Culled—Proshare

August 1, 2016/FBNQuest Research

Event: Skye Bank reported Q4 2015 results

Implications: Limited; recent Skye-specific events have overtaken these results

Positives: n/a

Negatives: Loss before tax of –N53bn (our estimate was –N6.6bn)

Late last week Friday, after several months of delays, Skye Bank reported Q4 2015 results which showed that the bank made a pre-tax loss of –N53bn and an after tax loss of –N50bn.

The respective full year figures were –N38bn and –N37bn. There is very little conclusion to draw from these results beyond the obvious headline disappointment. Apart from the interest income and other comprehensive income lines, every other line was negative.

In effect, this was not down to just loan loss provisions, which admittedly were high at N21bn in just Q4: this was an extremely poor set of results that was broadbased. Both funding income and non-interest income were negative.

Relative to our forecasts, Skye disappointed across the board save for a positive surprise on the other comprehensive income line. We were expecting the bank to make a loss (-N6.6bn in pre-tax losses) but the scale of the loss was well beyond expectations.

As weak as these results may look, recent events have overshadowed them. The replacement of the board and management by newly appointed individuals by the central bank signaled there were major issues with Skye from both a liquidity and capital point of view.

Management disclosed that the CAR stood at 10% and that the CBN has injected about N100bn (1 year tenor) into the bank to prevent a run on it. Management indicated an NPL ratio of 13% for December.

We would expect that this ratio has worsened since then given that 50% of Skye’s loan book is in foreign currency – a reflection of the significant exposure the bank has to the oil and gas sector. We would expect the Q1 and Q2 2016 results to show further deterioration.

Skye has been among the worst performing names on the exchange this year. Year to date they are down –56% (ASI: -2.2%). There is a temptation to assume that the worst is out now with the start of the release of the bank’s earnings. We believe this is premature.

We have consistently held the view that tier 2 banks were likely to struggle as the macro environment worsened. Skye was at the top of our list of unfavourable names in this category. We remain cautious and will advise investors to continue to avoid the shares. We rate Skye Underperform. Our estimates are under review.

Skye Bank Q4 2015 results: actual vs. FBNQuest Research estimates (N millions)

Source: NSE; FBNQuest Estimates