By Ijeoma Nwogwugwu
Last week, the Central Bank of Nigeria (CBN) confirmed our worst fears when it stepped in and sacked the board of directors of Skye Bank Plc, a Tier 2 bank, but systemically important enough to cause a contagion on the rest of the banking system in the event of failure. The central bank’s action was not unexpected. Several market analysts had suspected since the last quarter of 2015 that the bank was reeling from the burden of non-performing loans, liquidity and capital adequacy ratios that had fallen below regulatory requirements, and a weakening of the macroeconomic environment. The foreboding was further heightened when Skye Bank, among four other banks, issued a profit warning that the market noted.
In rationalising the removal of the bank’s chairman, managing director, other non-executive and some of its older executive directors, the CBN governor, Godwin Emefiele, said the intervention had become unavoidable in view of the persistent failure of Skye Bank to meet minimum thresholds for critical prudential and adequacy ratios, which culminated in the bank’s permanent presence at the CBN’s lending window. In particular, he said, Skye Bank’s liquidity and non-performing loan ratios had been below and above the required thresholds respectively for quite a while. He was silent, nonetheless, on what the central bank’s examination report of the bank had unearthed. Emefiele was also unwilling to divulge Skye Bank’s financial results for full year 2015, in order to forestall a further deterioration of the bank.
But an introspective review of Skye Bank’s decline has shown that its sorry pass could have been avoided with the right corporate governance, risk management structures, and firm regulatory oversight. Skye Bank’s woeful state could be traced to a number of factors, including insider lending, much of which became bad loans, and its acquisition of Mainstreet Bank Limited (formerly Afribank Plc) between October and November 2014.
It is no secret that Skye Bank’s erstwhile chairman and shareholder, Mr. Tunde Ayeni, and another director/shareholder, Dr. Festus Fadeyi, who also sits atop Pan Ocean Corporation, a Nigerian independent oil and gas company, had borrowed heavily from the bank. Indeed, officials of the bank confirmed to this writer that at the time of their ouster, Ayeni was indebted to Skye Bank to the tune of N36 billion, of which an estimated N6 billon had been repaid, while Fadeyi owed N98 billion.
Ayeni and his partners were said to have taken loans to fund their acquisitions of Ibadan and Yola Electricity Distribution Companies; NITEL/M-Tel; and an energy services firm, Ascot Offshore Nigeria Limited, all of which were respectively sold by the Bureau of Public Enterprises (BPE) and the Asset Management Corporation of Nigeria (AMCON). Fadeyi, through Pan Ocean, took loans to fund the firm’s oil and gas upstream projects operated under Joint Operating Agreements and Production Sharing Contracts with and on behalf of the Nigerian National Petroleum Corporation (NNPC).
It doesn’t take a clairvoyant to predict that Ayeni and Fadeyi, other than losing their seats on the board and possibly their shares in Skye Bank in the foreseeable future, would come under immense pressure from the reconstituted board and management team to repay what they owe. In particular, Ayeni, a well-known supporter of former President Goodluck Jonathan, would have to extend that pressure to the federal government to refund the money his company paid for the acquisition of Yola Disco, which was returned to the Ministry of Power and the BPE in October 2014.
Integrated Energy Distribution and Marketing Company Limited, a firm fronted by Ayeni, his longtime partner, Capt. Osa Okunbor, and former military head of state, Gen. Abudulsalami Abubakar, had acquired the Yola and Ibadan Discos for $228 million in 2013 under the privatisation programme. A year later, Integrated Energy returned Yola Disco to the Nigerian government on the grounds that it was impossible to operate and access the assets of the electricity distribution firm in the North-east due to the Boko Haram insurgency. After a joint evaluation of the electricity asset, as provided under the terms of the share purchase agreement, the BPE, in the twilight of the Jonathan administration, had approved $186 million as the sum to be refunded to Integrated Energy. But as this article is being written, nothing has been refunded to the company and its shareholders, even as the penalties and interest on their Skye Bank loan continue to mount. Of course, Ibadan Disco, which was retained by Integrated Energy, is in no better shape, as almost all the loans extended to investors during the privatisation process have gone bad.
