Sale of Polaris/Heritage banks to First bank: Why Godwin Emefiele should not plunge the banking sector into crisis.
In 2014, the Central Bank of Nigeria, under the watch of Godwin Emefiele, CBN Governor, Mainstreet Bank was sold to defunct Skye Bank in a sale that was widely touted as political rather than professional, because of the closeness of the then Chairman of Skye Bank, Tunde Ayeni to the Goodluck Jonathan Government.
In the same 2014, and under the watch of Godwin Emefiele, CBN in a surprise move sold Enterprise Bank to Heritage Bank Limited, a Bank with a regional license, in a shock decision that could not be explained beyond the fact that suggested that the “villa” pulled the string to ensure that vested interests bought Enterprise Bank.
Both Mainstreet and Enterprise Banks were Nationalized Banks, which were managed by AMCON.
By 2016, less than two years after these two Banks acquired Mainstreet and Enterprise Bank, they both faced serious liquidity crisis and several other challenges that led to CBN dissolving the Board of Skye Bank, and appointing a new Board to take over running the affairs of the Bank. Ultimately, Skye Bank could not survive the test of time, and in September 2018, the license of the Bank was revoked, and it was nationalized and became a bridge Bank with a new name – Polaris Bank Limited. Heritage Bank too has been struggling ever since, with CBN having to intervene to keep the Bank afloat, necessitating a special arrangement where First Bank Plc has been guaranteeing their clearing cheques to keep them (Heritage Bank) running. The Bank is also a major patron of CBN’s SLF, where Banks with liquidity challenge borrow funds.
The decision of CBN in 2014 on the sale of both Mainstreet and Enterprise Banks was obviously flawed, which led to massive loss of jobs, temporary loss of confidence in the industry by stakeholders. Indeed, in developed climes, the regulator’s discretion/judgment would have been brought to scrutiny, and appropriate sanctions should/could have been meted out for such wrong judgment.
A SIMILAR BUT AVOIDABLE DANGER IS LOOMING
First Bank of Nigeria Plc currently guarantees Heritage Bank, to enable their clearing cheques go through successfully. It is believed that under this arrangement, the guarantee covers Heritage Bank in the sum of N250b. Pray, why so much window-dressing of Heritage Bank??? Obviously, CBN does not want more than a Bank under AMCON. CBN does not want their error of judgment of 2014 to be further amplified.
Polaris (Skye) Bank, which has been under the control of AMCON/CBN since July 2016, is supposed to be sold to new core investors.
Having spent 4 years in the saddle of running Skye/Polaris Bank, and unable to successfully get investors for the Bank, there are very strong indications that CBN is at an advanced stage of “selling” Polaris Bank to First Bank!!! The grand plot is for First Bank to acquire Heritage Bank and Polaris Bank in a move that is deemed more politically than professionally motivated.
This proposed acquisition is akin to CBN style under Godwin Emefiele, where the regulator seems to favor sentiments, rather than sound judgment. What happens to the adage “once bitten, twice shy”? This CBN definitely does not mind being bitten over and over.
WHY FIRST BANK IS NOT AN IDLE ACQUIRER
The NPL in the loan book of FBN as of FY2019 was 9.9%. This reduction can also be attributed to the restructuring of some of their loans (not necessarily repayment/recovery). Due to the effect of Covid-19, there are emerging challenges to some of their loans in Agriculture, manufacturing, oil/gas (downstream and upstream) sectors.
FBN has deliberately focused in the last few years on the reduction of their NPLs, and this effort has started yielding desired results, which should not be frittered away.
At the moment, FBN exposure courtesy Heritage Bank clearing obligation is about N250b, and it is well-known that once AMCON sells Polaris Bank, most of the bad loans of defunct Skye Bank shall be offloaded to new owners, with the attendant implication of worsening bad loan book for FBN. This will make the efforts of FBN on reducing their NPL futile, and wasted!
FBN is too big and systematically strategic to be allowed to fall into the fate that befell Skye Bank and Heritage Bank. Agreed that issues of corporate governance and other factors may have contributed to the fate of these two Banks, we CANNOT shy away from the fact of wrong judgment on the side of CBN catalyzed the woes that befell these institutions.
If CBN takes another “political” decision of selling Heritage and Polaris Banks to self-serving power blocs/brokers, who are keen to acquire the Bank through “backdoor” approach, then we are poised to cause a crisis in the financial sector, at a critical time where the COVID-19 pandemic is already causing a stir worldwide. The implications of a struggling First Bank on the banking industry, and the financial sector is not far-fetched, and we should not allow this to happen.
The Skye/Heritage narrative is a clear indication that our regulator (CBN) should show more responsibility in their decision making. What is the point of “selling” a Bank to another Bank that is struggling to bring down her NPLs.
Selling Polaris and Heritage Banks to First Bank is another obvious step at plunging the Industry into avoidable stress, especially at a time like this. More so, acquisitions of this nature always lead to loss of jobs as the acquiring Bank will definitely rationalize staff of the acquired Banks. This is not a time to plunge the nation into unemployment, and the industry into a potential crisis.
First Bank is too strategic to be used as a pawn for political acquisition to satisfy ambitions.
We advise CBN/AMCON not to be stampeded to offload Polaris/Heritage Banks. Let them learn from the past, and do the right thing. There should be a transparent process on the sale of the Banks.