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How mergers impact confidence in banks and their customers

By Babajide Komolafe

THE desire for bigger financial strength to expand market share and deliver superior products to a larger consumer base is increasingly driving more companies to mergers and acquisitions (M&As). Between 1980s and 1990s, there were about 3,600 mergers in the US.  In 1996, the Bank for International Settlements (BIS) reported a similar trend in Japan and across Europe, especially during the 1990s. Also in Nigeria, the banking consolidation exercise produced 19 mergers involving 60 banks.

This trend is driven by the various benefits of mergers and acquisition (M&A), which have been proven to outweigh the risk or disadvantages. Yatendra Kumar in a paper on the advantages and disadvantages of M&As, noted that: “Mergers produce synergies and economies of scale, increasing operations and cutting prices. Other benefits include increased capacity, cost efficiency, expansion in product range leading to increased product choice for customers.”

Banking hall

This is particularly noticeable in the global banking industry where banks have used M&As to expand their reach and upscale their capacities to deliver best in class products and services to millions of customers across the world.

Highlighting the benefits of M&As to the banking industry and bank customers, Joseph Afolabi, former Director, Research Department, Nigeria Deposit Insurance Corporation (NDIC), said: “Since M &A is expected to lead to the creation of large and strong banks, confidence in the nation’s banking system is likely to be enhanced and this in turn may lead to improvement in banking habits of the populace thereby enhancing the efficacy of monetary policy. Furthermore, economies of scale are fairly likely to improve after a successful M & A.  Larger transaction volumes and larger asset positions, through a rationalized delivery system, mean that unit costs can be reduced.  When such cost reductions are passed on to the consumers, this may be regarded as a public interest benefit.”

A new financial power house

The proposed merger of Access Bank and Diamond Bank is also aimed at delivering these values to millions of customers across the world and the Nigerian banking industry. The deal according to the banks is driven by two critical factors namely the need to combine the unique strength of the two institutions to produce a financial power house, and the need to guarantee customers’ satisfaction. The merger, which is scheduled to be completed by April this year,  will produce the largest bank in Africa by number of customers, spanning three continents, 12 countries and 29 million clients. The new bank will combine treasury, risk management and corporate banking expertise with strong retail and digital banking capabilities to create a financial institution operating across the full suite of products for all customer segments.

Access Bank And Diamond Bank Run Together For Customers At The Access Bank Lagos City Marathon 2019

This is expected to produce a cost synergy conservatively estimated at N30 billion per annum, pre-tax, to be fully realized within three years post-completion. According to the Memorandum of Understanding (MoU) signed by the two banks, Diamond Bank shareholders would receive a consideration of N3.13 per share, comprising N1 per share in cash and the allotment of two new Access Bank ordinary shares for every seven Diamond Bank ordinary shares held as at the implementation date.

Managing Director/Chief Executive, Access Bank Plc, Mr. Herbert Wigwe highlighted the benefits of the proposed merger saying: “Customers are at the heart of our decision to create one of Nigeria’s leading banks. The combination of Access Bank and Diamond Bank will result in real benefits.

“The combined enterprise will be a large diversified bank with an extreme extensive retail foot print. Together we will have 27 million customers which is basically the largest customer base of any bank in the continent, 33,000 Point of Sale, PoS terminals, 3,000 Automated Teller Machines, ATMs as well as 13 million mobile customers

“The products and services that Diamond bank’s clients enjoy, including its commitment to digital innovation, will continue unchanged and will be backed by Access Bank’s own commitment to customers, financial inclusion and sustainability, and the bank’s corporate expertise and strong balance sheet”. Speaking further, he said, “Access Bank and Diamond Bank have complementary operating platforms and similar values, and a merger with Diamond Bank, with its leadership in digital and mobile-led retail banking, will accelerate our ambition to become a leading corporate and retail bank in Nigeria and a Pan-African financial services champion. We look forward to bringing our discussions to a successful conclusion and delivering the benefits of the merger to our staff, customers, shareholders and other stakeholders.”

Managing Director/Chief Executive, Diamond Bank Plc, Uzoma Dozie, 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.

“Diamond Bank will benefit from Access Bank’s strong culture of risk and capital management expertise and a clear strategy for sustainable growth. Access Bank will take advantage of Diamond Bank’s unparalleled retail banking expertise and strong digital offering. Together, the two companies would create one of Nigeria’s leading banks, with 29 million customers, including more than 13 million mobile customers, as well as 3,100 ATMs and around 32,000PoS terminals.

“Diamond Bank and Access Bank share many of the same areas of focus, including women, youth, entrepreneurs and the financially excluded and will be able to further develop their positioning and market leadership in these growth sectors. Diamond Bank’s corporate customers will also be able to benefit directly from Access Bank’s corporate expertise in trade finance, cash management, treasury and corporate finance.”

Benefits to customers

The business combination, the banks stressed offers lots of benefits for their customers.  Diamond Bank customers will continue to enjoy all the bank’s current unique products and services even after the merger. And there is more — these products and services will become better improved, due  to the combination of expertise between the leading banks.

Furthermore, Diamond Bank’s customers will continue to enjoy DiamondXtra because the reward scheme will remain unchanged, even as new winners will continue to emerge and be paid. As a matter of fact, the merger with Access Bank will ensure that DiamondXtra becomes bigger and better because the scheme will be opened to Access Bank customers as well.

Also, Diamond Bank customers will enjoy instant, borderless banking from any Access Bank branch. In other words, whenever they walk into any Access Bank Plc branch and Initiate payment in their local currency, the beneficiary will receive an instant direct credit to their account or cash in their local currency. This service will be available in all Access Bank subsidiaries in Nigeria, Ghana, The Gambia, Democratic Republic of Congo, Rwanda, Zambia and Sierra Leone.

In addition to these, any Diamond Bank or Access Bank cards that get trapped in either bank’s ATMs will not be destroyed. Instead, such cards will be released to cardholders upon validation of ownership.

In the same vein, customers of both Diamond Bank and Access Bank will have access to over six hundred branches, where they can enjoy Same Day Clearing of cheques in either bank, just as they will be rewarded for using either Diamond Bank or Access Bank POS terminals. In the meantime, more lounges for the Diamond Bank XclusivePlus subscribers will be created.

Industry impact

Analyst at Financial Derivative Limited   in the comment on the merger said: “The ability of the new entity to leverage economies of scale and scope will stem from the successful alignment of strategies and subsequent communication to stakeholders. This alignment will shape the organization’s culture, which is a critical success factor to thrive in a highly competitive banking environment.

“It is also expected that Access Bank will draw from its experiences of successful mergers and acquisitions, such as the acquisition of Intercontinental Bank, to manage expectations of key stakeholders and reap the benefits of this strategic alliance.”

The merger was also commended by the global rating agency, Moodys, which said the deal is a “credit positive” for the Nigerian banking industry.

“We view the potential merger of Access Bank Plc and Diamond Bank Plc, two of Nigeria’s systemically important banks, as credit positive for the Nigerian banking system overall  “, said Moodys, adding that,  “the merger would limit the threat of contagion of the former’s relatively weak credit profile to the Nigeria’s banking system.”

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