On the 17th of December, 2017, it hit the news that Access Bank and Diamond Bank would be merging, or was it an acquisition? At first, there was some confusion about the nature of the transaction (merger or acquisition), which was later explained in a way that revealed it shared characteristics of both. One thing is for sure, the merger expected to be concluded in June 2019 will transform Access Bank into Nigeria’s and Africa’s largest bank on several indices. In this article, I will be discussing the comparative advantages that both banks are bringing to this union, the nature of the transaction, what both will be gaining from this union, and the projections for the future.
A TALE OF TWO BANKS
Access Bank is a Nigerian bank owned by the Access Bank Group, a multinational financial services organisation headquartered in Nigeria. It is the parent company for Access Bank in Nigeria, Rwanda, Congo DRC, Sierra Leone, Gambia, Ghana, Zambia, and the UK. It has controlling interest in United Securities Limited, Access Homes and Mortgages Limited, and Access Investment & Securities.
Access Bank started operations in 1989, and got listed on the Nigerian Stock Exchange in 1998. But the real story of Access Bank started in 2002 when it was taken over by the core management team of Aigboje Aig-Imoukhuede and Herbert Wigwe, and the team behind its streak of successes since then.
In 2005, the bank acquired Marina Bank and Capital Bank. In 2007, it commenced its expansion into other African nations with Gambia as its first outpost. In 2008, it acquired Omnifinance Bank and Banque Privee du Congo. In 2011, it acquired Intercontinental Bank, and now, it is set to acquire Diamond Bank.
As at September 2018, it had a network of 400 branches, 10 million customers, close to 18,000 POS terminals, close to 2,000 ATMs and a net income of 63 billion naira. Access Bank is a Tier 1 bank in Nigeria, based on its core capital, composed largely of common stock and reserved earnings. Other Tier 1 banks in Nigeria are UBA, Zenith Bank, GTB, and First Bank.
Diamond Bank, a financial services provider with a focus on the Nigerian market due to the sale of its international operations, was established in 1990. As at September 2018, it had 277 branches, 19 million customers, over 14,000 POS terminals, over 1,000 ATMs, and net income of 2 billion naira. Diamond Bank however ranked as a Tier 2 bank. This is based on the fact that it has less reliable capital than a Tier 1 bank.
This is not to say that Diamond Bank has nothing to offer in a relationship with Access Bank.
THE COMPARATIVE ADVANTAGES AND WEAKNESSES OF BOTH SIDES
Access Bank boasts of a more international spread that has placed it amongst the top 5 banks in Nigeria with gross earnings as high as 375 billion naira. It also has a sound management board with proven experience in successful mergers and acquisitions and capitalizing on the gains therefrom. Some members of this board include:
- Mr. Herbert Wigwe, Group Managing Director;
- Mrs. Titi Osuntoki, Executive Director, Business Banking;
- Mr. Ade Bajomo, Executive Director, IT & Operations;
- Mrs. Mosun Belo-Olusoga, FCA (Chairperson);
- Mr. Paul Usoro, SAN, Non-Executive Director;
- Dr. Ajoritsedere Awosika, MFR (Independent Director);
- Mr. Adeniyi Adedokun Adekoya (Independent Non-Executive Director)
Access Bank possesses 11.8% of the market share by assets, placing it in third position behind Zenith and First Bank. It leads market share by loans, controlling 13.3% and 10.3% of the market share by deposits, placing it at 4th.
Access Bank however lacks focus in its customer base, thus limiting its ability to fully capitalize on its physical infrastructure in Nigeria and for maximum service delivery and building a large retail base from Nigeria’s reasonably large unbanked population. It also lacks significant presence in the digital banking space which is the new frontier utilised by banks and Fintech start-ups to expand access to banking services.
Diamond Bank is proudly Nigeria’s largest retail bank, with the largest customer base. This is quite interesting considering the fact that Diamond Bank only has a quarter of the number of branches that UBA has (the industry leader in number of branches;1000). Diamond has 277 branches with 19 million customers, while UBA has over 1000 branches and just 15 million customers. Clearly, Diamond has strength in keeping physical costs down while maximizing reach through digital technology. At a time, Diamond Bank had relationship with MTN that enabled users create accounts with their phone numbers.
