CBN Intervention: Concerns of Contagion Spread To Other Banks

After the Central Bank of Nigeria (CBN) intervened to save Skye Bank Plc from falling into a deep hole created by capital inadequacy, there is perception amongst investors that there might still be some banks facing the problem.
The board do Skye Bank Plc was sacked by the apex bank to pave way for new managers to restore the bank back to good health.
“There is perception some other banks are under that kind of situation that affected Skye Bank, which is affecting the stocks,” Sewa Wusu, head of research and investment advisory at SCM Capital Ltd. in Lagos said by phone. Other banks are also suffering in the aftermath of the central bank’s intervention. Wema Bank Plc fell 4.8 per cent, Unity Bank Plc slid 4.7 percent, Union Bank of Nigeria Plc dropped by 3.7 per cent, while Fidelity Bank declined by 3.4 per cent.
“It is felt because of the economic situation, most banks are heavy on non-performing loans, which may worsen with devaluation” of the naira, Wusu said. “The new management at Skye Bank will need to look at areas the bank has fallen short and come up with strategy to address them. Its strategy will determine the level of confidence investors will bring back to the bank.”
Diamond Bank Plc and Skye Bank Plc slumped for the straight third day after the central bank stepped in to remove Skye’s top management a week ago.
Skye Bank plummeted 9.2 per cent to 79 kobo, a fresh all-time low by the close of trading, and Diamond Bank slid by eight per cent to N1.85, the lowest since May 19. Skye’s stock has fallen by 25 per cent since the July 4 intervention by the central bank, the worst performer over the period on the 171-member Nigerian Stock Exchange All Share Index this year.
Nigeria’s central bank replaced Skye’s chief executive officer, chairman and 10 other directors on July 4, saying the steps were necessary after the Lagos-based bank’s liquidity and non-performing loan ratios consistently breached required levels. While the central bank moved to calm markets, saying Skye and the industry remained healthy, analysts highlighted fears of contagion.
Source: Bloomberg

Leave a Reply

Your email address will not be published. Required fields are marked *