Friday, September 21, 2018 07:10 PM / Proshare Research
The nationalisation of banks listed on The Nigerian Stock Exchange was first witnessed in 2011 when the Central Bank of Nigeria (CBN) in conjunction with Nigeria Deposit Insurance Corporation (NDIC) nationalised three banks namely Bank PHB Plc, Afribank Plc and Spring Bank Plc. These banks were renamed as Keystone Bank, Mainstreet Bank and Enterprise Bank respectively and were generally referred to as ‘Bridge Banks’.
The Emergence of Bridge Banks
In our years after report on Skye Bank Plc titled: Skye Bank Plc: One Year After CBN Takeover, we highlighted how the bridge banks emerged and it was stated thus:
‘In an attempt to take out bad money out of the system in the wake of the financial crisis of 2008, when many banks had their balance sheets affected by both falling oil price and downturn in equity; the CBN called for a recapitalization of the banks.
The Central Bank of Nigeria (CBN) after a reported failed attempt of recapitalising these three banks (Afribank, Bank PHB and Spring Bank) announced their nationalisation and handed them over to the Asset Management Corporation of Nigeria (AMCON) to manage through a capital injection program.
Thus, AMCON was the vehicle used to wean the feeble banks back to financial stability whilst attempting to address the non-performing loan scenario faced by these entities through an aggressive debt management/acquisition program that saw AMCON acquiring about N1.7trillion in non-performing risk assets (at inception). This later grew significantly as debt recovery efforts turned in revelations and realities that increased the level of impairment previously envisaged.’
Financial Analysis on Skye Bank: Pre-Acquisition of Mainstreet Bank
The financial position of Skye Bank Plc prior to its acquisition of Mainstreet Bank (Afribank Plc) is one that points to a financial institution wavering around the required minimum liquidity and capital adequacy ratio and also foretold the bank’s current quagmire.
This was well documented in our report titled ‘The Surprising New Math of Acquisition of Banks in Nigeria – The Skye Bank Case’ which dwelled on how Skye Bank Plc acquired and financed the acquisition of Mainstreet Bank and the subsequent report published following representations from the bank and CBN on November 01, 2014 titled Skye Bank - The Math Adds Up says CBN, Acquisition Payment of Mainstreet Bank Done; wherein the bank argued the basis of funding of the acquisition.
Nationalised Banks and The Fate of Shareholders
Lessons from the experience of the nationalisation of Bank PHB, Spring Bank and Afribank in 2011 has taught us that the shareholders of these banks tend to lose completely when such regulatory action is taken.
The Asset Management Company of Nigeria (AMCON) moved in to rescue these three banks after the Central Bank of Nigeria (CBN) had announced the revocation of their licenses.
The regulatory authorities took over/acquire those banks and were officially delisted from the daily official list of the Nigerian Stock Exchange.
In a nutshell, these entities were sold by AMCON to its new core investors after a competitive bidding process.
With the revocation of Skye Bank Plc operating licence today, it is expected that events will turn out just as recorded with the three (3) nationalised banks.
29. CBN Reduces maximum limit of FX borrowing to 75% of Capital
30. Skye Bank Plc and AMCON Sign Agreement on Acquisition .- Proshare
40. Skye Bank Ratings Suspended Due To Lack of Sufficient Information
44. AMCON Acquires Bridge Banks – Press Statement - Proshare Aug 06, 2011
45. Q&A on Nationalisation of Banks by the CBN - Proshare Sept 02, 2011
46. Court halts planned sale of Bank PHB by CBN - Proshare Mar 16, 2011
47. Bank PHB Internal Memo Reveals worsening Financial Condition Mar 29, 2011
49. CBN's Intervention in Banks: One Year After - Proshare Oct 08, 2010
50. [PDF] SEC, Udo Udoma & Corporate Governance: The Fact Files - Proshare Feb 18, 2010
52. [PDF] The Bull in the China Shop - Proshare
53. [PDF] The Market Memorandum - 060910 - Proshare Sept 06, 2009
54. Analyst Report on Skye Bank - 2008