The Skye bank challenge

Markets and Investors were stunned on Monday July 4, 2016 when the Central Bank of Nigeria (CBN) announced that it had replaced some members of the board of directors of Skye Bank Plc. Over the last decade post banking sector consolidation, Skye had become one of Nigeria’s major banks. Indeed when the CBN named eight (8) systemically important banks in Nigeria financial space, Skye was one of them. It had emerged out of consolidation as a merger of Prudent Bank, Eko International, Bond Bank and others. It appeared to have successfully integrated the disparate entities that came together to form Skye Bank into one brand and firm personality after the consolidation and appeared to have built a relatively good brand under its new identity.

The CBN announcement that the Chairman, Managing Director/CEO and some Executive Directors had been replaced by its appointees came out of the blues, since most market participants had not been sensitized to any issues affecting the bank. Fortunately the two principal persons appointed by the banking regulator, Mr M.K Ahmad as chairman and Tokunbo Abiru who was appointed MD/CEO are individuals who re-assured me personally and should have re-assured the markets. Ahmad is a financial sector expert, former NDIC (Nigeria Deposit Insurance Corporation Director) and pioneer Director General at the National Pension Commission. More importantly he is reputedly a person of the highest integrity. I had a friend, unfortunately now deceased, who worked with Ahmad at the NDIC several years ago who never ceased to inundate me with reports about his competence, professionalism and integrity. And I can personally attest to Abiru’s serious-mindedness, character and professionalism. If there was any team that could be sent in the circumstances to stabilize, reposition and grow Skye Bank, it is without doubt, M. K Ahmad and Tokunbo Abiru.

Skye Bank had some inherent potential even under the prior management team-as I wrote earlier, it had some relative post-consolidation success and had grown its industry relevance, brand positioning, branch network, ICT channels, competences and franchise over the past decade. On the other hand however it appears to have embraced quite a bit of unrestrained ambition leading to aggressive acquisitions, especially that of Mainstreet Bank, and had grown its loans and assets probably forsaking some liquidity and prudential considerations in the process. I suspect that corporate governance and risk management standards were somewhat eroded as ambitious and powerful shareholders and stakeholders grew their ambitions within the Nigerian economy and led the bank along with them. Nevertheless apart from the resulting constrained liquidity and asset quality which led to the CBN intervention, I think the Skye Bank franchise is fundamentally strong. Fortunately we can expect that going forward Ahmad and Abiru would bring calm professionalism, better governance and risk management and strong regulatory support to bear on the bank, and they would ensure that over the medium term, it returns to its position as a strong and competitive Nigerian bank. Tokunbo Abiru’s banking experience includes long spells in Guaranty Trust Bank and more recently in First Bank where he rose to Executive Director, after an interlude as Lagos State Finance Commissioner.

It is positive that in spite of the changes at the bank, some continuity was retained in the retention of Abimbola Izu, Bayo Sanni, Markie Idowu and Idris Yakubu as executive directors on the board while a few new executive directors, including an experienced ex-GT Bank and Access Bank senior banker Innocent Ike were appointed to complement the team. My sense of the challenge the bank faced hinged principally on its adverse 2015 financial performance deriving from high loan impairment charges due to aggressive loan growth combined with negative macroeconomic trends which have negatively affected its loan books as businesses in oil and gas, power, telecommunications, manufacturing and financial services face serious short-term challenges. It is now public knowledge that the CBN has correctly agreed to provide liquidity support to the bank to ameliorate its temporary liquidity challenges. I believe 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 lesson for managers across sectors is that aggressive growth aspirations have to be tempered with some scenario planning, risk management and perhaps common sense! Managers must always ask themselves, “what can go wrong?” and sensitize their strategies and initiatives to environmental change including political developments, economic uncertainty and cycles, legal and regulatory issues, technical industry considerations, technology change and even social trends. Entrepreneurs are by nature very optimistic people, but they must be restrained by enterprise risk management systems and sound governance systems. Once powerful entrepreneurs are able to override risk management and governance, trouble looms!!!

In spite of its 2015 financial year losses, everything I have seen suggests that Skye Bank’s fundamental strengths far outweigh its temporal challenges and I have little doubt that the new management team under M. K Ahmad and Tokunbo Abiru are well able to stabilize the bank and begin to leverage those fundamental strengths to lead the institution back into prudence, growth and profitability.

Opeyemi Agbaje