Access Bank, Diamond Bank merger to close April

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…cancels N75bn rights issue

The Chief Executive Officer, Access bank Plc, Mr. Herbert Wigwe has said the merger between Access Bank plc and Diamond bank plc is expected to close by April 2019, two months ahead of schedule.

Wigwe said on investors/analysts call on Thursday that the management maintains that the integration has not commenced, although customers of both banks can access the other’s ATMs without the usual inter-bank charges.

He noted that Access Bank would no longer need the N75billion rights issue as earlier announced and would not need the funds to meet up with Regulatory Capital requirements of Central Bank of Nigeria (CBN), as it sees stronger earnings accretion and higher chances of loan recoveries in 2019.

However, Access Bank will still go forward with the drawdown of $250million of the 5-year Tier II Capital in first quarter of 2019 in Dollars and local currency issues.

He said some derivative positions maturing this year would not be rolled over to boost near-term liquidity.

Diamond Banks’ increased Non-Performing Loan (NPL) ratio by 12.6 per cent as at nine months ended September 30, 2018 was largely as a result of an adjustment with an additional impairment taken of N150bn on an NPL book comprising Past Due but Not Impaired (PDNI) & impaired facilities of N316billion.

Increased synergies expected from the merger largely on the back of enhanced product offerings, reduced cost of funds and consolidation.

Analysts at InvestmentOne said, “We believe that the market would react positively to the news of the smoothness of the integration of both Banks and the decision to cancel the rights issue, as shareholders had previously feared further dilution and seemed to shy away from Access Bank shares. However, we remain cautious and do not necessarily share the same optimism with the management of Access Bank for the following reasons:

“Between nine months of 2018 and now, Diamond Bank’s NPL ratio has skyrocketed to almost half of its total loan book size and as the Nigerian economy remains extremely fragile, we do not see the backdrop against which the recoveries would occur.

“Also, canceling the rights issue means the Bank is relying on synergies (N150billion to be realized over the next three years) to boost bottom line enough to act as a buffer for further write offs, however we believe the combined entity’s capital adequacy would take a hit in the near-medium term.”

Access Bank agreed last year to buy Carlyle-backed Diamond Bank in a deal worth about $200 million. It said last week it obtained “approval-in-principle” from Nigeria’s Securities and Exchange Commission and the Central Bank of Nigeria to proceed with the merger.

By the conclusion of the deal, Access’s assets could swell to about $17 billion from $12.5 billion, according to Bloomberg calculations. Zenith Bank Plc is currently the largest Nigerian lender, with $15.4 billion of assets.

Access Bank’s shares rose 6.2 per cent to N6 at close of trading in Lagos, while Diamond Bank climbed 0.5 per cent to N2.10.

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