The mass voluntary resignation of the executive management and board of Skye Bank on Monday and the subsequent take-over of the bank by the central bank did not come to many financial experts as a surprise.
Experts said the take-over would precipitate panic withdrawals and erode customer confidence in the system, noting that Skye Bank and other three banks had the same problem and were placed on notice by the regulator almost a year ago.
“The take-over of the bank may cause panic not only among customers of Skye Bank but that of the entire financial system since the other three banks are yet to be identified,” an observer said.
Skye Bank’s liquidity ratio was said to be below the required threshold, while its non-performing loan ratios were adjudged to be above the set limit.
“In particular, Skye Bank’s liquidity and non-performing loan ratios have been below and above the required thresholds, respectively, for quite a while,” according to statement by the CBN.
According to Experts, the failure of the CBN to disclose what the “required thresholds” were may heighten panic among bank customers and compound matters for the CBN already battling with the new flexible exchange rate market.
Similarly, inter-bank rates are projected to go up as banks will now begin to suspect each other regarding financial health, which would lead to increased inflation.
“Increase in interbank rate, the rate at which banks take deposit, means that inflation will spike and when you have inflation going up, then businesses will not be able to access funds and they will be forced to cut down on their activities and this will increase unemployment,” said Matthew Ogagavworia, a chartered accountant and financial expert.
He pointed out that there will be shockwave in the entire banking industry, noting that there are rumours that the CBN had before now given all banks notice to get their management to wind down all insider loans to ensure that they are not more than 10 percent of their paid-up capital before the hammer hit Skye Bank.
“There will be panic withdrawal by customers of the bank and other banks too because nobody know which bank may be affected again,” he said.
According to him, investment in equities will suffer, as many people will drop the shares of the bank and some others, adding that all companies that have taken loans from Skye Bank will see some of these loans recalled which will force them to lay off staff.
“It is not good for the Nigerian economy; it is not good for confidence in the banking industry. The CBN needs to address the public that all will be well. I have it on authority that ten banks are involved and Nigerians are not sure which banks are in this dire strait,” he noted.
Dr. Boniface Chizea, renowned economist, said the implications of the take-over of the management of Skye Bank by the central bank would depend on the adroitness with which the apex bank manages the fallouts.
He outlined the fallouts to include panic withdrawal, which may cause a run on the bank that the CBN set out to protect, and the dumping of the shares of the bank.
“We must remember that the central bank took this decision to continue to maintain the integrity and soundness of the financial system and therefore it would be most certainly counterproductive for it not to rise up to the follow up challenges,” he said.
“The fear is that the customers of these other concerned banks would not also panic; that is if they have been let into the picture to precipitate panic withdrawals and compound matters for the CBN already battling with the new flexible exchange rate market.
“But if the worst case scenario which we have just painted happens the consequences for the economy will be far reaching and dire in deed as it would be an impossible situation to add to the challenge of the determination and managing the exchange rate of the naira!” Chizea noted.
