A merger in Nigeria to create the largest bank in Africa
The merger of Access Bank and Diamond Bank will create the largest bank in Africa, at least in terms of customer base
On 6th March 2019, Access Bank confirmed its shareholders’ approval of the merger with Diamond Bank. A merger which will create a big transition in the Nigerian Banking Industry. The combined entity will establish the largest financial institution in Africa, by number of customers. Moreover, this merger will forge a competitive bank in Nigeria by assets, loans, and deposits that is capable of creating significant economies of scale.
A challenging year for the banking industry in Nigeria
Evidently, banks are concerned about the intense competition in retail banking, as the industry continues to face competition from new alternative banking channels - acting as the non-bank companies- offering a wide range of financial services. Further, demanding customers with high expectations set by experiences from other industries and the use of new technologies.
Furthermore, 2018 was also the year of increased regulations. January 2018 witnessed the implementation of the International Financial Reporting Standards 9 (IFRS 9) in Nigeria. Although the adoption of IFRS did not generate negative effects on the banking industry in Nigeria, banks will still need to raise fresh funds to increase their capital base to meet up with regulatory capital adequacy requirements. During the same year, the banks also faced debt challenges related to tight system liquidity and a rise in non-performing loans (NPLs) which is primarily driven by lower oil prices and a slowdown in the economy, exacerbated by bank’s overexposure to small and medium-sized enterprises in the oil sector. Diamond Bank is one of these banks that have a significant amount of NPLs.
On 17 December 2018, Access Bank officially announced the signing of a memorandum of agreement (MOA) with Diamond Bank on the potential merger of the two entities. The agreement allowed Access Bank to acquire the entire issued share capital of Diamond Bank in exchange for a combination of cash and shares in Access Bank via a Scheme of Merger. Thus, Diamond Bank shareholders will receive NGN 3.13 ($0.0087) per share, this will include NGN 1.00 ($0.0028) per share in cash and an allotment of two new Access Bank ordinary shares for every seven Diamond Bank ordinary shares held as at the implementation date.
The implications of the merger
As a result of this merger, Access Bank will absorb Diamond Bank. This merger will make Access Bank an enlarged tier-1 Nigerian bank and the largest bank in Africa in term of its 29 million retail customers in 12 countries and three continents. Yet, this combination will engender notable benefits for customers and stakeholders, including but not limited to enhanced product diversification and a focus on digital offering to drive financial inclusion. For shareholders, this transaction will integrate the management team, risk management culture and corporate, retail and digital banking capabilities of the two banks, with the creation of value through revenue, balance sheet and cost synergies.
Financial Inclusion in Nigeria
The merger is expected to spark similar moves that will reshape the Nigerian banking industry in 2019 an beyond. These opportunities will create larger and stronger banks that will enhance confidence in the banking system, improve banking products and services and enrich customer experience. it will also enhance the efficacy of monetary policy, in addition to the significant improvement on economies of scale and cost reduction. it is noteworthy that these activities will drive financial inclusion in Nigeria as they are aligned with the Central Bank of Nigeria (CBN)'s efforts to meet the 80% financial inclusion goal by 2020.
Keywords: Non-performing Assets, Bank Merger, Bank Restructure, Shareholders, Moa
Institution: Access Bank, Diamond Bank, Nigeria Stock Exchange, Central Bank Of Nigeria