Dec 25 (Lagos) - The Board of Directors of Access (
ACCESS ) and Diamond Bank (
DIAMONDBNK ) recently announced a proposed merger of the two banks. Following weeks of speculation on the strategic investor Diamond Bank was looking to bring on board, both banks released statements stating that Access Bank would acquire the entire issued share capital of Diamond Bank in a transaction that is expected to be completed in the first half of 2019.
Preliminary details from the transaction show
ACCESS is expected to buy the Tier II bank for a total of USD 200 million, of which the company will be looking to raise USD 250 million in Tier 2 capital and an additional N 75 billion by way of Rights Issue in H1 18.
The acquirer has stated that this capital raising is being undertaken to ensure its capital adequacy ratio remains at or above its internal target of 20%. Meanwhile, looking at Diamond Bank’s book value per share of N 9.15 (as at 9M 18) the Tier II bank was valued at 0.34x its book value for this transaction higher than the bank’s 3-year average price/book value of 0.18x.
Away from pricing, the combination is expected to make the New Access Bank the largest commercial bank in Nigeria by deposits N 3.54 trillion in total vs N 3.26 trillion of FBNH, current largest.
The enlarged entity is also expected to boast of total assets and loan book of N 6.1 billion and N 2.8 trillion respectively, potentially the largest in the industry. Meanwhile, in a bid to ensure strong asset quality for the enlarged entity, Diamond Bank is reportedly expected to record additional impairment losses before the transaction is completed given the bank’s high NPL ratio of 12.6% (as at 9M 18) above the regulatory benchmark of 5%.
Furthermore, analysts at Vetiva Capital Management Ltd in Victoria Island expect synergies and benefits realized from the larger scale and market share of the New Access Bank to be a significant advantage with the stronger liquidity position expected to support potential moderation in cost of funds and possibly stronger margins as well.
The New Access is also well suited to benefit from Diamond Bank’s strong retail footprint, with consistent and notable growth recorded across its retail banking channels and boasting of over 3.3 million customers on its mobile app as at 9M 18.
While this transaction may be a surprise, we note that it is well in line with Access Bank’ aggressive growth strategy to become the number one bank in Africa as outlined in its 2018-2022 Strategy presented to stakeholders this time last year.
Long term gains from this transaction will mostly accrue sufficiently on a well-executed integration process. Overall, we expect a positive reaction from market participants to the news as the market awaits more traction in approvals.
reporting for easykobo.com on Tuesday, Dec 25 2018 from Lagos, Nigeria
Source - analysts at VETIVA CAPITAL MANAGEMENT LTD IN VICTORIA ISLAND.
ALL VIEWS, OPINIONS, TARGETS AND FORECAST EXPRESSED IN THIS ARTICLE ARE
THOSE OF ANALYSTS AT VETIVA CAPITAL MANAGEMENT LTD. EASYKOBO DOES NOT
ENDORSE OR OPPOSE ANY VIEWS EXPRESSED IN THIS ARTICLE.