FCMB, Finbank merger to benefit everyday Nigerians

Post merger FCMB: Improved wholesale and retail franchise to drive economic growth

In less than six years, Nigeria’s banking sector is experiencing a second wave of mergers and acquisitions. The first wave was the result of the 13-point reform agenda of Charles Soludo, former Governor of the Central Bank of Bank (CBN), which raised the minimum capital base to N25 billion for all banks. Though induced, the 2005 mergers and acquisitions which reduced the numbers of banks in the country from 89 to 25 produced bigger banks that enjoyed steady growth until the advent of the 2008 global financial crisis.      

The country’s financial services sector, especially the money market was badly bruised by the crisis, necessitating special examination on all banks by the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Company (NDIC), in August 2009. Eight banks were found to have significant deficiencies in capital adequacy and liquidity requirements, as well as major weaknesses in corporate governance and risk management practices, while another two were found to have primarily capital deficiencies. Affected banks include Finbank, Intercontinental Bank Plc, Equitorial Trust Bank Limited, Spring Bank Plc, Union Bank of Nigeria Plc, Bank PHB Plc and Afribank Plc.

The fall out of the special examination was the sack of eight bank chiefs and injection of N620 billion into the affected banks. In spite of the lifeline, the banks remained technically insolvent with negative assets estimated at N1.28tn in December 31, 2010. The situation of the banks, according to Lamido Sanusi Lamido, the Governor of the Central Bank, would continue to worsen as long as the holes in the bank’s balance sheets, which were “created by mismanagement and outright theft,” were not filled with capital.  

A deflated capital market at which investors lost their investments offered no succour to the ailing banks, making merger and acquisition the likely way forward. Quite a number of local and international investors looking for opportunities in the Nigerian banking sector initially indicated interest in the rescued banks.  Many however backed out for reasons that include huge amount of non-performing loans, litigations instituted by and against some of the sacked executive management and high rate of questionable assets of the banks.

Against all odds, after more than two years of tottering on the brink of liquidation, Finbank, Intercontinental Bank and Oceanic Bank were able to execute Transaction Implementation Agreements (TIAs), a legally binding agreement governing the terms of their proposed recapitalisation through business combinations with First City Monument Bank (FCMB), Access Bank and Ecobank Transnational Incorporated (ETI), respectively. This ushered in a second wave of mergers in the country’s banking industry. These mergers, according to analysts at Renaissance Capital (RenCap), will transform the country’s banking landscape, producing big, liquid and well capitalised banks which will have greater operational efficiency.

Truly so, the transaction implementation agreement between Oceanic Bank and ETI, which will lead to its merger with Ecobank Nigeria, a subsidiary of ETI, will create one of the five biggest banks in Nigeria. Same for the Access Bank and Intercontinental Bank merger which will create one of Nigeria’s top four banks with over five million customers. Similarly, the FCMB/Finbank merger will create the eight largest bank in Nigeria with 300 branches, one million customers and an asset base of N1 trillion. However, implementation of the transaction agreement between FCMB and Finbank for the recapitalisation of Finbank and its subsequent merger with FCMB may have more to offer than just assets and deposit numbers.

While the other mergers are essentially business combinations by strong retail focused institutions to increase market share, gain higher profits and reach, this is a merger of two organisations which are much more complementary to each other and have strengths in different areas. The FCMB/Finbank arrangement is the apt wedlock of a predominantly wholesale banking group with a growing retail franchise, to a fully fledged commercial and retail bank. It will produce a consolidated post-merger financial services institution that is indeed more valuable to the country’s economy than the separate pre-merger banks in terms of efficiency and reach.

It will enhance access to funding by private and public enterprises in the areas of project and infrastructure finance, where there is presently a huge funding deficit. Also, in the retail segment where it will have extensive reach, the bank will combine its strong consumer banking performance with FinBank’s robust e-payment products to deliver exceptional value to the largely under-banked and unbanked segments of the economy.

