Update1: Access Bank now Nigeria’s largest lender after N74.6bn Diamond merger

Access Bank Plc is growing fast; swallowing one bank at a time to achieve an old ambition that came closer with the acquisition of Diamond bank.
Access Bank’s rise started with its acquisition of a bigger bank in the shape of Intercontinental Bank in 2012, and has followed that up by buying retail banking champion, Diamond bank, six years later, catapulting itself to the very top.

The shares of Access Bank jumped 9.40 percent, the bank’s biggest daily gain since January 20, 2016 to a six-week high of N8.15 per share, while those of Diamond Bank appreciated by 9.47 percent to close at N1.04 per share, their highest level in five (5) weeks.

The Diamond deal will make Access the biggest lender in Nigeria by assets and across other key indicators.
Access Bank had total assets of N4.5 trillion as the end of September 2018, but that will now increase by N1.5 trillion- being the asset base of Diamond bank, to hit N6 trillion.
Zenith Bank comes closest to Access in second place with N5.6 trillion worth of assets, according to data derived from the financial statements of the banks.
The new entity’s assets, loan and deposit market share increases to 16.5 percent, 18.2 percent and 16.1 percent respectively, according to estimates by Renaissance Capital, the largest share of any bank in the sector.
“The immediate obvious benefit of this transaction is the retail deposit base that Access will be acquiring,” analysts at Rencap said in a note to clients Monday.
As at the end of September 2018, Diamond bank’s savings deposit balance was N452 billion, twice the size of Access’s savings deposit.
“This should be beneficial to Access’s funding cost and by extension the bank’s Net Interest Margins,” Rencap analysts added.
The new bank will now have 27 million customers and bring Diamond’s more than 250 retail branches into Access’s similar-sized retail network.
Access Bank confirmed news of the merger on Monday after saying it signed a Memorandum of Agreement with Diamond Bank.
Access said in a statement that it emerged the preferred bidder after a competitive process undertaken by the Board of Diamond Bank.
The proposed merger involves Access Bank acquiring 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 both parties, Diamond Bank shareholders will receive N3.13 per share, comprising a cash consideration of N1.00 (one Naira) per Diamond Bank Share representing a total cash amount of N23.16 billion (US$ 75.58 million).
They will also be allotted roughly 6.6 billion new Access Bank ordinary shares, representing 2 new Access Bank ordinary shares for every 7 Diamond Bank shares. That potentially puts the value of the deal at N74.6 billion, a little over $200 million.
The offer represents a premium of 260 percent to the closing market price of N0.87 per share of Diamond Bank on the Nigerian Stock Exchange as of December 13, 2018, the date of the final binding offer.
The completion of a transaction would be subject to formal regulatory and shareholder approvals.
“Diamond bank’s strong retail franchise coupled with Access’s high quality management team will allow for synergies that will make the combined entity achieve very strong returns on equity,” said Miguel Azevedo, head of investment banking for Middle East and Africa at Citibank, which advised Access on the acquisition.
Access Bank Plc’s latest acquisition move fully authenticates its determination to prosecute to the letter its strategic intent: growing inorganically to the pinnacle of Nigeria’s banking industry.
It has remained steadfast to this target since its emergence at the end of the Charles Soludo-led banking consolidation.
Its eventual acquisition of Diamond Bank, will take it much closer to this target.
Access was one of the 25 bank groups made of 75 banks that emerged at the end of that 18-month exercise that ended officially on December 31, 2005.
Thus, by January 2, 2006, the first working day of that year when the list of successful banks was released, the Access that emerged from that process was made up of Access Bank, Marina International Bank, and Capital Bank.
The group had a share capital base of N28.5 billion, versus the N25 billion minimum capital that the Central Bank of Nigeria (CBN) prescribed.
On that same day, two of the groups that crossed the hurdle were Diamond Bank group, with a capital base of N33.25 billion; made of Diamond Bank and Lion Bank, and Intercontinental Bank group, with a capital base of N51.1 billion; comprising of Intercontinental Bank, Equity Bank, Global Bank and Gateway Bank.
At the end of the first consolidation, it was quite clear that the structural transformation in the industry had opened opportunities for further consolidations, only that this one would be market-driven.
