Introducing Polaris Bank: A Key Nigerian Lender

Polaris Bank stands as a significant player within the Nigerian financial services landscape, operating as a commercial bank licensed by the Central Bank of Nigeria (CBN). It plays a crucial role in intermediating financial transactions across the country. Established relatively recently in its current form, the bank has quickly sought to carve out its niche and re-establish confidence within the banking sector.

The bank is headquartered in Lagos, Nigeria, the nation’s economic hub, placing it at the centre of major business activities and regulatory oversight. Its operations extend across the country, reaching various states and geo-political zones.

Polaris Bank serves a wide range of customers, from individual account holders to small and medium-sized enterprises (SMEs), as well as large corporate organisations. This diverse customer base reflects its ambition to be an all-inclusive financial institution catering to the varied needs of the Nigerian populace and business community.

Its service offerings span traditional banking products like savings and current accounts, fixed deposits, and various loan facilities. These are fundamental to its operations, providing essential financial tools for both personal and business use.

Beyond conventional services, Polaris Bank also engages in trade finance, treasury operations, and digital banking. The emphasis on digital channels is particularly important in today’s banking environment, aiming to provide convenient and accessible services to customers across Nigeria, including remote areas.

The bank operates through a network of branches and Automated Teller Machines (ATMs) spread across urban centres and potentially impacting rural areas where financial access can be challenging. This physical presence complements its digital reach.

Its strategic importance also lies in its position within the Nigerian financial system, contributing to economic stability and growth by mobilising deposits and providing credit facilities necessary for investment and consumption.

Polaris Bank aims to be a reliable and customer-focused institution, striving to build trust and deliver value to its stakeholders. Its operations are subject to stringent regulatory requirements set by the CBN, ensuring compliance and sound banking practices are upheld.

Tracing Polaris Bank’s Path from Skye Bank

The genesis of Polaris Bank is directly linked to the resolution of a major financial crisis that afflicted its predecessor, Skye Bank Plc. This transition marked a pivotal moment in Nigeria’s banking history.

On September 21, 2018, the Central Bank of Nigeria (CBN), in collaboration with the Nigeria Deposit Insurance Corporation (NDIC), announced the revocation of Skye Bank’s operating license. This action was necessitated by the bank’s persistent failure to meet minimum capital and liquidity ratios.

Immediately following this revocation, Polaris Bank was established as a bridge bank by the Asset Management Corporation of Nigeria (AMCON). A bridge bank is a temporary financial institution created to operate a failed bank until a resolution is reached, such as selling it or winding down its operations.

The creation of Polaris Bank was a strategic move aimed at preventing a systemic crisis within the Nigerian financial sector and protecting the interests of Skye Bank’s depositors. It ensured that depositors did not lose access to their funds.

AMCON injected capital into the new entity to stabilise its operations and enable it to continue functioning seamlessly. This initial funding was crucial for Polaris Bank to take over the assets and liabilities of the defunct Skye Bank.

The legal framework for this intervention was provided by relevant banking laws in Nigeria, granting the CBN and AMCON the authority to step in and resolve distressed financial institutions to maintain overall financial system stability.

All assets and certain liabilities of Skye Bank Plc were effectively transferred to the newly formed Polaris Bank. This included branches, employees, customer accounts, and loan portfolios, ensuring a smooth, albeit regulatory-driven, transition.

Ultimately, Polaris Bank emerged from this process not as a completely new entity in terms of operational footprint and customer base, but as a restructured and recapitalised institution under new ownership and management, tasked with overcoming the legacy issues of its predecessor.

Polaris Bank’s Role in Retail and Corporate Banking

Polaris Bank is designed to cater to a broad spectrum of banking needs within the Nigerian economy, segmenting its services primarily into Retail Banking and Corporate Banking. This dual focus allows it to serve a diverse clientele effectively.

In the realm of Retail Banking, Polaris Bank targets individual customers and Small and Medium-sized Enterprises (SMEs). This involves providing essential services tailored to personal and small business financial management.

Examples of retail products include:

• Savings Accounts
• Current Accounts
• Salary Accounts
• Personal and Auto Loans
• SME Loans and financing options
• Debit and Credit Cards

Corporate Banking, on the other hand, focuses on serving larger businesses, government entities, and financial institutions. This segment handles more complex financial requirements.

Services offered under Corporate Banking typically involve:

• Large-scale Commercial Loans
• Trade Finance (Letters of Credit, Guarantees)
• Treasury Management and Foreign Exchange
• Structured Finance
• Cash Management Solutions

The bank leverages its nationwide network of branches to provide face-to-face services for both retail and corporate customers, particularly in areas where digital penetration may still be evolving.

