Nigeria's Skye Bank Downgraded To 'CCC-' On Heightened Default Risk

Proshare

Monday, July 11, 2016 7:00PM /S & P Global Ratings

·     We understand that Nigeria-based Skye Bank has breached some regulatory ratios, including the minimum capital adequacy and liquidity ratios.
 

·         This has lead the Central Bank of Nigeria to intervene, suspending the bank's board of directors and changing its top management on July 4, 2016.
 

·     We now believe that a default of Skye Bank appears highly likely within the next six months, absent unanticipated significant favorable developments.
 

·       We are therefore are lowering our long-term global scale rating on Skye Bank to 'CCC-' from 'CCC+' and our Nigeria national scale ratings to 'ngCCC-/ngC' from 'ngB+/ngB'. We are placing the global scale short-term rating on CreditWatch negative, while maintaining the long-term ratings and national scale short-term rating on CreditWatch negative.
 

·         We aim to resolve the CreditWatch in the next 90 days, taking into account the further management or regulatory actions that may be taken with respect to the bank's financial sustainability. 

S&P Global Ratings today lowered its long-term counterparty credit rating on Nigeria's Skye Bank PLC to 'CCC-' from 'CCC+' and affirmed its 'C' short-term counterparty credit rating on the bank. We also lowered our long- and short-term Nigeria national scale ratings on the bank to 'ngCCC-/ngC' from 'ngB+/ngB'. We have placed the global scale short-term rating on CreditWatch negative and maintained the long-term ratings and national scale short-term rating on CreditWatch with negative implications, where we placed them on June 16, 2016. 

We understand that Skye Bank has breached regulatory ratios, including the minimum capital adequacy and liquidity ratios, putting marked strain on the bank’s financial profile. In addition, the bank breached the Central Bank of Nigeria’s (CBN's) guideline regarding the maximum nonperforming loans ratio, which is also a contributing factor to the supervisory actions taken by the CBN.  

As a result, on July 4, 2016, the CBN suspended the bank's board of directors and senior leadership to prevent the bank's failure and the ensuing potential threat to the overall stability of Nigeria's financial system. We understand that eight board members and four executive directors, including the group managing director and his deputy, tendered their resignation with immediate effect.  

Furthermore, the CBN has approved the appointments of a new board chairman and a new managing director to oversee the management and potential rehabilitation of the bank. 

We consider that Skye Bank is subject to regulatory forbearance and the breach of regulatory ratios will pressure its liquidity position. We now think that a default of Skye Bank within the next six months is highly likely, absent unanticipated significantly favorable changes in the bank's condition. At this stage, we understand the CBN has not yet communicated plans on how it intends to restore the bank's business and financial profiles. 

We aim to resolve the CreditWatch in the next 90 days, depending on the further management or regulatory actions that may be taken with respect to Skye Bank's financial sustainability. 

We could lower our ratings on the bank if we think a default is almost certain. This could happen if we thought that the bank was unable to make timely and full payment on any outstanding liabilities, due to negative regulatory intervention or the absence of any unexpected extraordinary liquidity support. 

We could affirm or raise the ratings if we were to witness an unanticipated and favorable transformation in Skye Bank's prospects, potentially through market-led or regulatory support, which would lead us to anticipate that a default is less likely within the next six months. 

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