Many challenges of Skye Bank before CBN’s intervention

Eleganza seeks wind up over debt at Sept. 30 hearing

Suffocating debts were at the centre of the sacking of Skye Bank Plc’s management by the Central Bank of Nigeria (CBN) on Monday. The disbanded management sat atop several debts, which include those inherited from the acquisition of Mainstreet Bank Limited and others it brokered, leaving it in financial difficulties for many years.

Besides, its tight liquidity position left it at the mercy of the Standing Lending Facility (SLF)- a window for short term refinancing by the Central Bank of Nigeria (CBN) for financial institutions, where it recorded more borrowings than its peers, even at higher rates.

Still, a regulatory source confided in The Guardian that the bank has not recovered from the fallouts of the acquisition of Mainstreet Bank, which bidding process has recently generated reactions among stakeholders that it was actually overbid.

Additionally, the bank’s full year 2015 financial report has up till held back by the company, which has stoked speculations on its health and a major source of concern for investors.

Perhaps, the recent persistent liquidity mop up by CBN due to the new foreign exchange operations, aggravated the situation for the bank, having been exposed in debt and impairment provisioning, pushing it to patronised the SLF more than others.

Meanwhile, Eleganza Industries Limited has asked a Federal High Court in Lagos to wind up Skye Bank Plc, following its refusal to pay N111,732,000 debt owed to the company.

In the winding up petition filed by Eleganza’s lawyer, Michael Akinyemi, pursuant to Sections 408(d) and 409(a) of the Companies and Allied Matters Act CAP C20, Laws of the Federation of Nigeria, Eleganza alleged that in 2001 it leased a property to Assurance Bank which later metamorphosed into Afribank Plc, then later turned to Mainstreet Bank Ltd, which was taken over by Skye Bank Plc.

According to the petitioner, four separate floors, Ground, Mezzanine, First and Seventh floors of its property known as Eleganza Biro Plaza at Plot 634, Adeyemo Alakija Street, Victoria Island, Lagos was leased to the bank.

But a Motion on Notice filed by Skye Bank through its counsel, J.A. Badejo SAN, dated April 5, 2016, urged the court to restrain the petitioner from taking further proceedings in the petition, which include advertising, issuing statutory notices.

The bank, in its Motion on Notice filed pursuant to Order 26 Rules 1,2 and 11 and Order 16 Rules 3 and Order 26 Rule 11 of the Federal High Court (Civil Procedure) Rules, 2009 and Under the inherent Jurisdiction of the court, also asked the court presided over by Justice Idris to dismiss the petition.

Already, Justice Idris of the Federal High Court Lagos, has adjourned ruling on the bank’s application till September 30, 2016.

Although CBN said that the sliding profile in the bank’s core fundamentals- liquidity ratio; capital adequacy and Non-Performing Loans (NPLs) have persisted since late 2014, the recent patronage on the SLF may have sent a new signal to the regulator.

“Proactive moves have become unavoidable in view of the persistent failure of Skye Bank to meet minimum thresholds in critical prudential and adequacy ratios, which has culminated in the bank’s permanent presence at the CBN Lending Window. In particular, Skye Bank’s Liquidity and Non-performing loan Ratios have been below and above the required thresholds, respectively, for quite a while.

“To correct the anomalies in the bank, the CBN had several meetings with the management and board of Skye bank as part of our strategy of close engagement whenever a bank’s financial or governance situation poses potential threats to the overall stability of our financial system.

“Despite the expectation of relevant regulators, market watchers, financial analysts and interested stakeholders that Skye Bank should be doing much better than it is right now, we have seen about the opposite in reality,” CBN Governor, Godwin Emefiele, said.

The apex bank chief in view of the long grace period allowed the bank to correct the situation without success, it was obvious that the management would be unable to bring the bank out of its present precarious situation and in the overall interest of the bank, the management had to tow the line of honour.

The new management team is led by Alhaji M. K. Ahmad, the pioneer Director-General and Chief Executive Officer of the National Pension Commission as Chairman, while Mr. Adetokunbo Abiru, would be the new Managing Director, with more recent executive directors allowed to remain to ensure continuity and a smooth transition.

