Why tier-one banks are acquiring smaller banks

Survival instincts are forcing tier-one banks in the country to acquire smaller and weaker banks, following the successful merger of Access Bank with the defunct Diamond Bank, with the new Access Bank giving other tier-one banks a run for their money.

BusinessDay Research and Intelligence Unit (BRIU) gained some insights into the audited financial statements of Access Bank, Zenith Bank, Guaranty Trust Bank (GTB), and Africa’s  global bank, the United Bank for Africa (UBA), to the effect that when the aforementioned banks are ranked in terms of market share, Access Bank made the most progress in 2019.

Like retail banking that hitherto was a non-traditional field to Access Bank, the progress it made in 2019 was phenomenal as the bank recorded over 300 percent growth in retail banking revenue and over 500 percent growth in segment’s profit.

To show that other tier-one banks are not resting on their oars, last Friday, another tier-one lender, First Bank Holdings, neither denied nor confirmed the rumours making the rounds that it was in talks with Polaris and Heritage banks for the possibility of a merger and acquisition deal. Similarly, rumours also have it that Zenith Bank is about to acquire Union Bank.

The banking industry landscape is fast changing and this has started manifesting in the banks’ financials. As a result, the combined banking industry revenue earned by Access Bank, Guaranty Trust Bank (GTB), Zenith and the United Bank for Africa (UBA) rose by 28 percent in 2019. The cumulative gross earnings of the four tier-one banks rose to N2.32 trillion in 2019 from N1.81 trillion in the previous year, representing an increase of 28 percent.

In terms of growth, Access Bank recorded 164 percent growth in revenue to earn N666.75 billion by 2019 year-end in contrast to pre-merger N253.02 billion in 2018.  Africa’s global bank, the United Bank for Africa (UBA) grew its revenue by 13.31 percent, and that was the second-best performance in terms of revenue growth among these banks. UBA’s gross earnings rose to N559.81 billion in 2019 up from N494.05 billion in the previous year.

By market share in 2018, GTB controlled 24 percent, Access Bank, 14 percent; Zenith, 35 percent and UBA, 27 percent. However, that was not the case in 2019.

Access Bank increased its market share from 14 percent in 2018 to 29 percent in 2019, as the board and management teams at Access Bank started to reap the benefits of the clinical merger executed with the defunct Diamond Bank. During the same period, other tier-one banks shed some market share.

GTB, which controlled 24 percent of the tier-one banks’ industry revenue in 2018 ended 2019 with 19 percent market share. Zenith Bank controlled 35 percent of the revenue in 2018 but closed 2019 with 29 percent share of the industry revenue, while the UBA’s market share fell from 27 percent in 2018 to 24 percent in 2019.

Similar trend manifested in industry profit. The combined profit of the four deposit money banks grew by 17 percent from N599.71 billion in 2018 to N700.34 billion in 2019. When ranked by contribution, Access Bank gained the most market share in the last financial year.

In 2018, GTB accounted for 36 percent of the tier-one banks’ industry profit as at the time Access Bank accounted for just 8 percent. Zenith Bank in 2018 maintained market leadership accounting for 39 percent of the industry profit while UBA made N106.8 billion to account for 18 percent of the banking industry profit.

In 2019, Access Bank and UBA controlled 16 percent each, meaning that the former made last year twice as much as the profit it made in 2018 to equate the latter in contribution to industry profit. Zenith Bank and GTB in 2019 accounted for 35 percent and 33 percent of the industry profit.

Most of the significant gains made by Access Bank in 2019 came from retail banking, as well as from the corporate and investment banking segment. Revenue from the retail banking grew by 387.4 percent from N45.8 billion in 2018 to N223.1 billion in 2019. Also, revenue from corporate and investment banking segment rose by 179.7 percent from N90.9 billion in 2018 to N254.4 billion in 2019. The bank also recorded a noticeable growth in commercial banking segment as revenue rose by 98.8 percent from N74.9 billion in 2018 to N148.9 billion in 2019. On the contrary, revenue from business banking segment slide by 2.54 percent from N41.4 billion in 2018 to N40.3 billion in 2019.

Profit Before Tax (PBT) from both the corporate and investment, and retail banking segments witnessed significant turnaround last year. Access Bank’s PBT from corporate and investment banking segment grew by 172 percent while that of the retail banking segment rose by 572 percent.

GTB’s retail banking revenue grew by 15.32 percent while that of the corporate banking segment remained flat. Commercial, SME and public banking segments saw a decline in their revenues to the tune of 29 percent; 12 percent and 6 percent respectively.

GTB’s PBT in corporate and retail banking segments recorded 13 percent and 26 percent growth respectively. Other segments witnessed a decline in PBT in 2019 compared with 2018.

Zenith Bank posted the second-best growth in retail banking segment’s revenue after Access Bank. At N82.8 billion in 2019, Zenith Bank’s retail banking revenue increased by 68 percent from N49.4 billion in the previous year. Revenue from commercial/SME banking rose by 17 percent during the period. Other banking segments, that is, corporate, and public banking segments, witnessed a decline. The same pattern was exhibited in Zenith Bank’s segment profitability as only the retail and commercial/SME’s PBT increased by 74 percent and 38 percent respectively.

UBA grew the revenues from all its banking segments but the PBT of treasury and financial market declined by 47 percent.

TELIAT SULE