Following Skye Bank Plc’s publication of its 2015 Audited Annual Report and Financial Statements that show unimpressive performance, Kunle Aderinokun writes that there are renewed efforts by the board and management recently appointed by the Central Bank of Nigeria to return the bank to profitability

Skye Bank Plc recently released its 2015 Audited Annual Report and Financial Statements. This followed a prolonged delay, due, mainly, to integration of Mainstreet Bank, which it acquired last year, with its operations.

The audited financial results as at December 31, 2015, showed that the bank posted gross earnings of N163.878 billion in 2015, an increase of 12 per cent over the N145.178 billion recorded in the previous year. This was boosted by 19 per cent rise in interest expense to N127.908 billion to N107.847 billion. However, this was watered down by interest expense of N76.993 billion, having risen by 73 per cent from N44.572 billion in 2014.

A further look at the financials revealed that Skye Bank has made a total provision of N34.681 billion for impairment charges for the year ended December 31, 2015. While N27.536 billion impairment charges out of the N34.681 billion were for loans, the remaining N7.145 billion was set aside as impairment charges for other financial assets.

Following the record total impairment loss, amongst others, which weighed seriously on its earnings, the bank’s net operating income for the review period stood at N50.403 billion, having dropped by 35.6 per cent from N78.311 billion. And after employee benefit and compensation cost, totalling N38.229 billion, administration and general expenses (N40.874 billion), and depreciation and amortisation (N8.946 billion) as well as taxation of N3.080 billion were deducted from the net operating income, the bottom line moved to the negative territory as the bank recorded N40.726 billion loss after tax compared to N18.717 billion profit after tax in the previous year.

Analysts believed the challenge Skye Bank faced was mainly the unimpressive performance as recorded in its 2015 financial statements. According to them, the poor outing was as a result of high loan impairment charges due to aggressive loan growth combined with negative macroeconomic trends that have negatively affected its loan books as businesses in oil and gas, power, telecommunications, manufacturing and financial services face serious short-term challenges.

One of the analysts posited that, the fact that the bank declared a loss did not mean that it was in distress or that it will not be able to meet its obligations to customers. “Skye Bank is not in distress. The Governor of the CBN confirmed this in his official statement. The Bank is able to meet its obligations to customers and the Governor of CBN also confirmed that all customers’ deposits are safe.”

Another analyst believed “resolution of the issues around Yola Disco between a prominent shareholder and the federal government as well as the entry of General T.Y Danjuma as an equity investor in the NATCON (ntel) consortium may all have positive portfolio benefits for the bank.”

“One of the factors that may have impaired the bank’s liquidity would probably be its acquisition of Mainstreet Bank at a time it had also aggressively grown its risk assets, while the economy was moving into an economic downturn and now a recession,” the analyst added.

Realising Skye Bank’s liquidity was impaired, the Central Bank of Nigeria (CBN) recently intervened in the bank, which it classifies as one of the eight Systemically Important Banks (SIBs) in Nigeria.

The CBN effected changes in key personnel on the board and management of the bank on July 4, 2016, which affected the chairman, all non-executive directors as well as the managing director, deputy managing director. It also affected the two longest-serving executive directors on the management team.

According to the apex bank, “These proactive moves have become unavoidable in view of the persistent failure of Skye Bank PLC 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.”

Disclosing that, “chairman and some board members have decided to resign their appointments from the bank,” it stated: “Consequently, by virtue of the powers vested in the Governor of the CBN, we have decided to reconstitute the Board and Management of the bank, and appoint new members with the sole responsibility of ensuring the speedy restoration of the health of the bank. “

“To this effect, the chairman of the board, all other non-executive directors, the independent director, the managing director, the deputy managing director and two longest serving executive directors have voluntarily resigned their appointments with immediate effect.
“In their place, we have selected industry experts and people of high integrity whom we believe can turn the bank around.

In this regard, we have selected M. K. Ahmad to be the new chairman while Mr. Adetokunbo Abiru would be the new managing director. The more recent executive directors will be allowed to remain to ensure continuity and a smooth transition,” it added.

Ahmad and Abiru as well as the new directors have since resumed. They are very optimistic of the bank “given its vast potentials and its strategic position in the economy.”

According to a statement addressed to customers and stakeholders, signed by Ahmad and Abiru, “the bank is well-positioned to deepen the retail and commercial banking services in the economy, having put in place the critical building blocks to win in this sector. Our immediate priorities are to quickly begin to leverage the huge invetsments in the enhanced branch network, technology and alternative channels to improve stakeholder value in a sustainable manner.”

The bank assured its customers and stakeholders of its commitment to “preserve your investments and deposits” adding that, “we further assure that the support and backing of the Central Bank of Nigeria and other relevant stakeholders have been obtained in this respect.”

While also assuring the customers that “Skye Bank remains sound and your deposit are safe”, the bank management, recalled that, “this much was assured by the CBN.” “We therefore urge you to eschew unfounded rumours about the bank. We count on your continued support and patronage, while we commit to improved stakeholder value in the medium term.”

As part of efforts to improve the bank’s liquidity and help return it to profitability, CBN has injected about N100 billion into its operations. Confirming the injection, Abiru said the bank received the money to shore up its operations. The fund, which is in form of a loan, repayable in one year, would is expected to prevent a run on the bank.

Besides, the bank is in discussions with a number of strategic investors to raise up to N50billion in fresh capital. The fresh capital, according to sources, is expected to strengthen the bank’s capacity to do more business, while also diversifying its shareholder base.

Skye Bank is currently having a new business focus. Working with McKinsey & Co, the bank developed a new business strategy to focus on the commercial and retail business segment. This, sources believe, is sustainable, and will increase the bank’s revenue and profitability in the medium-long term. According to sources, “the steady growth in the commercial and retail deposit in the last 6 months confirm that we are in the right direction.”

Similarly, the bank planned improved service delivery and business synergy. With a more expansive branch network, and strategic investment in relevant cutting edge technology, the bank is well positioned to deliver better products and services to its ever-loyal and prospective customers, improve its brand equity, ensure sustainable profitability and enhance shareholders value in a sustainable manner.

More importantly, the bank would undertake aggressive recovery of our loans & intensify loan collection efforts. It is expected that recovery of provisioned loan will directly impact the bank’s profit position during the year.