This strategic focus is in tune with the realities of the global financial services industry which has seen an increasing rise in mergers and acquisitions between wholesale and deposit-taking banks that are able to marry the stability of retail and commercial banking deposits to the high-flying world of big ticket investment banking transactions. To a large extent, mergers of this ilk are based on the projection that gains would accrue through economies of scale and scope, financial leveraging, increased market share and profitability, among others.

Ladi Balogun, Group Managing Director and Chief Executive Officer, First City Monument Bank (FCMB) said, “This merger arrangement is consistent with FCMB’s strategic objectives and has a compelling rationale from a risk and financial perspective. Strategically, it allows us strengthen our commercial banking business and develop a more robust platform for retail growth. FinBank also enhances our market reach through additional capabilities such as its remarkably effective mobile and electronic banking platforms. Furthermore, given FCMB’s highly capitalised balance sheet, it provides further opportunities to leverage our capital in a highly efficient manner to the benefit of the shareholders of both organisations.”

Invariably, the post-merger FCMB bank will be a market leader in both wholesale and retail banking segments. It will improve access to financial services and long-term credit among Nigerians, thereby contributing to the growth and development of the economy. This aligns with a strategic $70 million investment in First City Monument Bank by the International Financial Corporation (IFC), a member of the World Bank Group in 2010.  The IFC investment in FCMB is to further strengthen the bank’s capabilities in the wholesale and retail banking segment.

FCMB’s cooperation agreement with IFC outlined funding of the acquisition of a distressed Nigerian bank, co-financing of infrastructure projects in the country and lending to SMEs, especially agribusinesses and those in the education sector, as its key areas. Although, First City Monument Bank has a record of lending to small businesses, consummation of its merger with Finbank certainly provides it with a stronger retail platform to improve access to long-term credit, particularly in its focus areas in the agriculture education sector, where the unbanked and under banked can benefit from increased access to finance and customer-centric banking services.  

The expected social and economic outcomes of the FCMB/ Finbank merger includes availability of services to small customers and payment efficiencies, leveraging technology, which would lead to a rise in household incomes, employment creation, improved food security due to increased trade, manufacturing, agricultural productivity and the generation of market surpluses. It is also expected to institutionalize credit products at more affordable rates for individuals and small businesses across the country.

Reiterating this, Olufemi Timothy, Co-ordinator of Shareholders Coalition, which comprise of 20 out of the 24 incorporated shareholders’ associations in the country, said the group is in support of the merger and acquisition plans of the rescued banks to facilitate their growth, protect shareholder’s investments, while also strengthening the banking industry to fund the growth and development of the economy in a sustainable manner.  


 Useful links

Merger: Rescued banks staff jittery over looming job
www.momentng.com
Merger: Rescued banks staff jittery over looming job loss ... FinBank which appear set to be acquired by Access Bank and FCMB respectively.

S&P revises Access Bank outlook to stable … cuts FCMB's rating
www.punchng.com
S&P revises Access Bank outlook to stable … cuts FCMB's rating. May 23, 2012 by Ademola Alawiye with agency report. Standard and Poor's, an international ...

FCMB DISENGAGES 550 FINBANK STAFF, AS MERGER ENDS
www.nigerianbestforum.com
FCMB DISENGAGES 550 FINBANK STAFF, AS MERGER ENDS. ... Access bank management is wicked and anti human management. Instead of given staff ...

The Nation - S&P revises Access Bank's, FCMB's ratings
www.thenationonlineng.net
S&P revises Access Bank's, FCMB's ratings. ... market position and business stability after the completion of the merger of Intercontinental Bank.

Merger — Nigerian Mail Online
nigerianmailonline.com/tag/merger
Following Merger talks that began last year, Access Bank Plc officially took effective ... First City Monument Bank (FCMB), on Thursday, said it had received its ...

Nigeria: First City Monument, Finbank Merge
www.nairaland.com
Intercontinental Bank And Access Bank Merge? ... Nigeria-based First City Monument Bank (FCMB) is going to undertake recapitalisation of and merge with ...

Banking Sector Reforms: Aftermath of September 30 Deadline ...
www.proshareng.com
Intercontinental Bank Plc will merge with Access Bank. ... Shareholders of FCMB plc and Fin Bank approved the merger of the two banks, targeting growth in ...