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Published On: Sun, Jan 6th, 2019

Merger deal: Access Bank  braces for top leadership

The Access Bank and Diamond Bank M&A deal would be concluded in Q1 2019

By OKEY ONYENWEAKU

Access Bank Plc has never hidden its ambition to be one of the leading Banks in Nigeria and beyond. The lenders target became visible when its attempt to acquire Afribank (Mainstreet Bank) and Union Banks left it with bruises.
 Whereas the bank succeeded in capturing Intercontinental Bank, though still controversial, it took the banking industry by the storm when it targeted and pocketed Diamond Bank a few days ago, one of the eight systemically important banks.
The combination, though referred to as a merger, the truth is that Access Bank is parting with $200million in exchange for Diamond Bank. This outcome has been longer in coming; rumour mills had been rife of the intending move by Access Bank to swallow Diamond.
But each time both banks had denied it. However, when the board of directors of Diamond bank resigned in October Broad Street was abuzz with insinuations of the deals.
While the merger documentation is still being perfected, owners of stocks in both banks are making swift adjustments in preparation for the changes that will follow the exchange before the conclusion of the combination.
There is a consensus that the merger was the best option in favour of Diamond Bank which was already drowning into the bottom of the sea.
 At least the merger which would be effective in the first quarter of next year, would be in the best interest of all stakeholders including employees, customers, depositors and shareholders and they are all for the deal and a new beginning.
The combination deal reveals that Access Bank would 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.
Based on the agreement reached by the Boards of the two financial institutions, Diamond Bank shareholders will receive a consideration of N3.13 per share, comprising of N1.00 per share in cash and the allotment of 2 New Access Bank ordinary shares for every 7 Diamond Bank ordinary shares held as at the Implementation Date.”
“The offer represents a premium of 260% to the closing market price of N0.87 per share of Diamond Bank on the Nigerian Stock Exchange (“NSE”) as of December 13, 2018, the date of the final binding offer”, the parties to the deal observed.
Prospects of the Deal
The combination, many industry participants agree, will not only enhance Access bank’s competitive edge in Nigeria and Africa,but also the world. With over N6 trillion in total assets, over 500 branches and other advantages derivable from the merger, the bigger lender is set to dominate the banking space in Nigeria.
Access Bank has clearly by this combination become the biggest bank by total assets which stands at over N6. 2 trillion, a notch higher than that of Zenith Bank and FBNH which were the largest prior to the planned merger.
In terms of Branch network and number of employees, Access Bank is also arguably one of the leading financial institutions. It is also going to harness other potentials from the bank which may include a few sharp personnel. In fact, the union also gives Access Bank one of the best digital banking platforms in Nigeria. In addition, its customer base will become the envy of competitors in due course.
“Together, we would have 27 million customers, which is the largest customer base of any bank on the continent. We would have 33,000 point of sale (PoS) terminals, 3,300 automated teller machines (ATMs) and all of that, said Mr. Herbert Wigwe, MD, Access Bank.
Challenges
 Experts believe that failure rates for M&A are between 50% and 70%. They explained the high failure rate emanates from organisation’s neglect of challenges which may come as land mines. The failure of Skye Bank’s one of the eight systematically important banks is still fresh in the minds of many,and they advise caution.
Nevertheless, Access Bank is expectedly the largest bank by total assets when it consummates its merger with Diamond Bank in the second quarter 2019.Of course, managing a bigger financial institution will be an uphill task given attendant challenges already plaguing the banking industry in Nigeria.
Recently, the Nigerian banking industry has been burdened with high non-performing loans, illiquidity, dearth of skilled professionals and lack of good corporate governance.
Another worry will bethe banks over- head cost which will definitely grow a notch higher, there will be bloated staff strength.Most importantly, Access Bankwill grapple with integrating operating systems, the diverse cultures of these strange bed-fellows among other domestic issues.
There is also a frightening level of Non-performing loans in Diamond Bank at over 12 percent in half year 2018, (58 per cent higher than the regulatory threshold of 5 per cent) and that is expected to jump even higher before the end of 2018. These are likely to challenge Access bank’s ability to control its share in issue which will climb to about 37billion and water down its dividend and earnings per share.
 As challenging and tasking as these duties may seem, customers are confident and assured by the fact that Access Bank did succeed when it acquired Intercontinental Bank.
”One of the benefits we have in this combination is that having done this several times before, we have learned from the mistakes of the past. Integrating Diamond is going to be a lot better than all the other ones we have done in the past. The latest one we did was the Intercontinental transaction, which was a large one and basically gave us all the learning points that we needed to bring to bear as far as this one is concerned”, Access bank said.
Performance
There is further conviction that Access Bank is strong in every metric. After all, the lender recalled its $1bn bond about two weeks ago. These experts concluded are testimonies that it has a strong and capable management.
A reflection of the banks underlying strength was signposted by growth in both its top and bottom line earnings during the course of the year.
The lender achieved top line earnings of ₦375.2 billion for the nine months ended 30 September 2018, up 3% from N365.1 billion recorded in the corresponding period of 2017.
In the same vein, Profit after Tax (PAT) increased 12% to ₦62.9billion from ₦56.4billion of which subsidiary contribution increased to 32%, from 15% in the corresponding period of the previous year.