Digital channels are increasingly vital for reaching both segments. Polaris Bank offers internet banking, mobile banking apps, and USSD banking services, allowing customers to perform transactions remotely, improving convenience and accessibility across the country.

Serving SMEs is a particularly important function for Polaris Bank, aligning with national economic goals of empowering small businesses, which are considered the backbone of the Nigerian economy and significant employers of labour.

Through its comprehensive retail and corporate offerings, Polaris Bank positions itself as a universal bank, aiming to support economic activities at various scales, from individual daily transactions to large-scale corporate investments and trade.

The Crisis Point for the Predecessor Bank

The journey of Polaris Bank is inseparable from the significant challenges faced by Skye Bank Plc, which ultimately led to its regulatory-driven resolution. The crisis point for Skye Bank was characterised by several critical weaknesses that threatened its viability and the stability of the financial system.

A major issue was the bank’s persistent failure to meet the minimum Capital Adequacy Ratio (CAR) as stipulated by the Central Bank of Nigeria (CBN). The CAR is a measure of a bank’s available capital expressed as a percentage of its risk-weighted credit exposures. Falling below the required threshold indicates insufficient capital buffer to absorb potential losses.

Linked to the capital issue was a dangerously high level of Non-Performing Loans (NPLs). These are loans where the borrower is in default or has failed to make scheduled payments for a significant period. High NPL ratios tie up a bank’s capital, reduce its profitability, and can signal poor lending practices or economic downturns impacting borrowers.

Reports also indicated issues with corporate governance within Skye Bank. This can include problems with the composition and effectiveness of the board of directors, management oversight, internal controls, and overall ethical conduct. Poor governance can lead to risky decisions and mismanagement.

Regulatory non-compliance was another factor. Failure to adhere to CBN guidelines and regulations can result in penalties, reputational damage, and ultimately, regulatory action, further eroding confidence in the institution.

These factors collectively led to significant liquidity challenges. As capital dwindled and NPLs mounted, the bank found it difficult to meet its short-term obligations or fund new lending activities effectively.

Confidence from both depositors and investors was severely shaken. News of financial instability and governance concerns prompted concerns about the safety of deposits and the bank’s long-term prospects, potentially leading to deposit runs or difficulty in raising new capital.

The severity and persistence of these issues reached a point where they were deemed a potential threat to the stability of the wider financial system in Nigeria, necessitating urgent and decisive intervention from the regulators.

Without regulatory intervention, the potential collapse of a bank the size of Skye Bank could have triggered contagion effects across the banking sector, impacting other financial institutions and the broader economy.

How AMCON Stepped In to Stabilise Polaris

The intervention by the Asset Management Corporation of Nigeria (AMCON) in September 2018 was the critical step taken to stabilise the situation arising from the crisis at Skye Bank and facilitate the creation of Polaris Bank. AMCON was established specifically to manage the assets of distressed banks and resolve financial system crises.

AMCON’s primary mandate is to acquire non-performing loans and distressed assets from banks to help clean up their balance sheets and inject liquidity into the financial system, thereby contributing to overall stability.

In the case of Skye Bank, AMCON was instrumental in the regulatory-led resolution. It acted swiftly, in conjunction with the CBN and NDIC, to ensure that the problems within Skye Bank did not cascade throughout the financial system.

The mechanism employed was the establishment of Polaris Bank as a bridge bank. This involved AMCON effectively taking ownership and control of the new entity formed to absorb the assets and liabilities of the failed Skye Bank.

AMCON injected a significant amount of capital into Polaris Bank to ensure it met regulatory minimums and had sufficient funds to continue operations, process transactions, and honour obligations to depositors. While the specific figures might evolve, the initial injection was substantial, running into hundreds of billions of Naira, sourced through AMCON’s funding mechanisms.

This capital injection served multiple purposes: stabilising the bank, providing a buffer against potential further losses from the legacy assets, and restoring a measure of confidence among customers and the public.

The CBN provided the regulatory oversight and legal authority for the entire process, including the revocation of Skye Bank’s license and the seamless transfer of operations to Polaris Bank under AMCON’s ownership.

AMCON’s role was explicitly to hold and manage Polaris Bank temporarily. Its long-term strategy, as mandated, is not to be a permanent bank owner but to stabilise the institution, recover as much value as possible from the acquired assets, and eventually divest its ownership to private investors.

Implementing Reforms for Stability and Growth

Following the AMCON intervention and the creation of Polaris Bank, a comprehensive program of reforms was initiated to address the underlying issues that led to the failure of Skye Bank and to position the new entity for stability and future growth.

A crucial first step involved restructuring the governance framework and management team. A new board of directors and executive management were appointed by AMCON, bringing in fresh perspectives and leadership to steer the bank out of its crisis state.

