There are indications that Skye Bank and Unity Bank are nearing a technical state of insolvency.
Being insolvent is defined by Investopedia as a situation when an organization, or individual, can no longer meet its financial obligations with its lender or lenders as debts become due.
Investopedia added that before an insolvent company, or person, gets involved in insolvency proceedings, it will likely be involved in informal arrangements with creditors, such as making alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in cash inflow forecasts or from an increase in expenses.
Other banks such as First Bank and Sterling Bank “will need a dilutive capital hike,” Jaap Meijer and Tarek Sleiman of Arqaam Capital told Bloomberg.
Meijer and Sleiman empathically added that “Our acid test reveals seven under-capitalized banks”. Nigerian banks have about 1 trillion debt in their books. Arqaam Capital added that a stress test identified FBN as the most under capitalized lender with Unity, Diamond Bank Plc, Skye, FCMB Group Plc, Sterling and Fidelity Bank Plc also showing deficits if they were to fully provide for non-performing loans.
This is coming at a time when Nigerian banks are battling the worst impairments they have suffered on their loan books. Nigeria’s economy has been badly hit by the largest crash in oil prices.
It would be recalled that Sterling Bank backed out of its initial plan to acquire Keystone Bank citing a new direction by the bank to focus on structuring its business properly.
Skye Bank has also been under the radar of the Central Bank of Nigeria, CBN to prevent its from collapse. The CBN has in its statutory duty sacked the entire board of the bank and providing stimulus capital of about NGN110 billion in August.
The solution for these banks will be to raise fresh capital either through the debt market and or through equity investment.
The times are hard for raising funds, rates would be high as well. The equities market is in a negative direction as well. How these banks stabilise their situations remains to be seen,