that would do more than post-sales asset-stripping.

Reliving the Skye Bank collapse details

When news began to filter into the public space that Skye Bank may be experiencing transactional difficulties, initially the apex bank preferred to put up a straight face as its own way of allaying public fears.

Underneath however, and being aware of the challenges attendant upon an exposed financial institution like Skye Bank – which at that time was ranked in the top ten of the nation’s banking sector – going bust, the apex bank was provoked to begin to work out its options, backstage.

On July 4, 2016, it formally moved in and played its first card. It took out the existing board and management of Skye Bank and appointed a new team to administer the institution. It also threw in N350billion as a first and immediate injection of public funds into the bank’s vaults and assured depositors and the public that it was not going to let the bank fail.

Two months after its team had begun managing the institution, the CBN upped the ante of its intervention. It revoked the banking license of Skye Bank.

This resulted in the Nigerian Stock Exchange officially notifying the investing public that Skye Bank Plc shares would be suspended from trading on September 24, 2018. Effectively then, a chapter was closing.

Taking its cue from the damage control proclivities already being demonstrated by the CBN, the management of the NSE explained that its action was taken following the recent regulatory action of the CBN in revoking the banking license of Skye Bank.

But that would not be all as even as the CBN revoked the banking licence of the Bank; it also transferred its assets and liabilities to a newly licensed bridge bank called Polaris Bank.

Underscoring that money was at the heart of Skye Bank’s troubles, CBN Governor, Godwin Emefiele, did not mince words when he spelt it out for all to hear that the decision to take over the bank and introduce the completely brand new bridge bank option was due to the failure of Skye Bank’s shareholders to recapitalize the bank.

No long term plans to hold on to bank

According to Emefiele, the purpose of the CBN’s intervention was to save depositors’ funds and ensure that the bank continued as a growing concern, being a systemically important one. But there was one more goal: to stem imminent job losses.

And for good measure, the apex bank chief also revealed that ‘Indeed, the bank’s performance has improved considerably compared to the pre-July 2016 era.”

However, this would not be enough as the outcome of the examinations and forensic audit of the bank showed that, going forward, the bank needed to be further recapitalized.

And since the owners of the bank were clearly not responding to backdoor pressure to take up the challenge, the CBN chief then pronounced the apex bank’s conclusion:

“We have decided to establish a bridge bank, Polaris Bank, to assume the assets and liabilities of Skye Bank.

“The strategy is for AMCON to capitalize the bridge bank and begin the process of sourcing investors to buy out AMCON,” he said.

How bad was the rot?

At the heart of the Skye Bank challenge, analysts surmise was its Capital Adequacy Ratio (CAR) dysfunction which relates to the proportion of a bank’s ‘own equity in relation to its risk exposure.’ While the CBN had set the CAR for domestic banks at 10% and that for regional and international banks at 15%, for the elite guild of bigger, systematically important banks (which Skye Bank fitted in at the time under reference), the CAR came to a much higher 15% + 1 percent.

Underscoring its travails then, from December 2013 through 2014, the CAR of Skye Bank had dropped from 20 percent to 11% and by June 2015, fell further to 7.7%, no thanks to its ill-fated reaching out to swallow the nationalized Mainstreet Bank.

If the CAR troubles of Skye Bank were evident for all that cared to see, it was also compounded by its lack of cash assets to fund the ambitious Mainstreet purchase. At the point of its pre-sale valuation, Mainstreet had a net asset of N69 Billion. But Skye Bank which had a market capitalization of N40billion offered to buy Mainstreet for N126 Billion! It won the bid, paid the deposit of N26bn, which was about all the cash that the extant regulations permitted it to take out and then proceeded to look for where to get the balance of N100 Billion. While the jury remains out as to the quality of regulatory oversight that was involved in the transaction, suffice it to say that somehow, Skye Bank found the money, paid up the balance and took over Mainstreet Bank in December 2014. But it had clearly eaten a very hard-to-digest-nut as it’s continually declining CAR position and consequent takeover of the bank by the CBN was to demonstrate.

Other than CAR, some more of Skye Bank’s performance indicators were also progressively barreling south. Loan to Deposit was a staggering 92% in 2015, it posted a loss of N40 Billion, had a negative profitability ratio and its share value dipped from N3.58 in June 2014 to N1.58 in Dec 2015, a clear 55 percent decline in 18 months.

Responding to public pressure, the House of Representatives waded into the bank’s deepening crisis. And as the days of its troubles lengthened, other disclosures also came onto the scene. However, about the most troubling from a market response perspective was the delay by the bank in posting its Q4 2015, FY 2015 and Q1 2016 financial reports. The market took note and took out their rage on the bank’s stock.

The implementation of the Treasury Single Account, TSA compounded the fortunes of the public sector-dependant Skye Bank. It lost N125 Billion to the scheme, which is about the same sum it had expended on its most ambitious Mainstreet acquisition!

The net outcome of these negative tides was a further lowering of its sustainability, survival and performance bases. Liquidity ratio was now 8% in contrast to the regulatory minimum of 30%; CAR was 10.48% rather than the regulatory threshold of 16%, while the Loan to Deposit Ratio was a wheezing 98%, contrary to the recommended ratio of 80%. Also, the bank had a negative net asset worth of N1 trillion

Clearly at a loss now, Skye bank continued to request extensions to prepare and turn in its 2015 Audited report, its Q4’15 and Q1’16 reports, until the apex bank’s hammer fell in July 2016.

In all, the CBN injected N690 billion into the bank in four years, gave it a waiver on Cash Reserve Ratio, CRR requirements for two years, even as SEC and the NSE retained Skye Bank’s listing status despite the bank not submitting its FY 2016 and Q1/Q2 reports in 2017 as well. Everyone wanted to help but alas.

The CBN take-over resulted in a virtual run on the bank and between July 2016 and March 2017, the quantum of deposits in its kitty fell from N1.08 Trillion to N829 Billion. An audit conducted by PWC and KPMG revealed a negative capital position of N690billion as at December 2016 even as that there was also evidence of inappropriate financial reporting and an unsustainable high cost-to-income ratio. At this point also, the bank was equally registering a loss of N10billion monthly.

This was the state of affairs until September 21, 2018, when the CBN finally revoked the license of Skye bank and inaugurated Polaris. This came with a further injecting of another N786 billion into the bank. In all then, a total of N1.476 trillion it had been committed to rescuing the bank. Good cash that could have found other uses in a nation bristling with millions of people requiring just little drops of support to get a lift, some will say. But then, how really just has the world been anyway?

Other than Muhammad K. Ahmad, OON, a pioneer Director General and Chief Executive Officer of the National Pension Commission who is Chairman of the board, and Mr. Adetokunbo Mukhail Abiru, formerly Executive Director, Corporate Banking at First Bank of Nigeria Limited as its Chief Executive, other members of the board are: Innocent Ike, formerly of Access Bank Plc., GTBank Plc., and Keystone Bank where he was an Executive Director; Mohammed, Abdullahi Sarki, formerly First Bank’s Group Head in Charge of Commercial Banking in the North; Olu Odugbemi FCA, FCTI, who had stints at Deloitte, Touche & International (formerly Akintola Williams & Co) as well as three top ranking Nigerian Banks namely Ecobank Plc., Citizens International Bank and UBA Plc; Mr. Austin Jo-Madugu, formerly of UBA and the Bank of Industry; Alhaji Abdullah Umar and Mr. Bata Garba Wakawa who has had stints at the Central Bank of Nigeria and UBA PLC.