Tag: Polaris Bank

Two Systematically Important Banks (SIBs)- defunct Skye Bank and Diamond Bank were on the news for bad reasons in the last part of the year. While Skye Bank has been taken over by Polaris Bank, Diamond Bank will in the first half of 2019 complete merger plans with Access Bank. COLLINS NWEZE writes that the two top lenders lost the battle of existence to poor corporate governance and insider-rated bad loans.

It was business as usual at defunct Skye Bank Plc on Friday, September 21. Many customers were busy carrying out their transactions without knowing that its end had come and a new lender would take over.

When the news broke around 6.00pm, Polaris Bank Limited was established to assume the defunct Skye Bank’s ownership as well as assets and liabilities.

Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, who broke the news to reporters, assured depositors that their funds were safe.

Emefiele, who spoke in the presence of Nigeria Deposit Insurance Corporation (NDIC) Managing Director, Umaru Ibrahim, and his Asset Management Corporation of Nigeria counterpart, Ahmed Kuru, said the banking sector’s stability remained a priority for the CBN.

He said the apex bank took the decision to stop Skye Bank from relying on CBN’s intervention to remain afloat. The defunct Skye Bank had been on CBN’s lifeline since July 2016 and the apex bank said it could no longer continue to intervene to keep the bank liquid.

The Federal Government, which owns Polaris Bank, injected N786billion into the new bank.The long-time loan was priced at single digit interest rate. New investors are expected to see the value in the new bank and buy it from the Federal Government.

Polaris Bank Group Managing Director (GMD), Adetokunbo Abiru, stated the efforts of the new management team to stabilise the defunct Skye Bank and reassured  stakeholders of the bank that it would have no problem meeting its obligations to corresponding banks, depositors, customers and other financial institutions.

He also stated that Polaris Bank had been established to assume ownership of the assets and liabilities of Skye Bank, while the management of the defunct bank had been retained for its good performance.

While the banking sector was about recovering from the Skye Bank saga, the airwaves were agog with the news of Diamond Bank’s merger with Access Bank. The planned merger has already gotten the approval of the CBN and is expected to be concluded in the first half of 2019.

The merger followed the signing of the Memorandum of Agreement and announcement of headline terms, which valued Diamond Bank at approximately N72.5 billion ($200 million) and will see

Diamond Bank shareholders receive N3.13 per share in cash and shares, Access Bank and Diamond Bank are announcing further details, including the rationale and benefits of the deal, the estimated cost synergies, the capital management plan and the timetable.

The merger will form a leading Tier 1 Nigerian bank and the largest bank in Africa by number of customers, spanning three continents, 12 countries and 29 million clients.

Commenting on the proposed merger, Herbert Wigwe, CEO of Access Bank, said: “I am delighted to announce that we have received the necessary regulatory approvals to pursue a merger with Diamond Bank, one of Nigeria’s foremost digital and retail banks, subject to final regulatory and shareholder approvals. The combination of our two businesses will create the largest retail bank in Africa by customer base and a very significant player in the Nigerian market.

“Access Bank and Diamond Bank have complementary operating platforms and similar values, and a merger with Diamond Bank, with its leadership in digital and mobile-led retail banking, will accelerate our ambition to become a leading corporate and retail bank in Nigeria and a Pan-African financial services champion. We look forward to bringing our discussions to a successful conclusion and delivering the benefits of the merger to our staff, customers, shareholders and other stakeholders.”

Uzoma Dozie, CEO of Diamond Bank, said: “The merger is positive for all of Diamond Bank stakeholders, including customers, employees and shareholders. In particular, customers will benefit significantly through the unrivalled combination of the best of Diamond Bank’s retail and digital leadership with the size of Access Bank’s balance sheet, corporate names and geographical reach.

“In reaching this decision, the shared passion for leveraging Nigeria’s youthful and entrepreneurial talent, and a commitment to better outcomes through financial inclusion have convinced us that this is the right combination.

“I believe that the combination of two strong and admired brands, with shared values and complementary strengths, will be a strong force for positive change in the Nigerian and African retail landscape. As a result, this merger creates significant potential for sustainable long-term growth which stands to benefit customers, employees and shareholders alike.”

Stakeholders speak

Director-General,  Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, said the first gain of the takeover is that Diamond Bank has been saved from going under and the economy protected from the consequences of such occurrence.

“Today, the good thing is that depositors funds are safe, some of the employees are not likely to lose their jobs since it is an acquisition, and that is good for the economy. If Diamond Bank had failed completely, there would be systematic effect. In terms of foreign perception, acquisition or merger is better than bank failure,” he said.

“You cannot have two managing directors of a bank, domestic and foreign operations and even chief financial officers in one bank. One has to give way and the Diamond Bank staff will be the casualties. The Diamond Bank management team should know that their jobs are gone,” former Diamond Bank’s General Manager,  Richard Obire, said.

According to him, Access Bank is a very ambitious lender and that is one of the characteristics of its management team.

Obire said: “They want to be big, and perhaps, the biggest bank in Nigeria and that was presented to them on a platter of gold by the Diamond Bank opportunity.

Diamond Bank is now a small bank compared to its peers. It is now a tier-three bank. I do not know the terms of the transaction but they will lose their brand name.

“It is the reality of business. Diamond Bank has such a brilliant brand name and customer base and these are what Access Bank will inherit. The name Diamond Bank is gone forever and the next will be integration, which will lead to exit of the bank’s management team.”

The Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI) lauded the CBN for revoking Skye Bank’s licence.

The union said the huge cash injected into Polaris Bank was a bold move at ensuring the soundness and efficiency of the sector. It urged AMCON to ensure that the bank’s sale  be done under best practices.

ASSBIFI National President, Comrade Oyinkan Olasanoye, stated this while briefing reporters in Lagos. She said there was no need for panic.

Olasanoye noted that as at today, Polaris Bank has a clean balance sheet as it carries no toxic assets in its new balance sheet. “The bank is well positioned to meet its obligations to all its numerous customers,” she said.

What went wrong In both defunct Skye Bank and Diamond Bank, one thing was clear. It was the level of bad loans in both lenders, majority of which are insider-related.

For instance, three commercial banks have been identified by NDIC to have in their balance sheets, 60 per cent of the N700 billion insider-related bad loans bedeviling the industry.

Speaking at the Financial Institutions Training Centre (FITC) Thought Leadership Discussion Series in Lagos, NDIC Managing Director, Umaru Ibrahim said the level of non-performing loans (NPLs) in the industry could be lower if the banks were to adhere more to sound corporate governance.

The identities of the affected banks were not disclosed, but the NDIC boss said that lenders without strong corporate governance culture are already being shunned by foreign investors because of the importance they attach to sound corporate governance practices.

The Central Bank of Nigeria (CBN) expects banks’ NPLs not to exceed five per cent, but many lenders have grown their NPLs to over 20 per cent in recent months.

Findings showed that the financial industry still harbours weaknesses in governance, as seen in insider non-performing loans, unreported losses, huge exit packages for directors, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits and weakening of shareholders’ funds, among others.

Speaking on the theme: Strengthening the Banking System and Facilitating Sustained Economic Growth: Roles of the Regulators, Operators and the Banking Public Ibrahim, who was represented by NDIC Executive Director, Operations, Prince Aghatise Erediauwa, said a large part of the NPLs came from loans to oil and gas sector. He regretted that many of the banks’ lendings to key sectors of the economy do not have the right industry knowledge needed to properly assess the loans.

“The bad loans we see today in banks, are mainly due to large exposure to oil and gas sector. They expose themselves to the sector without the right industry knowledge. The banks go with the bandwagon effect, as once there is loan syndication, every lender will want to be part of it without understanding what is involved,” he said.

The level of insider abuses perpetrated by bank chief executives and other key stakeholders are worrisome to the Central Bank of Nigeria (CBN).

CBN Governor, Godwin Emefiele, who expressed the apex bank’s dismay over the level of corporate governance abuses perpetrated by the top echelon in banks, said the regulator would henceforth punish offenders.

He spoke at one of the editions of the CBN-Financial Institutions Training Centre (FITC) Continuous Education Programme for Directors of Banks and Other Financial Institutions.

Emefiele, who spoke on the theme: “The Next Level of Corporate Governance Practice”, said fit and proper persons should be appointed into the boards of banks, adding that corporate governance is undoubtedly an essential pillar in financial system stability.

He said the failure of banks’ boards in carrying out their oversight functions by checking managements’ excessive risk taking, conflict of interest, undue concentration on short term gains and excessive executive compensation fundamentally affect the ability of financial institutions to meet their core mandates.

To Emefiele, a safe and sound financial system is dependent on the quality of corporate governance practices, which in turn depends on the quality of the board of directors and their ability to discharge their responsibilities honourably.

The CBN boss directed independent bank directors to rise up to their responsibilities and be the conscience of their institutions in the interest of depositors and minority shareholders. “Independent directors do not need to be friends of the managing directors. They can’t fire you but the CBN can remove you if you don’t do your job well,” he said.

Emefiele said banking needed independent directors who “are bold, sound and experienced to do what we want them to do.”

Emefiele said the CBN will get tougher on insider-related loans, adding that many bank chiefs and executive directors borrow from the banks at very low interest rates.

He said that prior to the global financial crisis of 2007 to 2009, it was taken for granted that the banking sector in Nigeria was safe and sound. However, this trust proved to be misplaced as it was realised that none of the 25 banks that scaled the CBN consolidation exercise was immune from failure if they operated in a poor corporate governance environment.

Accordingly, the 2014 CBN Code of Corporate Governance for Banks and Discount Houses (an improvement on the 2006 Code) was one of many responses to the industry’s post-consolidation corporate governance challenges arising largely from the integration processes. The mass enlightenment on corporate governance in the industry today could very well be attributed to the issuance of the CBN Code. The implementation of the Code largely addressed ineffective board oversights; overbearing influences of chairmen on MDs/CEOs; weak internal controls and prolonged tenure on the board amongst other anomalies.

“While appreciable momentum had been attained in corporate governance practices in the Nigerian banking industry, we need not rest on our oars as vulnerabilities are still evident. The recent economic recession has shown that the financial industry still harbours weaknesses in governance, exemplified by instances of unclear rendition of returns, corporate governance abuses, such as unreported losses, huge exit packages for directors, insider non-performing loans, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits and weakening of shareholders’ funds among others.  Overall, the huge challenge of ‘key-man’ risk abound in our industry,” Emefiele said.

Emefiele stressed that ensuring good governance is a responsibility of all stakeholders.