Diamond Bank however lacks international footprint which significantly limits the reach of its offerings to sophisticated customers. It previously had reach in other African countries and the UK, but sold them to refocus on the local market. The immediate result of this was the downgrading of its issuer rating from B- to CCC+ by the global rating agency, S&P. It also has a significantly weaker board due to the resignation of 4 non-executive directors including the Chairman, following the sale of its international subsidiaries.
THE ACCESS-DIAMOND UNION: ITS PROSPECTS
The Access Bank expected to emerge from this union is projected to become Africa’s largest bank on most indices. Here are some of them:
- It will boast of the 3rd largest number of branches (677) after UBA (1000) and First Bank (875).
- It will have the largest customer base with 29 million customers.
- It will have the largest number of POS terminals, totalling 32, 058.
- It will have the largest number of ATMs, totalling 3,099.
- It will have over 16 million debit and credit cards in issue.
- It will have a total asset base of N6.1 billion, customer loans of up to N2.7 billion, and deposits of up to N3.5 billion.
- Its gross earnings are projected to hit N513 billion while net income will hit N65 billion
- It could constitute a near monopoly as it would be servicing almost 45% of the BVN customers.
Generally, the new bank will greatly benefit from the comparative strengths of the former entities. The former weaknesses of both banks would also be ameliorated by the contrasting strengths of their counterparts. In other words, where Access Bank is weak in digital banking, Diamond Bank will bring its expertise and reach to bear in this partnership. Where Diamond Bank lacks strong management expertise and international reach, Access Bank will bring quality leadership and international connections to bear to lead the bank forward.
Consolidation of their physical infrastructure and service will result in reduced cost of operations, which can be transferred to the end customer by way of increased benefits. Although one should be wary of the risk of job losses where an unnecessary duplication of services is found.
THE NATURE OF THE UNION
As at December 17th, 2018, Access Bank and Diamond Bank announced their merger, pursuant to a Memorandum of Agreement signed to that effect. Diamond Bank shareholders will receive N1 for every share they hold in the bank. Also, for every 7 Diamond Bank shares they hold, they will receive 2 Access Bank shares. In effect, Access Bank is ‘swallowing’ up Diamond Bank. When this is complete, the new bank will be shared between the old banks in the following ratio: 81% to Access Bank shareholders, and 19% to Diamond Bank shareholders. To fund continued expansion in the retail banking sector, Access Bank has already obtained regulatory approval to raise N75 billion in a rights issue in the first half of 2019. This would most likely take place after the acquisition is completed. The process started with the CBN approval in December 2018. It is to be followed in January 2019 by the SEC clearance for merger. By March 2019, Access Bank and Diamond Bank are expected to have held court ordered meetings to finalise the dissolution of the respective entities. This will be followed by the court sanction. By April/May 2019, the SEC and CBN are expected to give their final approval. All in all, we should have witnessed the birth of the Africa’s banking behemoth by June 2019. To facilitate a seamless union, a Joint Implementation and Integration Committee has been inaugurated to oversee actualisation of this process at both ends.
As earlier said, this new bank will be Africa’s largest bank, and could easily leverage its size, capital base, and reach to rapidly expand. This portends positive signs for the financial services industry, and by extension, Nigeria’s growth and development. We will however have to observe for a while to identify what other benefits the country may derive from having a new banking giant among other giants.
The last time there was mass consolidation in the banking industry, it was at the behest of the CBN but going forward, I hope we can see other Nigerian banks leveraging on their strengths to merge, so that they can compete favourably with the new bank and offer enhanced services to the Nigerian populace. Good candidates for this would be UBA, GTB, Zenith Bank, and First Bank. Either way these banks go in a merger, the result would be a bank that could match the Access-Diamond strength for strength.
Who knows, we may be standing at the cusp of the birth of banking giants like JPMorgan, Chase Manhattan, and the likes.
I am a recent graduate of the Faculty of Law, Obafemi Awolowo University. I love research, public speaking, building and managing teams towards achieving set goals, and writing