Why CBN extends lifeline to Sky Bank

More facts have emerged on why the CBN had decided to provide a short-term loan to Skye Bank following its replacement of top executives for failing to meet minimum capital requirements.

The instability, which will follow, if the bank is allowed to founder is the main reason for the lifeline, according to an aide to the CBN Governor.

According to the senior official, “there is need to preserve the system from avoidable crisis.”

The news of change in management and board of the bank was said to have led to panic withdrawal by its customers, causing a near run on the bank, of which the financial support is required to stall, he said.

The central bank has been seeking to contain growing problems at Nigerian banks where profits have been falling and bad loans rising due to a heavy exposure to the oil industry and a weak economy due to low oil prices.

“We provide a short-term facility to help them manage the panic withdrawal that happened,” central bank spokesman Isaac Okorafor said.

Depositors had rushed to withdraw money after Skye Bank’s bosses were replaced.

“In order to support the new management we decided to give them some money, just to support them,” he said.

Okorafor did not disclose how much money was granted to Skye.

The central bank had decided to replace Skye’s senior executives two weeks ago. It subsequently appointed Tokunbo Abiru from rival First Bank to head Lagos-based Skye Bank, the country’s eighth-largest bank.

Nigeria’s central bank has powers to remove bank executives and used it during the 2008/2009 global financial crisis when it sacked nine CEOs at banks which were undercapitalised.

Skye became one of the country’s systemically important banks according to the central bank after it bought Mainstreet Bank in 2014 requiring it to hold more capital.

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