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Why Access Bank Has Moved to Buy Diamond Bank

It’s been reported that Access Bank has moved to acquire Diamond Bank. This comes in the wake of the signing of a Memorandum of Understanding (MoU) between the two banks over the weekend, which should see them officially recognized as a single company in the coming week.

The melding of the two banks, which is subject to the approval of their shareholders and the Central Bank of Nigeria (CBN), could take Access Bank up the pecking order of the country’s financial houses and establish it as Nigeria’s second-biggest commercial bank.

In the months leading up to this acquisition, there’s been talk of a friendly takeover of Diamond Bank by some other deposit money institution. Rumours of a planned merger with Access Bank were rife. But both banks had denied that they were in negotiations for any interventions of this sort.

Books, Boards and Shares

Claims of an impending acquisition were stoked by a series of events and disclosures from Diamond Bank, which seemed to indicate that it was struggling. The bank’s report for the third quarter of 2018 revealed a sharp decline in its profits. Within the period, it was also slapped with a ₦250 million fine by the CBN for allegedly assisting telecoms company MTN with illegally repatriating $8.1 billion from Nigeria.

The speculations grew stronger with the resignation of the bank’s chairman at the time, Oluwaseyi Bickersmith. He had stepped down from the board along with three non-executive members. The bank’s official statement said they were departing for “personal reasons”.

Despite its denial of an imminent absorption by another financial institution, Diamond Bank’s shares took a battering on the Nigerian Stock Exchange. In the two days following the rumours’ surfacing, it’s share value plunged by more than 17%. Meanwhile, Access Bank’s share price climbed, gaining by close to 2% in that period.

Last Friday, Diamond Bank’s CEO, Uzoma Dozie, had announced that the bank was giving up its international operating license to focus on its domestic business. In retrospect, that announcement now seems to have been a primer for the eventual disclosure of Diamond Bank’s assimilation into Access Bank.

The acquisition of Diamond Bank by Access Bank is expected to be given the nod by regulatory authorities in the coming days. It’s understood that the CBN may have been in the know about the background negotiations all the while. Industry watchers believe the apex bank could justify its approval of the transaction on the grounds that it’s in the nation’s economic interests.

Diamond Bank’s purchase by Access Bank brings its 28-year-old existence as an independent banking entity to an end. Founded by Paschal Dozie in 1990, the bank had grown over past two and a half decades to become one of Nigeria’s largest financial institutions.

What Could Be in It for Access Bank

Access Bank is looking to strengthen its position in Nigeria’s competitive financial services landscape, and analysts see its purchase of Diamond Bank as firmly aligned with this vision.

The bank’s report on its earnings for the third quarter of 2018 shows that its profit after tax in the period stood at ₦62 billion, representing a 12% increase from the same period in 2017. The report cast the bank as financially stable, with its key performance indicators looking fairly healthy.

Acquiring Diamond Bank’s assets could bolster Access Bank’s public image- an important currency in the world of Nigerian commercial banking. It also expands its customer numbers and market value, thus giving it more clout in an industry in which companies are continually looking to consolidate their positions.

Questions have been raised about its ability to manage the liabilities on its acquisition’s books; such concerns have ultimately not prevented it from going ahead with buying its large rival. While it’s hard to tell what all the underlying factors at play are, it seems that the bank’s board is confident that it can do well with what it’s taking on.

 


Featured Image Source: Nairametrics

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Ikenna Nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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