Nigerian Merger Will Create Africa’s Biggest Bank

Nigerian bank merger will create an entity serving 29 million customers across three continents.

A planned merger between Access Bank and Diamond Bank is set to form the largest banking group in Nigeria and Africa by number of customers according to the two lenders. The new entity is expected to have a presence in three continents and12 countries with 29 million customers, 3,100 ATMs and nearly 32,000 PoS terminals.

Access and Diamond announced in a joint statement on December 19, 2018 that the merger is expected to be completed in the first half of 2019, subject to shareholder and regulatory approval. Theregulators who must give their nods to the merger are the Central Bank of Nigeria (CBN), Securities and Exchange Commission, Nigerian Stock Exchange, and a Federal High Court. Already, CBN has registered “No Objection” to the proposal, the banks said.

The transaction is complementary according tothe two lenders. Diamond is expected to benefit from Access Bank’s strong culture of risk and capital management expertise and a clear strategy for sustainable growth while Access will take advantage of Diamond Bank’s unique retail banking expertise and strong digital offering.

“It is a transformative decision for Access, which will be the surviving name after the transaction,” says Pabina Yinkere, Chief Investment Officer at Sigma Pensions in Lagos. “What you will have is a strong bank on retail banking and corporate banking. The group also has the capital to withstand the capital adequacy ratio challenge in the banking industry.” The new bank will have a CAR of 20% at the bank level and 22% at the group level, the two lenders explained.

Access valued Diamond Bank at about 72.5 billion naira (about $200 million)and Diamond Bank shareholders will receive 3.13 naira per share in cash and shares. Access Bank said it had also received a “No Objection” from the CBN to carry out a Rights Issue to raise 75 billion naira (about $207 million) in the first half of the year, subject to shareholder and regulatory approvals.

Nigeria’s banking industry is a motley of a few big banks sandwiched with small, weak ones, some of which carryhigh levels of nonperforming loans (NPLs). Diamond is one of those said to be carrying a significant amount oflarge NPLs.

These bad debt challenges in the industryarose mainly from the banks’ exposure to the Nigerian oil industry. When global oil prices spiked after 2008,banks funded several oil industryprojects. When oil prices fell shaprly in 2014, some bankswere suddenlysaddled with bad loans and lacked the capacity to write them off. Other banks with less exposure to the oil industry remained strong. The central bank has said that the NPL ratio in the industry remains below 10%, and therefore poses no systemic risk to the industry.

Yet the announcement of this merger came three months after another bank—Skye—was taken over by CBN andsold to new investors who changed its name to Polaris Bank. CBN said the action followed Skye’s inability to meet minimum thresholds in critical prudential and adequacy ratios.

Classification by the central bank shows that five banks—Access Bank, First Bank Nigeria, Guaranty Trust Bank, United Bank for Africa, and Zenith Bank—form tier-1lenders, while the 16 others are in the tier-2 category.

Yinkere expects this Access-Diamond merger to lead to further concentration in the local banking industry. Before now, the top five banks controlled over 60% of the industry’s assetsand with this merger, this concentration will increase further. Diamond is the largest tier-two lender, according to him.