Meanwhile, the Head of Research (Nigeria) and sub-Saharan Banking Lead Analyst at Renaissance Capital, Adesoji Solanke, has said that the bank’s delayed release of 2015 financial statement was frequently raised as a topic during United States and London roadshows, with investors asking questions on the potential implications for the rest of the sector and what it means for other weak banks in the space.

“Skye’s capital and liquidity ratios have been tight for a while, and multiple capital raising attempts have been unsuccessful. Capital Adequacy Ratio (CAR) in September 2015 came in at 17.3 per cent, but we think there must have been a significant erosion in the bank’s capital position for the CBN to have intervened in such a manner. For this to be the case, we suspect the bank probably recorded a material loss position in FY15, post Mainstreet audited and full consolidation,” he said.

In 2006, the CBN released a contingency framework highlighting how it would deal with a bank facing capital constraints.

According to the guideline, the minimum CAR requirement was eight per cent and the framework essentially said that should a bank’s CAR fall below two per cent, CBN would take over the management and control the institution and/or revoke the license.

“If we interpolate these guidelines in today’s environment using a 15 per cent minimum CAR, we deduce that the CBN intervenes by removing management when CAR falls below four per cent. We estimate that a four per cent CAR implies a N142 billion erosion in tier 1 Capital for Skye – this represents 99 per cent of its third quarter equity,” he added.

Solanke said that although the naturally questions will arise on the overall stability, the CBN’s approach in subtly replacing the bank’s board and most of the executive management team is commendable, but noted that more will be needed in reassuring counterparties on the bank’s going concern status.

“We expect CBN to provide some form of liquidity support or guarantee to keep the bank’s operations running smoothly, pending when the capital, liquidity and asset quality challenges are brought to a reasonable resolution.

“So far, the bank still hasn’t released FY15 results, which we expect to continue feeding negative speculations and could trigger some flight to safety if dynamics here are not carefully and tactically managed,” he added.

According to Eleganza, the bank’s lease for the seventh floor expired on 31st of July, 2009, while that of the Ground, Mezzanine and First Floor expired on 31st of October 2009, adding that as at the expiration of the bank’s tenancy, the old rent being paid by the company was N45,575,000 service charge inclusive.

“Upon the expiration of the company’s lease, the company/respondent indicated its willingness to renew its lease in respect of the floors. Shortly before the expiration of the tenancy, the petitioner made an offer of a new lease for three years to the bank vide a letter dated 9th of July, 2009 at the prevailing market rate.

“The bank and the petitioner after several offers and counter offers, reached an agreement as to the current rent of the premises in the sum of N48,000 per square meter annum for the Ground Floor and Mezzanine Floor and N40,000 per square meter per annum for the seventh floor as well as N7,000 per annum and N8,000 as service charges for the banking halls (the ground floor and the Mezzanine Floor and 7th Floor respectively).

“While the petitioner was waiting for the bank’s cheque as promised in its letter of 29th October 2009 in payment of the arrears of rent and services charges as agreed, the bank vide a letter dated November 6, 2009, stated its unwillingness to renew its tenancy and its readiness to vacate the premises.

“The bank vide its solicitors admitted in its letter of 18th November, 2009 that there were accumulated arrears of rent and stated the bank’s readiness to pay same.

“The bank rather than pay its arrears of rent and in order to perpetuate itself in possession rushed to court and filed a suit No. LD/1989/09 at the Lagos High Court, where in it alleged disturbance of its possession by the petitioner.

“However, after the commencement of the bank’s suit, the parties explored means of an amicable settlement of the issue. The bank after discussions and several meetings with the petitioner, promised to pay its arrears of rent.

“Surprisingly, the bank vide its agent and sister company, Afribank Estate Co. Ltd offered to pay a ridiculous amount of N6,334,500 supposedly for a 3 month and six month period of overstay for the ground and 7th Floor respectively.

“The petitioner vides its solicitor’s letter of 22nd December 2009 rejected the ridiculous amount and stated its readiness to sue fot its money.

“The bank further offered the sum of N17,000,000 and the petitioner rejected same”, the petition stated.

Eleganza in its petition stated that in order to recover its money, it counterclaimed against the bank in the suit it filed at the Lagos High Court and got judgment against the bank on April 24, 2015 in respect of its counterclaim on N111,732,000.

The company stated that it has made several applications to Skye Bank to pay the debt but the bank has failed or neglected to pay the sum or any part of it.