Access – Diamond merger signals stronger banking industry

On Monday, Diamond Bank Plc and Access Bank Plc, officially announced a merger deal that would result to a Nigeria and Africa’s largest retail bank by customers.

The Board of Diamond Bank believes that the merger is in the best interest of all stakeholders including, employees, customers, depositors and shareholders and has agreed to recommend the offer to Diamond Bank’s shareholders. Completion of the merger is subject to certain shareholder and regulatory approvals.

Analysts in the banking and financial services sector on Monday described the merger deal as a positive development.

Johnson Chukwu, managing director/CEO, Cowry Asset Management limited, said the acquisition of Diamond Bank by Access Bank has positive and negative implications.

On the positive side he said shareholders of Diamond Bank are gaining from the merger arrangement as they will receive N3.13k per share, comprising a cash consideration of N1.00 per share.

He also sees the development as good for the industry in the sense that it is a smooth way of resolving a near distress situation in the sector.

On the flip side, Chukwu said the options available to banks customers in respect of which bank to bank with, has reduced by one and also the number of available banking jobs has shrink.

Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited said in an emailed response that more stability is expected in the banking industry after the acquisition deal.

“The recent merger (it is in effect an acquisition) between Access bank and Diamond bank is a welcome development for the banking industry in Nigeria”, said Uche Uwaleke, professor/head, banking and finance department, Nasarawa State University Keffi.

“Given the strengths of the two banks, there is little doubt that the union involving Access bank’s strong fundamentals with Capital Adequacy Ratio (CAR) of over 20 percent and Diamond bank’s digital-driven services will produce synergies that will be positive for financial inclusion in Nigeria”.

By this merger, Uwaleke said Access bank has emerged as one of the biggest banks in Africa by customer base. The scheme of merger is a win-win for the shareholders of the two banks. The purchase consideration is fantastic at over N3 per share for a target bank whose share price is less than N1 per share. As part of the purchase consideration, the offer of two shares for every seven shares of the target bank is a fair deal.

Little wonder, the shares of Diamond bank is now very much sought after by investors and are currently on bid. It is important to note that what is playing out here is different from the case of the defunct Skye bank which was taken over by Polaris, owing to protracted ill- health. While the bridge bank arrangement involved huge cost on the part of the CBN, the case of Access and Diamond banks is clearly a marriage between two consenting adults requiring only approval by the regulatory authorities. It does not matter if one partner is stronger than the other.

So, it does not call for any panic on the part of either the customers, employees, creditors, shareholders or the public. The banking structure in Nigeria, like in many other countries of the world, is oligopolistic in nature and so mergers and acquisitions should be expected to continue to shape the financial landscape for good especially in a highly competitive environment where the gap between tier I and tier II banks is widening by the day.

Hope Moses-Ashike