Ayeni and his financial misadventures aside, the bigger setback for Skye Bank stemmed from its exorbitant acquisition of Mainstreet Bank. Information provided by officials of AMCON that was responsible for the Mainstreet Bank sale, showed that the valuation of the bank was put at N75 billion, implying that no sensible prospective investor that had undertaken a proper due diligence of Mainstreet Bank should have offered to pay anything in excess of N80 billion to N100 billion for the bank.
Yet, Skye Bank, which had embarked on an aggressive growth strategy to catapult itself into a Tier 1 bank, offered N126 billion for Mainstreet Bank. This was to become Skye Bank’s undoing. The snag was that Skye Bank did not have the balance sheet to support the acquisition of a much bigger bank. Not a few market analysts watched with keen interest and wondered where and how its management was going to raise the N126 billion for Mainstreet. It has now come to light that Skye Bank’s management used its deposits to pay for Mainstreet, effectively putting depositors’ funds at great risk.
The bigger worry for the banking sector was that this was an inexcusable gamble that escaped the scrutiny and regulatory oversight of the CBN and the Securities and Exchange Commission (SEC), both of which did not appear to have done any capital verification on the sources of funds brought in by Skye Bank for the Mainstreet acquisition before approving the transaction. Had the CBN, in particular, performed its regulatory role diligently, it is most likely Skye Bank would have remained a safe and sound bank.
Skye Bank’s situation became more precarious when it was penalised alongside FirstBank Nigeria Limited and United Bank for Africa Plc for failing to remit federal government funds to the Treasury Single Account (TSA) late last year. While UBA and FirstBank had robust balance sheets to absorb the penalties running into billions of naira imposed by the central bank, the N4 billion Skye Bank was forced to cough up, hurt it to no end.
Another cause for concern was that the CBN under Emefiele’s watch failed to take responsibility for the lax and weak regulatory oversight of the bank. Nor did the CBN give a second thought to other measures that could have been explored along with its intervention to shield Skye Bank from a run by its depositors and the ripple effect that this could have on other banks as has been evident in the last one week. Today, it is not just Skye Bank’s shares that have been punished by the market, but also the shares of its peers in the Banking Sector Index of the Nigerian Stock Exchange (NSE).
More than anyone else, Emefiele should have known that it would be a tall order for the new board and management of Skye Bank to raise the badly needed capital for Skye Bank in a contracting economy. Nigerian banks today are barely lending and struggling to stay afloat; most are just comfortable with investing in treasury bills and have become risk averse. Add to this their exposure to power and oil and gas sector loans, as well as the devaluation of the naira, all factors certain to depress the performance of Nigerian banks this year.
Under the circumstances, the best option for Skye Bank would have been for the CBN to invite AMCON to recapitalise it and given the new team two to three years to repay the loan at a premium. This was done with Wema and Unity Banks, and turned out to be the right stopgap measure that saved both banks from failure. Wema, for instance, has repaid the N20 billion injected into it by AMCON at a 14 per cent premium. Unity Bank, on the other hand, is a story that will be revisited by this writer at a future date.
The point being made is that the CBN needs to sidestep the political pressure that is brought to bear from outside, especially from the Presidential Villa, and take its independence and regulatory role more seriously. Its governor, Emefiele, saw all the warning signs and only acted just before the lights went out at Skye Bank. Although he could argue that Skye Bank had emerged as the highest bidder during the tender for Mainstreet Bank, he still had a fiduciary duty to safeguard the bank and the entire banking system from an over-exuberant transaction that was flawed from the outset. Long and short, he should not have approved the acquisition, period!
Curiously, even the new appointments for Skye Bank were laced with political considerations. Its new managing director, Mr. Tokunbo Abiru, was allegedly chosen for the bank by a national leader of the All Progressive Congress (APC), Bola Ahmed Tinubu, who still has some interest in Skye Bank as a carryover from his investment in the defunct Bond Bank (Prudent Bank, Eco Bank, Bond Bank, Co-operative Bank Plc and Reliance Bank merged in 2006 to form Skye Bank). In the same vein, the names of two new directors were allegedly sent from the Villa in Abuja for Emefiele to announce. It is only hoped that the new team can shake off the political baggage and manage the bank as the true professionals that they are with enviable track records in the banking sector.
