Nigerian Bank in Gambia sells shares to increase capital requirement

Skye Bank Gambia Limited, subsidiary of Skye Bank Plc in Nigeria, is in the process of selling about D100,000 worth of its shares to a foreign financial institution through private placement to meet the Central Bank of The Gambia’s directive that all banks in the country must augment their capital to D200 million by the end of this year, the paper can reveal. 

Impeccable sources close to this paper states further that the bank is in negotiation with some international financial institutions targeted for private placement, which is the sale of securities, including shares, of a company to a small number of selected investors as a way of raising capital.

Private placement is an attractive alternative for growing companies and it is a quicker form of raising money for a business.

Skye Bank Gambia MD, Mr Yusuf

Skye Bank’s Managing Director Akim Yusuf has confirmed the transactions but says “we are still in the preliminary stages”.

He explains further: “What we have agreed with the international financial institutions is to increase our capital by D100 million; so rather than the [additional] D50 million that the Central Bank is asking for, we have actually found an agreement for a D100 million (increment).” 

Mr Yusuf added that the bank is going to have above D200 million at the Central Bank by the end of this year. 

“Our target is D250 million but in case of any disappointment or shortfall from the side of the financial institutions, it will still be more than the D200 statutory capital requirement,” MD Yusuf said, adding: “Even in the case of a shortfall, from the work we have done we will not be below D210 or D220 million by the end of the year.” 

The Skye Bank boss said some of the financial institutions have already made financial commitment, not just on paper but by handing out cash.  “So we are very hopeful that the exercise is going to be a success,” he said.

However, Mr Yusuf chooses to keep his cards close to his chest as regards the names of the financial partners. “This is because we are still in the preliminary stage and also we have to inform the Central Bank of The Gambia and our parent bank in Nigeria; and they all have to give their blessings to the transaction before we can reveal the names of the company.” 

While Skye Bank is busy selling shares to meet the CBG’s capital requirement, some other loss-making banks in the country are approaching their parent companies to help them augment their capital; otherwise they risk losing their Gambian operational licences. 

At the same, others are urging their Gambian shareholders to raise the additional amounts by December this year to remain in business. 

It should be noted that some of the banks in the country are running at a loss hence their inability to increase the target capital requirement internally on their own. 

The increment of the capital requirement started in 2008 when the Central Bank of The Gambia (CBG) issued a directive increasing the minimum capital of banks in two stages from D60 million to D150 million and D200 million to be observed by end December 2010 and end December 2012 respectively.

At the time of the first appointed date, December 2010, eight of the fourteen banks, then, were able to increase their capital requirement on time before the deadline. Five of the six remaining banks did so at the eleventh hour when the Central Bank through the Ministry of Finance threatened to revoke banking licence of any bank that would default in meeting the requirement.

However, it should be noted that increasing the minimum capital by more than 100%, that is from D60 million to D150 million, was such a mammoth task for the banks some of whom were barely making any breakthrough.

This year’s increment should not be difficult for any bank on a sound footing, financially, as it is just an addition of D50 million – from D150 to D200 million. 

However, since 2010, some of the banks have claimed they had increased their capital to D200 million two years before the deadline, some said they had surpassed the 2010 amount but didn’t reach the 2012 level,  while others said they are ready to increase come December 2012. 

A higher minimum capital requirement, the Central Bank says, serves several purposes. 

“It would ensure that banks are better able to withstand periods of economic and financial stress and therefore support economic growth; maintain market confidence in the solvency of the banking system; impose market discipline; and provide a large cushion to protect tax payers from the risk of being called to bail out failing banks.”

As in 2010, this year the CBG has resolved not to grant request for forbearance if a bank fails to meet the requirement. 

And to mitigate systemic risk that may arise from the revocation of a banking licence, the CBG has stated that it shall take the following actions: invoke section 45 of the Banking Act 2009 and take over the bank; thereafter the CBG may invoke Sections 48 and 51 of the Banking Act 2009 and place the institution in conservatorship to be sold, merged or restructured; and apply to the High Court for compulsory liquidation under Section 52 of the Banking Act as a last resort.