Meanwhile, the bank’s asset base grew 11% Year to Date (YTD) with total assets rising to ₦4.55trillion in September 2018 from ₦4.10trillion in December 2017. The bankers Loans and Advances totalled ₦2.08trillion as at September 2018 compared to N2.06 trillion a year ago.
Aggressive marketing has earned Access Bank a larger number of customers which resulted in a deposit increase of 10% to ₦2.48trillion in September 2018, from ₦2.25trillion in December 2017 as the lenders Capital Adequacy of 20.3% and liquidity ratios of 44.2%, stayed well above minimum regulatory requirements.
A deeper dive into the books shows that Non-performing loans (NPLs)stood at 4.7% as at the first nine months of 2018 compared to 4.8% in December 2017, or three times lower than the industry average NPL of 12 per cent.
The bank consciously moved to control Cost which slid to 0.5% in September from 0.9% in 2017 on the back of tighter risk management.
The tier 1 lender grew pre-tax profit by 12 per cent on a year-on-year basis with profit before tax rising to N45.84 billion propelled by a 29 per cent drop in impairment provisions to N7.34 billion and a rise in gross earnings which rose three per cent to N253 billion in the first six months of the year.
The bank’s revenue growth was driven by a 15 per cent rise in interest income, despite a decline of non-interest of 22 per cent, which was harmed by a 53 per cent dip in net trading chased by a foreign exchange gain of ₦33.8 billion.
However, the bank’s Net fee & Commission incomes appreciated 21 per cent to₦30.1billion, bolstered by an increase in credit related fees and commissions and E-business earnings, which spiked forward by 53 per cent and 67 per cent respectively. Also, other operating incomes accelerated by 143 per cent to ₦10.3 billion as the bank declared an interim dividend of 25 kobo.
The challenges of 2016 forced the bank’s profits lower, suggesting that recent result represent a sturdy rebound from ghosts of the past. At the end of 2017, the bank’s Profit before tax fell from ₦90 billion in 2016 to ₦80 billion in 2017. While profit after tax dropped from ₦71 billion in 2016 to ₦61 billion in 2017, at a time Gross Earnings rose from ₦381 billion in 2016 to ₦459 billion in 2017
Market observers reckon that the bank had made some slips in earlier acquisitions before succeeding with Intercontinental Bank Plc.
The bank’s management enthused that the successful outcome of its bond Issue demonstrated the strength, resilience and international endorsement of the bank.
Access Bank currently has Eurobonds in issue of $400 million at a coupon rate of (9.25%) maturing in June 2021 – as part of a US$1 billion global medium-term note program. The bank plans to deploy the bond to rave up its operational activities.The lender emphasized that the process signified a significant moment in the bank’s journey to entrench itself as one of Nigeria’s top three banks by 2017.
Diamond Bank Plc’s strength
Diamond Bank does not appear to be a basket case, many have observed. However, there is a consensus that Diamond Bank fell off the high ladder because of its inability to resolve toxic assets and grow its domestic deposit portfolio, a combination of factors that squeezed net interest income and deflated operating earnings.
Diamond Bank had fallen short of regulatory prudential benchmarks. The bank’s non-performing loans stood at 12.3 per cent in the first half of 2018, compared to the 5 per cent threshold set by the CBN.
More worrisome is that its capital adequacy ratio (CaR) is also very weak at 16.6 per cent, representing only 1.6 per cent above CBN’s 15 per cent peg for tier 1 banks, which Diamond Bank belongs to. It had 40.2 per cent liquidity ratio against 30 per cent required by the regulator.
In the Q3 2018, its results showed that its post-tax profit dipped -38.89 per cent to N2.26 billion, underpinned on net interest income, which declined -13.64 per cent. It suffered N9 billion loss in 2017 and if the current trend does not reverse, the bank may post another loss at the end of this year, which would make two successive losses after its profit crashed -86.31 per cent in 2016 financial year.
The lender recorded -0.56 per cent decline in gross revenue to N142.1 billion in Q3 2018, slowed down by drop in interest income and weak growth in fee and commission earning, which only rose by 1.46 per cent to N28.45 billion during this period.
Impairment provision on loans and advances, which was cut by -24.21 per cent to N25.17 billion and 261.77 per cent rise in other income and 97.22 per cent in net trading earnings were not strong enough to buoy Diamond Bank performance in Q3 2018.
The bank is still grappling with high operating costs as its operating expenses was up 2.89% year-on-year to N66.20 billion in Q3 2018, and interest expense up 18.32 per cent to N41.26 billion. But the bank said cost containment measures are underway with the digitization process contributing to quarter-on-quarter gains with OPEX declining 0.36 per cent from N22.07 billion (Q2 2018) to N22.15 billion (Q3 2018).
Mr Wale Olusi of United Capital limited praised Access bank’s strength and ability to handle the merger. ”There is a more aggressive management in Access Bank”, he said.
Access Bank Assures Stakeholders
To prepare to absorb some of the challenges that will emerge, Access Bank has already finalised terms and obtained regulatory approvals for it to raise a fresh $250 million tier II capital.
Group Managing Director/Chief Executive Officer, Access Bank, Mr. Herbert Wigwe, told an audience at a briefing that the fund would be available for drawdown in January 2019. This is in addition to plans to undertake a rights issue to raise up to N75 billion ($207 million) before the end of first quarter of 2019.
“Let me let you know we have actually concluded with some of our partners to raise tier II capital. That would be ready for drawdown before the end of January and that is about $250 million”, said wigwe.
“Access Bank has enough capacity to consummate this merger without additional capital. We are also taking steps to ensure that in line with international best practice and the need to create a capital buffer, the new institution that is being created will have adequate capital to support it going into the future,” he added.

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