Clearer still was the fact that these opportunities were there for the taking by banks that had the knack for identifying them, and one such bank was Access.
The management of Access Bank at that time realised right from the onset that the transformation in the local banking landscape provided a great chance for inorganic growth to propel it to a market-leader position.
The management set targets for the realisation of this dream, and to their credit, have consistently achieved or exceeded them.
For example, Access said in 2002 that it aimed to be among the top 10 banks in the country by 2010.
By 2007 it was ranked 9th, Access said in a medium-term strategy it presented to the Nigerian Stock Exchange on July 3, 2013.
Similarly, it said in 2007 that it planned to be one of the top-five financial services groups by 2012.
As usual, by the end of that year, Access had exceeded that target, being ranked the 4th-biggest bank by assets.
Here we return to the two of the bank groups that survived the consolidation: Diamond and International.
Each of the groups had a bigger capital base than Access, but that did not deter its aggressive growth drive. It went for Intercontinental and by the end of 2012 it swallowed the bigger company.
With that, Access entered the Big League in Nigeria’s financial sector, joining the likes of Zenith Bank Plc, Guaranty Trust Plc, United Bank for Africa (UBA) and First Bank of Nigeria Plc in the Tier-1 banks category.
But Access was not yet done, as it still has its eyes on the top position in the industry. It is this zest that has led to the latest acquisition move, long denied by both the target and acquirer. Finally, the news came out this week: Access is acquiring Diamond Bank. In other words, the three bank groups with a combined capital base of N112.85 billion at the end of Soludo’s consolidation will now be in one group: an expanded Access, with a wide network of branches.
From 2013 to November 2017, Access Bank has increased its total assets at a CAGR of 18percent and delivered shareholder returns of 90percent.
The bank has also grown its customer base from 90,000 in 2002 to over 8 million in 2017 and in the same period opened 351 new branches.
In its next phase of a transformation, Access Bank’s CEO Herbert Wigwe said the bank will adopt a new organisational structure. The retail bank will have a customer segment focus, driven by digital and payments. The corporate bank will build deep sector expertise and deploy global relationship managers.
Access Bank’s subsidiaries will be organised around strategic clusters, with strong collaboration between them to secure trade finance and correspondent banking.
The bank’s transformation programme will be underpinned by robust risk management together with high levels of automation to enhance the compliance and risk functions and drive customer insights.
Internationally it will develop an integrated global franchise by strategically developing its presence in key African markets, enhancing collaboration in global financial gateways including London and New York, Asia and the Middle East, and strengthening its trade hubs in India, Dubai and China.
A strengthened presence in key African markets, and the creation of Universal Payments Gateway combined with an integrated global franchise, ideally positions Access Bank to be Africa’s Gateway to the World.
Despite concerns that the commencement of election cycle poses risk to returns from Nigerian equities, one of the nation’s tier-1 lenders Access Bank Plc remains in the basket of analysts’ stock-picks.
Access Bank Plc scorecards for the nine months (9M) ended September 30, 2018 shows top-line earnings of N375.2billion, up 3percent from N365.1billion recorded during the corresponding period in 2017.
Though the bank’s Profit Before Tax (PBT) at N70.26billion in Q3’18 against N72.91billion in Q3’17 represents 3.6percent decline, its Profit After Tax (PAT) increased by 12percent to N62.9 billion from N56.4 billion of which subsidiary contribution increased to 32percent, from 15percent in the corresponding period. Loans and Advances totalled N2.08 trillion as at September 2018 (December 2017: N2.06 trillion).
Access Bank stock price hit a 52-week high of N11.35 and a 52-week low of N6.80.
Further analysis of the lender’s results showed Non-performing loans stood at 4.7percent as at September 2018 compared to 4.8percent in December 2017. Cost of risk decreased to 0.5percent in 9 months to September 2018 from 0.9percent in 2017 on the back of prudent risk management practices during the period.
“The Bank will remain resilient in the achievement of its strategic imperatives; maximizing our strong market position and solid capital base, while leveraging digital innovation to improve service touch points as we sharpen our retail play with emphasis on cheaper funding sources,” Wigwe said during a presentation to investors.