On the 21st of
September, 2018 it was announced that the banking license of Skye Bank Plc has
been revoked by the regulatory institution, the Central Bank of Nigeria (CBN).
This action spurns from the long term indebtedness of Skye Bank, its permanent
presence at the debt margin on the CBN index reports and the near prophetic
collapse of the finance house in absence of continuous hand-out’s from the CBN.

Revocation of licenses by
the CBN are in line with the CBN regulations and the Bank and Other Financial
Institutions Act 1991 (BOFIA), section 12 of the BOFIA states succinctly that:

“The Governor may, with the approval of
the Board of Directors and by

notice published in the Gazette, revoke
any license granted under this Act

if a bank-

a) ceases to carry on in Nigeria the
type of banking business for which

the license was issued for any
continuous period of 6 months or any

period aggregating 6 months during a
continuous period of 12


(b) goes into liquidation or is wound-up
or otherwise dissolved;

(c) fails to fulfil or comply with any
condition subject to which the

license was granted;

(d) has insufficient assets to meet
its liabilities

(e) fails to comply with any
obligation imposed upon it by or under this

Act or the Central Bank of Nigeria Act.”

According to the CBN the
decision to revoke the license of Skye Bank was after examinations and forensic
audit of the bank, in line with Section 33 BOFIA, which revealed the
shareholder’s failure to recapitalize the bank in light of its considerable
liabilities. Essentially, the focus of the action from CBN was to save
depositors funds and to ensure that the company continues to be a ‘going
concern’. Additionally, a compulsory winding up and liquidation of the company
shall inescapably lead to a massive loss in jobs and a downturn effect in the
labor market.

It is important to relay
section 33 of the act for clearer understanding:

The Governor shall
have power to order a special examination or
investigation of the books and affairs
of a bank where he is satisfied that

a) it is in the public interest so to do; or

(b) the bank has been carrying
on its business in a manner detrimental to

the interest of its depositors and creditors; or

(c) the bank has “insufficient” assets to cover its
liabilities to the public;


(d) the bank has been contravening the provisions of this
Act; or

(e) an application is made therefore by:

i) a director or shareholder of the bank: or

(ii) a depositor or creditor of the bank:

Provided that in the case of paragraph (e) of this
subsection, the Governor may not order a special examination or investigation
of the books and affairs of a bank if he is satisfied that it is not necessary
to do so.”

Bridge banking is a solution
adopted by the CBN to tackle this Skye Bank-Saga. A bridge bank, simply put, is
a bank appointed by a regulatory institution to hold the assets and liabilities
of another bank (which is usually at a deregulated and insolvent state) for the
purpose of cushioning the effect of liquidation and dissolution of the failed
bank. A bridge bank is charged with the function of maintaining the operations
of the defunct bank until such bank is solvent or acquired by another company
licensed for banking or other financial activities. Essentially, the ultimate
job of a bridge bank is to provide seamless transition from an insolvent state
to continued banking operations to successful acquisition. It is a temporary
setup and one insured by a ‘deposit insurance’ organization or regulator in
order to avoid system risks.

Polaris Bank, being a newly
licensed bank, was appointed by the CBN to act as bridge bank with insurance
backing from the Nigerian Deposit Insurance Commission (NDIC). In this
temporary take-over, a fresh N786 billion soft and long term loan has been
injected to give Polaris fine underpinning, with a single digit interest rate. This
is in an attempt to cushion the effect of the take-over, especially as Polaris
in itself is not a buoyant financial institution to speak of. It must be
understood that the NDIC is an establishment, by virtue of the NDIC Act 2006,
which is responsible for insuring all deposit-taking financial institutions
operating in Nigeria and assisting monetary authorities in formulating and
implementing banking policy to guarantee sound banking practice and fair
competition among financial institutions in Nigeria.

The CBN’s frantic steps to
regulate the banking sector by lifting the weights off tired and mismanaged
hands of the now defunct Skye Bank is quite laudable. More so, its actions have
so far tallied with the stipulations of the Banking act. For example, section
36 BOFIA Act makes a provision for risk management through the NDIC, upon the
failure of a bank.

“…the Bank may turn
over the control and management of such bank to the Nigeria Deposit Insurance
Corporation (hereinafter in this Act referred to as “the Corporation:) on such
terms and conditions as the Bank may stipulate from time to time”

Conclusively, the rescue
mission embarked upon by the CBN in partnership with the NDIC is a worthy and
important move by the regulatory bank. For what it’s worth, it has forestalled
a huge anomaly in the Nigerian banking sector and history, and by invoking its
power to promote a sound financial system and standard practice. it has saved
many lives, investments and jobs.

Palmer Esq is an associate with Adedunmade Onibokun & Co. He has cultivated
interest in Corporate Law, Banking and securities, Real Estate, Intellectual
Property, Sports, Entertainment law and Mediation.

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