By Sunday Oluyemi
“Bridge Bank” and other resolution options utilized by the NDIC in the cause of its over 31 years of operation in Nigeria in the resolution of failing or failed insured financial institution has significantly contributed to maintaining public confidence and stability of the banking system with minimum disruption to the payment system. In September, 2018 when the Central Bank of Nigeria (CBN) withdrew the operating licence of the defunct Skye Bank Plc, after protracted efforts to turn around the bank’s fortunes failed to yield the desired results, the major responsibility for its effective resolution fell on the Corporation.
The term failure ‘resolution’, in the context of this discourse, refers to the cocktail of systematic actions and options available to the NDIC to deal with failing or failed banks whose operating licences have been withdrawn by the CBN. The overriding objective is always to preserve public confidence in the banking system along with the sustenance and enhancement of financial system stability. The other notable object is to achieve minimal disruption to the payment system.
At the time it was classified as a failed bank by the CBN in 2018, the defunct Skye Bank Plc operated with 300 branches across the country. The bank also employed over 6,000 Nigerians whose jobs ultimately depended on the choice of resolution option adopted by the NDIC.
An outright liquidation of the bank, which was the sole prerogative of the Corporation, would have sent all the employees of the bank into the employment market. It would also have resulted in a lengthy deposits verification process along with the attendant disruption in the continuation of banking services for its multiple stakeholders. Thanks to the resolution option adopted by the NDIC, thousands of employees of the defunct Skye Bank did not have to lose their jobs when the bank failed. Their jobs were preserved with Polaris bank albeit under fresh terms of employment.
It is, therefore, in that context that the eventual choice of the “Bridge Bank” option in the resolution of the defunct Skye Bank, and the positive annual report published last week by the Polaris Bank which emerged from its ashes, must be situated.
As was revealed when the CBN handed over the failed Skye Bank Plc to the NDIC for resolution in line with its statutory mandate, the Bridge Bank option was utilized for its resolution. Bridge bank is one of the multiple failure options at the disposal of the Corporation in the resolution of failing or failed deposit taking financial institution whose operating license had been revoked by the CBN.
A Bridge Bank could be incorporated by the Deposit Insurers to take-over the loans and advances, fixed assets, other assets, deposits and other liabilities of a failed or failing bank on an interim basis until it is nourished to such a state that it becomes viable to be sold to credible investors. As opposed to a pay-out, which ultimately involves the outright liquidation of a bank and the settlement of only insured deposits; along with lengthy delays in the payment of excess uninsured deposits due to protracted litigations and the quality and disposal of the assets of closed banks; when a bridge bank is established, depositors are guaranteed seamless and unhindered access to their total deposits. The same also applies to creditors whose liabilities are assumed by the bridge bank.
Polaris Bank was the bridge bank established by the NDIC in collaboration with the CBN in this instance. Although its establishment immediately after the revocation of the operating license of Skye bank may appear spontaneous to the uninformed, the processes leading to the establishment of a bridge bank were actually very thorough and exhaustive as provided for under Part VIII, Section 39 of the NDIC Act, 2006.
The establishment of Polaris Bank involved intensive consultations between the NDIC and the CBN which resulted in the choice of the name of the bridge bank which was then fully incorporated and registered with the Corporate Affairs Commission (CAC), as a limited liability company to assume the deposit and other liabilities of the failed Skye Bank Plc, along with the acquisition of its assets.
The CBN thereafter issued a new operating licence to the bridge bank which enabled it to commence operations as a fully licenced bank. The next stage involved the NDIC transferred the entire assets and liabilities of the failing bank to the bridge bank under a ‘Purchase and Assumption’ (P&A) agreement executed between the NDIC and Polaris Bank. The transfer under the P & A, enabled Polaris Bank to resume seamless operations of the defunct Skye bank.
Closely related to this was the revocation of the operating licence of Skye Bank Plc by the CBN, and handing over to the NDIC for liquidation as provided for under the NDIC Act, 2006. The NDIC had since commenced the liquidation process after obtaining the necessary approval from the Federal High Court.
It is important to note at this point that the NDIC enjoyed forbearances from Regulatory Authorities in the operations of the Polaris bank in its quest to return it to the path of profitability which has now yielded fruits. This was demonstrated by the impressive financial results recently released by Polaris Bank. The financial performance of Polaris Bank in its first full year of operation is impressive. An indication that the once troubled bank, is now stable and strong.
A Bridge Bank is not an end in itself. It can be best described as a special purpose vehicle designed to return a failing bank to profitably bearing another name. Had Polaris bank failed to return to profitability in the timeframe envisage it could have faced the prospects of out-right liquidation by the NDIC. But the experience of the NDIC in the management of the Bridge Banks it previously established have been highly successful. With the release of its annual statement of accounts last week, the case of Polaris bank was not different.
It is also important to recognize the role of the Asset Management Corporation of Nigeria (AMCON) in the capitalisation of the previous bridge banks earlier established by the NDIC which were later sold to new investors. As was the case in the earlier ones, the recapitalisation of Polaris bank was done by AMCON through the injection of N786 billion so as to return the bank to soundness and profitability to facilitate its subsequent sale to credible and financially sound third parties’ acquirers.
The need for the stability of the banking system in these troubled times cannot be over emphasised. The establishment of Polaris Bank Limited to resolve the failed Skye bank was done in the interest of depositors and other creditors of the defunct bank. Its establishment also protected the ex-employees of the failed bank by preserving their jobs, albeit with a new employee. In the end, though, what is beyond denial is that the choice of the Bridge Bank by the NDIC in the resolution of defunct Skye Bank Plc, has been fully vindicated by eventual the outcome. The next challenge will be to secure protective buyers for the bank.
Dr. Sunday Oluyemi is the Director, Communication and Public Affairs Department, Nigeria Deposit Insurance Corporation