Significant effort was directed towards cleaning up the bank’s balance sheet, particularly tackling the high level of Non-Performing Loans (NPLs inherited from Skye Bank). This involved vigorous recovery efforts, loan restructuring, and necessary write-offs to improve asset quality.

Operational efficiency was a major focus. This included reviewing and optimising processes, streamlining operations, and implementing cost-reduction measures to improve the bank’s profitability profile and reduce unnecessary expenditure.

Recognising the shift in banking, substantial investments were planned and executed in technology and digital infrastructure. The aim was to enhance digital banking capabilities, improve customer experience, and increase operational efficiency through automation.

Rebuilding corporate culture and improving staff morale were also considered vital. Efforts were made to re-orient staff, foster a performance-driven environment, and restore confidence within the workforce after the uncertainty surrounding the transition.

Strengthening the bank’s risk management framework was paramount. This involved implementing more robust policies, procedures, and systems to prevent a recurrence of the asset quality and governance issues that plagued the predecessor bank.

The implemented reforms were not merely about survival but also about creating a foundation for sustainable growth. This included developing strategies to attract new customers, grow the deposit base, and expand lending in a responsible manner.

Through these multi-faceted reforms, Polaris Bank aimed to transform from a distressed institution into a commercially viable entity capable of competing effectively in the Nigerian banking sector and fulfilling its role under AMCON’s stewardship.

Polaris Bank’s Performance and Financial Health

Under the management appointed post-intervention by AMCON, Polaris Bank has been on a trajectory aimed at improving its financial performance and overall health, moving away from the distressed state of its predecessor.

Initial periods under the new management focused heavily on stabilisation and rectifying historical issues, which naturally impacted profitability in the short term as legacy problems were addressed.

However, reports from the bank and regulatory bodies have indicated a trend towards improved performance. This includes efforts to return to profitability, turning around previous loss-making positions.

Key metrics like the Non-Performing Loan (NPL) ratio have seen significant improvement. By actively managing and resolving bad loans, the bank has worked to reduce the proportion of non-performing assets on its balance sheet, a critical indicator of health.

The bank has also focused on growing its deposit base, a sign of increasing customer confidence and a stable source of funding for lending and operations. Growth in deposits reflects the market’s perception of the bank’s stability under the new regime.

Polaris Bank has aimed to meet and maintain the regulatory minimum capital adequacy ratio, ensuring it has sufficient capital buffers as required by the CBN, which is fundamental for a bank’s safety and soundness.

Improvements in operational efficiency, driven by process automation and cost control, have contributed positively to the bank’s bottom line and overall financial resilience.

While specific, consistently publicised, detailed quarterly or annual financial figures akin to publicly listed banks might be less prominent given its AMCON ownership structure, general trends reported indicate progress in shedding the legacy burden and operating more sustainably.

The bank continues to operate within a competitive Nigerian market environment, facing challenges from both large, established banks and agile fintech companies, requiring continuous strategic adjustments to maintain performance and health.

What Lies Ahead for Polaris Bank Ownership

The future of Polaris Bank’s ownership is a key point of discussion within Nigeria’s financial circles, as its current status under AMCON is explicitly temporary, leading towards eventual divestment.

AMCON’s mandate is not to be a long-term operator of financial institutions. Its role is to stabilise distressed entities and recover value from acquired assets, with the ultimate goal of selling off such assets and institutions to private investors.

The process of divesting Polaris Bank has been ongoing since its establishment. AMCON, in conjunction with relevant government bodies, has been working towards finding a suitable buyer or buyers for the bank.

This divestment process typically involves appointing financial advisers, conducting due diligence, and inviting expressions of interest from potential investors. The process is complex and subject to strict regulatory approvals from the CBN and other bodies.

Potential buyers could come from various sources:

• Other established Nigerian banks looking to expand their market share or acquire specific assets/customer bases.
• Foreign banks or financial groups seeking to enter or expand their presence in the Nigerian market.
• Private equity firms interested in investing in and potentially restructuring the bank for future resale.
• A consortium of investors pooling resources.

The goals of the sale are multi-faceted. Primarily, AMCON aims to recover some of the funds injected into the bank during the intervention. Secondly, the process seeks to ensure the bank transitions to stable, capable private ownership that can ensure its long-term viability and contribution to the economy.

The timeline for the sale has been subject to various factors, including market conditions, the bank’s performance under AMCON, and the complexity of the regulatory process involved in such a significant transaction. It has taken longer than some initially anticipated.

The eventual sale will mark the completion of AMCON’s bridge bank operation for Polaris Bank and is expected to usher in a new era for the institution under private sector control, potentially leading to further strategic shifts, investments, and operational changes depending on the vision of the new owners.