The new board and management of Skye Bank Plc have been saddled with a huge task of turning the bank around following Central Bank’s revelation that the bank had failed to meet requirements of its regulatory prudential ratios.
The task is daunting considering how difficult it has been for the bank to raise money in the past two years. Things are however about to get even harder.
Ratings Agency, Standards & Poors has released its first rating report on Skye Bank since the CBN midwifed a board and management change at the bank. S&P downgraded the bank to ‘CCC-‘ from ‘CCC+’ citing an inherent risk of a default. Here is an excerpt of the report;
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.
The Rating Agency is basically casting doubts at Skye Bank’s ability to service its debts due to its precarious financial situation. It is important to note that this does not in any way suggest that customer deposits are in danger. Rather, S&P believes customer deposits may take priority over any bonds or debts owed to investors.
The implication of this is that any attempt by Skye Bank to seek foreign lending might be unsuccessful or at best very expensive. Bond purchases typically rely on ratings to price buy as well as price debt instruments.
Here are other highlights of the report;
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 favorableWe 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.