Why The Odds Are Against The New Owners Of Keystone Bank

Keystone Bank’s new owners Sigma Gulf-Riverbank consortium at the weekend took over the bank from the Asset Management Company of Nigeria (AMCON). They promised to turn around the bank in the shortest time possible. However, that promise may be a difficult task to fulfill. Firstly, they will need to recapitalize the bank with billions of Naira. Sourcing that much capital may be a very difficult task, as the present economic recession has made many foreign investors to sit on the sidelines. Nigerian investors are currently struggling with the recession in the country and would prefer conservative investments such as government securities, where they would likely get returns above the inflation rate.

Some suggest that the investors have already have funding on the sidelines and will invest as soon as they complete a comprehensive audit of the company. From experience, this is hardly the case, except your technical partners are foreign investors with deep pockets. It’s unclear if this is the case with Sigma Gulf-Riverbank Consortium. History is also not on their side.

Rescued banks in the country have had poor performances generally. Wema Bank, which was rescued some years ago, still cannot pay dividends due to their huge negative retained earnings. The bank’s stock currently trades at 50 kobo. Union Bank is also in a similar situation, despite a takeover by Atlas Mara, led by renowned banker Bob Diamond.  Atlas Mara recently mooted delist and go private, giving it the shelter from a rain of speculative attacks on its share price, symptomatic with publicly listed companies. Skye bank is currently in limbo, partly because of its acquisition of Mainstreet Bank. Heritage Bank, a bank carved out of the defunct SGBN is also thought to be grappling with a liquidity crisis.

Keystone bank will need to carve a niche for itself in the banking industry that is already looking like a winner takes all affair. Already, the gulf between the Tier 1 and Tier 2 bank is widening making it harder for recently recapitalized banks to compete not to talk of newly acquired ones. Even if the owners of Keystone Bank have all the capital required to compete, joining the Tier 2 club will take some time and effort.  They face a banking sector that is losing more cash than it is making. Even more so, the so-called bigger, stronger banks are looking to raise more capital.

Banks currently face a difficult period due to an economy in recession and a foreign exchange crisis. Borrowers are struggling to pay back loans, and are unwilling to take new loans. Oil and gas, which is a key industry for banks, is facing low oil prices. Loans to the power sector is also threatening a new round of loan impairments.

We wish the new owners luck, as history has shown turning around a distressed bank in Nigeria is not for the fainthearted.

Credits: Onome Ohwovoriole