Building Africa’s largest financial institution: A hit or a miss?

WHETHER THE DECISION jointly taken by owners of Access Bank to merge with its tier 2 counterpart, Diamond Bank to create one of the largest financial institutions on the continent is the right one, is an argument bound to stay on the lips of market analysts and financial experts for a while, or at least till the merger is completed and first few financials of the hybrid company are scrutinised.

Some experts have argued that the terms of the merger are positive for shareholders, others are of the opinion that an ailing Diamond Bank being left as a legal entity but salvaged by injecting capital to deal with its capital adequacy and nonperforming loan issues would have been a better decision.

In defense of the proposed merger which will see Access Bank pay Diamond Bank’s shareholders N1 per share plus 2 units of Access bank shares for every 7 units of Diamond bank shares held, Herbert Wigwe, the managing director and CEO of Access Bank said the merger will positively change the narrative for stakeholders (customers, shareholders and Staff) of Nigerian financial institutions.

According to Wigwe, the merger between the banks aims to synergize resources and strengths to create an institution reflective of the country of operation, which boasts of owning the largest population on the continent.

“Nigeria is the largest in Africa in terms of population, but Nigerian banks are not the largest, even in terms of customer base,” Wigwe said recently in Lagos while highlighting the rationale behind the proposed merger.

“With the merger the country can boast of a bank with the largest customer base network,” Wigwe said.

The merger will consolidate the 10 million customers owned by Access Bank as at 30 September 2018, and Diamond Bank’s 19 million customers at the same period to form a customer base of 29 million customers.

“This is a huge step towards the delivery of our goal to bring the power of banking to millions of people across Nigeria and an exciting transaction for Access Bank and Diamond Bank’s customers, staff and shareholders, Wigwe said

Phenomenal opportunities to be created from such customer base, according to Wigwe could also involve the creation of an application that could significantly boost financial inclusion.

Other outcome of the synergy includes the increase of total assets to N6.1 billion, 677 branches, 3099 automated teller machine e.t.c as well as cost synergies conservatively estimated at N30 billion per annum, pre-tax, to be fully realised within three years post-completion,” he revealed.

Wigwe further hinted, that the ability of both banks in finding a congruence point as well as other areas of similarities and values, aids the merger to stand as a starting point for an institution that can disrupt the market for better.

“A larger institution, much better capitalised, with farther reach of access, far outside Africa with presence in the UK, Middle East and Asia is being created and this could serve as a power house that no other African country has created.”

Speaking to the controversial issue around staff retention, Wigwe pointed out that Diamond Bank has some of the best hands in the industry, “what is happening is a combination of our talent pool to support this emergent entity”. He said a performance driven appraisal methodology will be continued as erstwhile practiced by both banks to ensure cost effectiveness.

“The idea is to reskill people, get people to perform at the best levels that they can be and get people to be at the same level of standard as far as performance is concerned, across the entire institution.”

Also assuaging fears arising from an expanded shareholder base as regards consistent dividend payment and sustainable earnings per share, Roosevelt Michael Ogbonna, the group deputy managing director, Access Bank, stated that the bank’s tradition of rewarding it’s shareholders with an interim and final dividend will continue as the company is engaging in the merger to create value.

“Once value is created, the main beneficiaries are shareholders. This transaction will be value accretive from the first year of legal merge and we expect that it will consolidate on the size, skill and opportunities the retail banking of Diamond Bank brings with the corporate power of Access Bank.

Uzoma Dozie, CEO of Diamond Bank, in his comment on the development said, “The merger is positive for all of Diamond Bank stakeholders, including customers, employees and shareholders. In particular, customers will benefit significantly through the unrivalled combination of the best of Diamond Bank’s retail and digital leadership with the size of Access Bank’s balance sheet, corporate names and geographical reach.

“In reaching this decision, the shared passion for leveraging Nigeria’s youthful and entrepreneurial talent, and a commitment to better outcomes through financial inclusion have convinced us that this is the right combination.

“I believe that the combination of two strong and admired brands, with shared values and complementary strengths, will be a strong force for positive change in the Nigerian and African retail landscape. As a result, this merger creates significant potential for sustainable long-term growth which stands to benefit customers, employees and shareholders alike.”