BUILDING PRESENCE

Nigeria 2019 | FINANCE | FOCUS: BIG MERGE

In March 2019, the approval came for a major merger in Nigeria's banking sector; one with the potential to better tap both the unbanked population and wider commercial activities at home and much further afield.

By way of some context, Nigeria's troubled economy is the largest on a continent that hosts the world's second fastest growing banking market. From 2012 to 2017, African banking revenue appreciated at a CAGR of 11% by 2017 exchange rates and is anticipated to see growth of 8.5% over the coming five years, with anticipated total banking revenues of USD129 billion. Meanwhile, the Central Bank of Nigeria (CBN) has targeted, by 2020, to slash the unbanked population to 20%. Today, the figure remains at 37%.

A 2005 Economist article outlined the stark reality of Nigeria's banking sector, where unscrupulous marketing techniques were being used by certain financial institutions to win customers. This confirmed the staggering pressure placed on the nation's lenders by the Central Bank of Nigeria and the economic-reform team's stipulation that banks needed to to raise their minimum capital base to NGN25 billion (USD190 million), within 18 months, in order to remain eligible to hold public-sector deposits and trade in the FX markets.

The biggest news lately in this dynamic sector is the merger of Access Bank and Diamond Bank, announced in late 2018, despite earlier denials of any such intention. The resulting entity became Nigeria's largest financial institution by assets on approximately NGN6.1 trillion (USD16.7 billion) and boosts a nationwide network of 3,100 ATMs. Completion of the merger happened on April 1, 2019. Diamond shareholders were earmarked to receive NGN3.13 per share, comprising N1/share in cash plus two new Access shares for each seven Diamond shares held.

The merger is perceived as a logical move to leverage shared technology and tap financial inclusion being achieved through digital platforms. Reportedly, Diamond had 18.8 million retail customers, served through over 270 branches and around 1,200 ATMs, in addition to robust digital offerings. Meanwhile, Access Bank ranked among Nigeria's foremost full-service commercial banks. Expectations were borne out in the familiar manner, namely a double-digit rise (10%) in the shares of both institutions at the bourse on the day the merger was announced. The merger is also not without testimonial, as Access Bank has to date united with Nigerian lenders Marina Bank, Capital Bank, and Intercontinental Bank.