• Thursday, July 18, 2024
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BusinessDay

Skye Bank’s acquisition of Mainstreet:  Emergence of a financial powerhouse

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In August 2007, the global economy was tipped into recession by an unprecedented financial and economic crisis, triggered by subprime lending in the USA.

Worst hit were the economies of Iceland, which went bankrupt almost immediately; Portugal, Greece and Spain, with Ireland and Italy teetered at the edge of the chasm.

Africa’s most populous economy, Nigeria, was not unscathed by the global meltdown. Unprepared for the effects of the crisis, the stock market collapsed by 70 percent leaving an unsteady banking system reeling.

In order to stabilise the system and restore confidence to the markets and investors, the CBN injected N620 billion worth of liquidity into the banking sector and replaced the leadership of eight Nigerian banks.

Free from the bad debts that had clogged their balance sheets; some of the banks which survived the crisis consistently improved their balance sheets with robust growth, year after year and embarked on strategic mergers.

This positioned them to contend with global banks for a share of trade in emerging markets.

Skye Bank, a second tier bank in the Nigerian banking sector, emerged from the integration of five banks, namely Prudent Bank, EIB International Bank, Reliance Bank, Cooperative Bank and Bond Bank in 2006, following the first phase of the banking industry consolidation.

Since then, the bank has grown from strength to strength to becoming a force to reckon with in the Nigerian banking space.

Only recently, in a reflection of  its industry leadership, strong market share, diverse location spread, and strong brand equity, the bank was listed as one of eight  ‘Systemically Important Banks’ in Nigeria.

Analysts have also predicted that in a short while, the bank would be ranked amongst the largest banks in the country in terms of branch network and balance sheet.

Skye Bank has remained in the news since its purchase of 100 percent shares of Mainstreet Bank from the Asset Management Corporation of Nigeria (AMCON), in a move that has been touted as one of the biggest acquisitions ever in the country.
In October 2014, AMCON announced Skye Bank as the preferred bidder for the acquisition of all its interest in Mainstreet Bank, after five months of bidding by over 20 organisations.
By October 9, 2014, Skye Bank had made the mandatory 20 percent deposit for the acquisition of the bridge bank, with a pledge to complete the 80 percent balance payment within the agreed time frame.
This was fulfilled ahead of the November 3 deadline, with the payment of the last tranche of the money for the acquisition of Mainstreet Bank, in consonance with the terms of the Share Sale and Purchase Agreement between AMCON and Skye Bank.
The acquisition of Mainstreet Bank, according to analysts, comes with a trail of benefits, including cost leadership, business optimisation, stronger profit and greater ability to offer business convenience to  retail and commercial customers, with a combined branch network of over 450 across the country.
Skye Bank intends to leverage its wealth of experience from the successful integration of five banks to drive efficiency, increase market share and ultimately ramp up stakeholder value from the acquisition of Mainstreet Bank.
Financial analysts are also convinced that the bank will automatically leapfrog other banks in its tier 2 category such as Diamond Bank, Fidelity Bank, First City Monument Bank, to become a major player in the Nigerian banking industry, while shoring up dividends and ensuring capital appreciation for the benefit of shareholders.
Skye Bank’s  emergence and positioning as a tier 1 bank  is not a  coincidence, as evidenced by its robust performance in the past three years. A peek into its Q3 2014 results shows that Profit before tax and Profit after tax both grew by 26 percent year on year to N5.1 billion and N4.1 billion, respectively. Profit before provisions grew by a marginal 5 percent year on year, owing to some reclassification in 2013.
Consecutively, PBT and PAT grew by about 33 percent quarter on quarter fuelled by funding income which advanced by 3percent y/y to offset a -7 Percent q/q (quarter on quarter) decline in non-interest income. The strong q/q growth in funding income led to profit before provisions improving by 20 percent q/q to N23.6 billion. PBT and PAT both beat analyst estimates by 17 percent.
In the case of H1’13, the banks numbers show a 19 percent and 3 percent respective growth in top  and bottom-lines.
While reviewing the banks H1, 13 numbers, Vetiva’s analysts  said “Gross earnings showed improved earnings accretion Year on Year. According to their report, after tax profit, when annualized however beat their estimate by 13 percent. Results outperformed our bottom-line estimate largely as a result of lower than expected interest expense.”
Vetiva’s analysts  further stated that the bank’s aggressive approach to cost-cutting was noteworthy in previous periods, reducing cost across all expense heads, from personnel expenses to energy.
While mergers and acquisitions (M&As) have proven to be an important arrow in the quiver of any business at any stage of development – whether start up or mature and established, some experts in the financial sector have attributed the recent spate of M&A, steadily growing business optimisation, and greater ability in offering business convenience to local content drive although others believe it is more the result of globalisation encouraging more international investment.