Liquidity Crisis May Trigger Fresh Capital Raising by Banks

Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane

The liquidity crisis identified in Skye Bank Plc, which led to the Central Bank of Nigeria’s (CBN) removal of its board on Monday, is likely going to result in fresh capital raising by commercial banks, as they seek to maintain the stipulated capital ratios in the face of a weakening macroeconomic environment.

While some banks had at their 2015 annual general meetings earlier this year, obtained the approval of their shareholders to raise fresh capital, others may be compelled by the development at Skye Bank to seek for ways to beef up their capital bases.

Following the failure of Skye Bank to meet the minimum thresholds in critical prudential and adequacy ratios, resulting in the bank’s permanent patronage of the CBN’s lending window, its huge non-performing loan (NPL) profile, as well as its low liquidity ratio, the central bank in a proactive move effected a change in the board and management of the bank.

Speaking with THISDAY on the matter yesterday, the Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the solution to the challenges facing Skye Bank was for it to raise additional capital.

“There is a difference between liquidity and solvency. The bank was supposedly under-capitalised, so that was a solvency issue. So they would not have enough buffers to withstand shocks in times of stress.

“Therefore, the solution to their problem is to raise additional capital. To raise additional capital, the central bank, in its judgment felt that the board of the bank was not credible enough to overcome the crisis of confidence.

“So it is believed that the crisis of confidence has been resolved because you now have a credible board, which would allow it to raise the capital that is required,” he said.
According to Rewane, Skye Bank’s problem started when it used its shareholders’ funds to buy Mainstreet Bank, saying that if not for the “ambitious acquisition, I don’t think Skye Bank would have been in the situation it found itself”.

“So the purchase of another bank without additional capital meant that you were carrying the assets of two banks, with shareholders’ funds of one. As such, the capital inadequacy became more apparent.
“Essentially, that aggressive growth strategy was what brought about this situation,” he explained.

He, however, pointed out that during economic downturns, banks’ asset quality suffer the most and central banks the world over do everything to assist them.
He expressed optimism that the CBN would continue to support banks so as not to create a crisis of confidence in the system.

The Head of Research at SCM Capital Limited (formerly Sterling Capital), Mr. Sewa Wusu, also said banks should consider rights issues to raise additional capital so as to maintain the capital threshold.

“One of the ways to address the issues of low capital adequacy is to raise capital. What it means is that the new management has the responsibility of raising fresh capital and they should also ensure that they come up with a strategy to boost their loan recovery drive.
“Even though the economy is weak, they just have to fine-tune their strategy around recovery,” he said.

Meanwhile, the new Group Managing Director/CEO of Skye Bank, Mr. Tokunbo Abiru, has affirmed the CBN’s statement that the bank remains healthy and strong.

Abiru, in a statement issued yesterday after taking over from his predecessor Mr. Timothy Oguntayo, said that the bank’s fundamentals remained strong and virile, assuring customers and other stakeholders of the safety of their funds and investments.

The new Skye Bank boss said his team would leverage on the bank’s reputable information technology platform to make it not just a frontline retail and commercial bank, but an industry leader.

Abiru, who outlined his vision for the bank, said his team would harness the expertise and skills set of the bank’s employees and the reconstituted board to take the bank to newer and higher heights.

He noted that being a systematically important bank (SIB), Skye Bank occupies a sensitive role in the financial life of Nigeria and West Africa.
The CBN on Monday approved the reconstitution of the board of Skye Bank, with the appointment of Alhaji M.K. Ahmad and Abiru as the new chairman and managing director, respectively.

Other members of the reconstituted board are Bayo Sanni, Idris Yakubu, Markie Idowu and Abimbola Izu, all of whom were executive directors of the bank before the intervention by the CBN.