Skye Bank has become a cautionary tale that should serve as a lesson to shareholder/directors of banks and the system regulators. It is beholden on the directors and managers of banks to exercise due care in the management of depositors’ funds. They are not funds to be frittered away, or to be trifled with, as they do not belong to the banks or their shareholders. It is equally beholden on the regulators to be firm, step up to the plate and never allow infractions to fester.
These are challenging times for the Nigerian economy. After a decade of solid growth, output shrank earlier this year, mostly on the back of a steep fall in oil prices. But Nigeria’s most important commodity has never been its oil. The country’s most important asset is its dynamic, entrepreneurial, and innovative people. And one of its most under-utilised assets is the economic potential of Nigerian women. This latest bout of commodity price volatility underscores the need to boost diversification and productivity to generate lasting growth and jobs for Nigeria’s fast-growing, young population.
Beyond generating foreign exchange, trade can play an important role in shifting people and resources out of subsistence agriculture and informal self-employment into more productive activities, in agro-industry, manufacturing, and formal services. For this reason, the Nigerian Export Promotion Council (NEPC) was set up to promote the development of a diversified export sector.
Small and medium-sized enterprises (SMEs) account for the vast majority of firms and jobs just about everywhere, and Nigeria is no exception. For growth and trade to lead to poverty reduction, it’s essential for these smaller businesses to share in the gains. The International Trade Centre, a joint agency of the World Trade Organisation and the United Nations, is working together with Nigerian private sector firms and public sector stakeholders including the NEPC to empower Nigerian SMEs to become more competitive and connect to international trade and investment.
As it seeks to diversify its economy, Nigeria must invest in its people and the SMEs that employ most of them. But the returns on these investments would be much higher if accompanied by specific efforts to bring women more fully into the country’s economic mainstream. Nigerian women are already playing leading roles in politics and the economy. Women own an estimated 30% of the country’s registered entrepreneurial businesses, and are behind 41% of business start-ups. Yet a mere 6% of parliamentarians are female, and women account for only 24% of non-agricultural employment.
The cost of gender discrimination to world economy is staggering. McKinsey Global Institute recently estimated that raising women’s wages and labour force participation to match those of men would boost global output by more than 25 per cent – like adding a new United States and China to the world economy. This is why the global economic potential of women has been likened to a ‘third billion’ poised to join India and China in transforming the global economy. For businesses, too, greater gender equality translates to better performance.
“The Peterson Institute for International Economics surveyed 22,000 companies around the world, and found that having more women on corporate boards and in leadership positions is associated with higher profitability.
Some of the biggest consequences of women’s economic empowerment are felt far away from corporate boardrooms, in the poorest households and communities. When women are paid for their work, and have control over how the money gets spent, they invest much more of their income than men do in their families’ education and health. The positive effects endure for generations. Gender-based discrimination, for countries, companies, and societies alike, it is simply unaffordable: ‘economic malpractice’ on a grand scale. This is why ITC and NEPC place special emphasis on empowering women-led businesses – such as a Shea butter cooperative in Oyo State – connect to international markets.
It’s also why the Ministry of Industry, Trade and Investment, NEPC and ITC are teaming up to host the Women in Export Stakeholders Forum and Exhibition in Abuja on 13 July. The gathering will bring together policymakers, the private sector, and representatives of women-owned businesses to catalyse ongoing efforts to empower women to drive trade-led development in Nigeria. On this occasion Nigeria will unveil national commitment under ITC’s “SheTrades” initiative seeking to connect one million women entrepreneurs to market by 2020 worldwide.
Participants in Abuja will share experiences about what has worked and what hasn’t – to connect women-owned businesses to markets. They will look at how businesses have taken concrete steps to expand sourcing from women-owned business, to improve women’s access to finance, and to help women entrepreneurs overcome supply-side constraints. And they will come up with concrete suggestions for how to do even better.
Last September, the United Nations adopted the Global Goals on Sustainable Development. This ambitious agenda aims to eliminate extreme poverty and achieve gender equality in education and work by 2030. Either goal cannot be attained without the other. And neither can happen without Africa’s biggest economy. ITC and the NEPC look forward to working together to empower women to trade for a better future – for Nigeria, for Africa, and for the world.
González is the Executive Director of the International Trade Centre, a joint agency of the United Nations and the World Trade Organisation
Awolowo is the Executive Director and CEO of the Nigerian Export Promotion Council
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