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.