The managements of both Access Bank and Diamond Bank held a conference call today to provide an update on the proposed deal in which they estimated synergies from the merger to amount to N150.3 billion over a three-year period.
Revenue synergies are estimated at N62.2 billion, while cost synergies are expected to be N88.1 billion. Over 65 percent of revenue synergies is expected to come from enhanced product offering and cross-selling, while consolidation of procurement and management facility (46%) and cost of funds reduction through better deposit mix (24%) is expected to lead cost synergies for the combined entity.
Management is also upbeat about being able to deliver on the merger ahead of the previously scheduled half year 2019 period.
With several milestones crossed, both firms now estimate that the deal will close by early Q2’19. However there are some outstanding pre-merger events including, court ordered meetings expected to hold in February 2019, SEC and CBN approval expected to be obtained in March 2019 and a court sanction and deal completion by April 2019.
Overall, management expects that both firms will begin to operate as a single entity and integrate processes as from May 2019 and attain full integration by October 2019.
On Non-performing loans (NPLs) concerns, both banks highlighted that DIAMONDBNK’s Q3’18 numbers were adjusted to reflect additional impairment of N150 billion, placing its current NPL ratio at 40.4 percent.
For the combined entity, this translates to a pre-merger NPL ratio of 14.1 percent based on 9M’18 numbers. Although management is currently unable to estimate the amount of NPLs that will eventually be transferred to the combined entity, it is optimistic of achieving a single digit NPL ratio by FY’19. It hopes to achieve this by additional write-off of fully provisioned facilities and aggressively pursuing recoveries through the year.
Management suggested at the conference call that there is no more need for its initially proposed tier 1 capital raise through rights, as it believes it has sufficient retained earnings and tier 2 capital (over $250 million dollars to be drawn down by Q1’19) to consummate the deal.
Endurance Okafor
