Nigerian banks bleeding from Skye Bank’s take over

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Shares of Nigerian banks have suffered significant reversal in fortunes following the decision of the Central Bank of Nigeria (CBN) to force a change of management at Skye Bank Plc. The apex bank says it forced the resignation of the entire board and Group Managing Director of the bank following the bank’s liquidity and capital challenges.
But the disclosure by Tokunbor Martins, Director Banking Supervision at the CBN on 8 July, that the CBN has two more banks under watch over liquidity challenges seemed to have set panic in the banking industry leading to a sharp fall in the share prices of Nigerian banks.
There are “a few” lenders that probably are not meeting prudential ratios in terms of liquidity, bad loans or capital, Tokunbo Martins, the  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.”
Also in a note to investors, Adesoji Solanke, Renaissance Capital’s head of research in Nigeria, said First Bank of Nigeria and Diamond may come under closer scrutiny from the CBN, but  said that neither FBN or Diamond are under liquidity pressure at this point, so the regulator’s Martins is probably referring to other banks not covered by Renaissance Capital.
“Diamond’s capital ratios may come under “notable pressure” because of loans in foreign currencies”, Solanke’s note said.
“FBN does not need to raise more capital,” acting Chief Financial Officer Ini Ebong said in an e-mailed response to questions from Bloomberg.
“Our liquidity ratio remains very strong.”
However investors have shown signs of panic. The shares of Nigerian banks dropped by an average of 2.62%, despite the fact that trading took place for only two days last week. Skye Bank suffered the most depreciation in its share price dropping by 17.14% in the week to close Friday at 87 kobo per share. Diamond Bank also saw its share price drop 12.61% last week to close at N2.01 as at Friday 8 July.
But the loss in value for banking stocks did not abate on Monday, 1 July  when trading started again on the Nigerian Stock Exchange, despite assurances from the CBN that all Nigerian banks are safe and that it had no intention of taking over Skye Bank beyond the change of management, which has been done to ensure the bank regains operational efficiency.
At Monday’s trading Skye Bank share price dropped by 9.20% to close at 79 kobo per share. The bank’s share price has now lost more than 25% of its value since 4 July when CBN moved against it. Since the beginning of the year, the bank’s share price has lost 50% of its value.
Diamond Bank’s share price also lost value again on Monday, dropping by 7.96% to N1.94 per share. The bank has now lost 19.6% of its value since the beginning of the year.
Some of worst performing stocks since the beginning of the year include; First Bank which has lost 26.9% of its value since the beginning of the year, FCMB, lost 18.3% of its value since beginning of the year, Fidelity Bank has lost 24% of its value since the beginning of the year and ETI which has lost 12.2% of its value.
But not all banking stocks have been in the red. Access Bank has seen its price rise 11.3% since the beginning of the year; GTBank is up 32% while UBA has risen the highest by 35.2% since the beginning of the year. The sharp rise in UBA’s share price has been attributed to the low non-performing loans ratio of the bank and the expectations that the pan-African bank will most likely benefit from foreign exchange gains due to its vast and profitable operations across Africa.
“There’s a chance we’re going back to several years ago when banks were taken over,” Zoran Milojevic, a frontier markets analyst at brokerage Auerbach Grayson & Co., was quoted by Bloomberg as saying.  “There are still way too many banks. Some of them have to go.”
“The whole banking sector is under pressure in Nigeria given slowing growth and average loan-book exposure to oil and gas of 30 percent,” Oyin Anubi, a London-based economist at Bank of America Merrill Lynch told Bloomberg.
 
Note: This story has been done with expert quotes from Bloomberg.