Lagos – The ousting of top management at one of Nigeria’s largest banks is deepening concern over the health of the industry.
The central bank stepped in to replace the chief executive officer, chairman and 10 other directors of Skye Bank on Monday after the nation’s eighth-biggest lender consistently breached cash and liquidity ratios. The regulator made the announcement before a three-day holiday and after the local market had closed, with trading set to resume on Friday.
The intervention is stirring memories of when Nigerian regulators bailed out 10 banks, fired eight CEOs and stepped in to buy bad debts during the financial crisis. While authorities are telling depositors the banks aren’t in distress now, an increase in unpaid loans, an economy heading toward a recession, a weakening currency and tumbling oil prices are raising risks of an industrywide slump.
“There’s a chance we’re going back to several years ago when banks were taken over,” Zoran Milojevic, a frontier markets analyst at brokerage Auerbach Grayson & Company, said by phone from New York. “There are still way too many banks. Some of them have to go.”
The 10-member Nigerian Stock Exchange Banking Index has declined 19 percent during the past 12 months compared with an 11 percent drop in the country’s all share gauge.
Skye Bank’s shares tumbled the most in more than six months on Monday in the hours preceding the central bank’s announcement. The Lagos-based lender has failed to report annual earnings since combining its operations last June with Mainstreet Bank, which was rescued during the 2009 crisis. The central bank said its intervention was unavoidable after Skye Bank’s liquidity and non-performing loan ratios breached required thresholds.
FBN Holdings’ First Bank of Nigeria, the country’s biggest bank by assets, and Diamond Bank may also come under closer scrutiny from the central bank, Adesoji Solanke, Renaissance Capital’s head of research in Nigeria, said in a note on Tuesday.
While First Bank may escape the measures imposed on Skye, an intervention cannot be ruled out given the lender’s systemic importance, Solanke said. Regulators may give the company’s new management team, which started in January, time to turn around its performance, he said.
‘Not correct’
Diamond’s capital ratios are expected to come under “notable pressure” because of a high proportion of loans denominated in foreign currencies, Solanke said. The naira has weakened 30 percent against the dollar this year after the central bank last month dropped a currency peg.
Diamond Bank had a capital adequacy ratio of 16.2 percent at the end of the first quarter, compared with a 15 percent regulatory minimum, while net income rose to 5.8 billion naira ($21 million) following a 10.2 billion naira loss in the fourth quarter.
“It’s not correct that the bank’s capital levels are a concern,” a spokesman for Lagos-based Diamond Bank said by phone. Diamond Bank is not borrowing from the central bank’s liquidity window, which is designed to provide cash for lenders struggling to borrow from other sources, the spokesman said.
First Bank of Nigeria said in April it plans to cut 1 000 jobs and reduce its exposure to the oil industry in a bid to restore profit, which slumped 82 percent in 2015 as non-performing loans jumped to 22 percent of its book from 3.8 percent a year earlier.
‘Very strong’
The lender will continue to make adequate provisions and has taken steps to address “challenged loans” in its portfolio, acting Chief Financial Officer Ini Ebong said in an e-mailed response to questions.
“FBN does not need to raise more capital” and can generate enough earnings to support internal capital formation, he said. “Our? liquidity ratio remains very strong. FBN is and remains a net placer in the interbank market and has no need to seek funds from the Central Bank of Nigeria window.”
While problems are mounting, Nigeria isn’t headed for the crisis it had in 2009, said Robert Besseling, a Johannesburg-based executive director at business risk consultancy Exx Africa.
‘Mitigating factor’
Bail outs provided to some of the country’s state governments may be a “mitigating factor” that could help debt repayments, he said. “Nigeria also now has a freely floating naira, which has released some pressure. Government doesn’t have the ability to bail out banks anymore, but the regulators do have more oversight.”
Nigeria’s central bank moved to assure depositors and investors that its lenders are safe, saying in a statement on Wednesday that there is no need for panic withdrawals and neither Skye or any other bank is in distress.
“The whole banking sector is under pressure in Nigeria given slowing growth and average loan book exposure to oil and gas of 30 percent,” said Oyin Anubi, a London-based economist at Bank of America Merrill Lynch. “Skye Bank was particularly weak.”
With assistance from Emele Onu
Bloomberg
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