Skye Bank Extends Drop After Management Ousting as Diamond Falls

NIGERIA, Capital Markets in Africa: Skye Bank Plc tumbled, extending a slide to the lowest level in almost three months, after Nigerian regulators replaced the top management of the country’s eighth-largest bank for consistently breaching cash and liquidity ratios.

Diamond Bank Plc fell the most since Jan. 19 even as shares of some the country’s banks rose on the Nigerian Stock Exchange All Share Index on Friday. Gains by FBN Holdings Ltd., the country’s largest lender by assets, Zenith Bank Plc and Stanbic IBTC Holdings Plc, come after regulators assured depositors and investors that the nation’s banks are safe and there is no need to make panic withdrawals. United Bank for Africa Plc was unchanged.

“The market assumes there will be more challenges for the new management at Skye Bank,” Olubunmi Asaolu, an analyst at Lagos-based FBN Quest, said by phone. “Diamond Bank will be based on what you expect to happen. It has challenges in its loan book, which are higher than some other banks. Investors are realizing that the Tier 1 banks such as UBA and Zenith are better capitalized and able to withstand challenges.”

The central bank stepped in on July 4 to replace the chief executive officer, chairman and 10 other directors of Lagos-based Skye, saying the intervention was unavoidable after its liquidity and non-performing loan ratios breached required thresholds. The announcement came before a three-day holiday and after the local market had closed, with trading resuming on Friday.

Skye Falls
Skye slid 4.2 percent to 91 kobo by 10:54 a.m. in Lagos, after falling 9.5 percent on July 4. The stock has lost 58 percent over the past 12 months. Diamond dropped 9.5 percent to 2.01 naira, extending its losses over the past year to 51 percent.

Skye has failed to report annual earnings since combining its operations June 2015 with Mainstreet Bank Ltd., which was rescued during the 2009 crisis, when Nigerian regulators bailed out 10 banks, fired eight CEOs and stepped in to buy bad debts during the financial crisis.

Diamond’s capital ratios are expected to come under “notable pressure” because of a high proportion of loans denominated in foreign currencies,Adesoji Solanke, Renaissance Capital’s head of research in Nigeria, said. The lender had a capital adequacy ratio of 16.2 percent at the end of the first quarter, compared with a 15 percent regulatory minimum.

“It’s not correct that the bank’s capital levels are a concern,” a spokesman for Lagos-based Diamond said. The company 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.

For an analysis on Nigerian banks after Skye’s management changes, click here.

FBN Holdings, owner of First Bank of Nigeria, rose as much as 9.5 percent, before trading 2.4 percent higher at 3.8 naira.

First Bank “does not need to raise more capital” and can generate enough earnings to support internal capital formation, acting Chief Financial Officer Ini Ebong said in an e-mailed response to questions. “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.”

First Bank 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.

There are “a few” lenders that probably are not meeting prudential ratios in terms of liquidity, or bad loans or capital, Tokunbo Martins, the Central Bank of Nigeria director of banking supervision, said in an interview with Lagos-based Channels TV. The regulator monitors banks on “an ongoing basis to make sure it doesn’t get out of hand,” Martins said.

Source: Bloomberg Business News