Ibrahim Apekhade Yusuf in this report takes a look at the economic fundamentals of Skye Bank Plc following its recent acquisition of the Mainstreet Bank, one of the nationalised banks owned by the Asset Management Corporation of Nigeria (AMCON).
For good measure a lot is bound to change in the banking sector as economic and financial pundits see the current wave of mergers and acquisition in the country as the second round of consolidation especially as banks like Skye, which acquired Mainstreet Bank, has invariably attained the status of mega banks with solid capital base.
Road to Mainstreet acquisition
Between September 11, 2014 and now, the Asset Management Corporation of Nigeria (AMCON) announced names of the preferred bidders for two of its three banks penciled down for sale.
On September 11, AMCON announced Heritage Bank Limited as the preferred bidder for Enterprise Bank, three weeks after, it named Skye Bank Plc as the preferred bidder for Mainstreet Bank Limited.
Skye Bank, a leading tier 2 Bank in Nigeria, was among the eight banks recently designated as ‘Systemically Important Banks’, which reflects its industry leadership, strong market share, diverse location spread, and strong brand equity. AMCON, in a statement signed by its Head, Corporate Communications Strategy and Research, Mr. Kayode Lambo, announced Cedar One Investment Partners Limited as the first reserve bidder and Fidelity Bank Plc as the second reserve bidder for the acquisition of the entire issued and fully paid up ordinary shares of Mainstreet Bank Limited.
The corporation explained that its board of directors had approved the transaction. It, however, pointed out that the completion of the transaction was subject to the fulfillment of the conditions precedent as stated in the Share Sale and Purchase Agreement (SPA) to be executed with Skye Bank as well as the receipt of all required regulatory approvals from the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC).
However, within four days of the announcement of Skye Bank as the preferred bidder by AMCON, the bank effected payment of the mandatory 20 per cent before the expiry of the one-week given. This was on October 9, the same day it signed the Share Sale and Purchase Agreement. And in a rare display of buoyancy, leadership and commitment to see the deal is properly closed, the bank again, on October 31 paid the 80 per cent balance to complete the takeover of Mainstreet with one week to the deadline given by AMCON.
Implication for banking landscape
In the view of analysts, the acquisition of Mainstreet Bank has launched Skye into the league of the top three banks in Nigeria and with very promising future. It is believed that the bank will leverage on the widespread of Mainstreet branch network to consolidate its calculated advancement thereby giving it a superior place in the league of Nigeria’s top three banks.
According to Skye Bank, the acquisition will avail it of many benefits, including cost leadership, business optimisation, and greater ability to offer business convenience to its teeming retail and commercial customers, with a combined branch network of over 450, across all the states of the Federation.
Mainstreet Bank, then AfriBank used to be the fourth biggest bank, after First Bank, Union Bank and UBA.
AMCON had announced Skye Bank as the preferred bidder for the acquisition of all its interest in Mainstreet Bank, representing the entire capital of the bridge bank. Skye Bank emerged the preferred bidder after a rigorous bidding exercise that spanned five months, with over 20 bidders contending.
Reacting to the development, Skye Bank said the acquisition of Mainstreet Bank was part of its strategic plan for growth. Skye Bank emerged from the very successful merger and integration of five banks in 2006, following the first phase of the banking industry consolidation. The 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.
The bank said the acquisition would help deepen its penetration of the South East and South South regions where it is currently less represented, explaining that out of Mainstreet Bank’s 201 branches and nine subsidiaries, 26 per cent or 54 branches are located in the two regions.
“These two regions also accounted for 28 per cent of Mainstreet Bank’s over 1.9 million customers, second only to Lagos with 37 per cent. This clearly shows that the integration of Mainstreet Bank will enable us make valuable in-roads into these two regions without the need to incur huge expenditure had we remained a single entity as Skye Bank”, the top lender explained.
Besides, Skye Bank explained that the acquisition would bring valuable synergies from the mutual focus areas of commercial and retail banking of the two entities in a larger Skye Bank. The bank noted that its focus is on retail and commercial banking, which is also the main focus areas of Mainstreet Bank Limited.
A flip through Mainstreet Bank Limited’s 2013 audited results, put retail and commercial banking contribution at 78 per cent, 36 percent, and 18 per cent of total deposits, total loans and profit before tax. Also, Mainstreet’s savings and demand deposits accounted for 21 per cent and 43 per cent of deposit mix, which also demonstrated its focus on these two segments.
Mainstreet Bank, according to insiders to the deal, has a large pool of very loyal institutional and corporate customers, in spite of its status as an AMCON-owned bank, ascribing customer loyalty to the existence of Mainstreet’s current 1.9 million customers, a little less than the pre-AMCON takeover figures.
Skye Bank’s fundamentals
Skye Bank Plc has announced its Third Quarter result with moderate growth in some performance indices. It recorded a Profit before tax of N12.3billion during the period which represents a quarter on quarter growth of 33 per cent%.
With gross earnings of N97.1billion, the bank was able to reduce its interest expense by 15 per cent Year on year to close at N30.3billion compared to N35.7billion as at September 2013. This is in line with its operational strategy of increasing the volume of low cost funds in its deposit portfolio.
The Bank closed with a year-to-date net loans and advances balance of N576billion showing a 6% increase Year on year. Similarly, customer deposits grew to N801.7billion as against N726.8billion of the previous year while asset size remained strong at N1.1trillion with a 3 per cent year-on-year growth.
The bank said barring any unforeseen circumstances, the growth pattern would be improved on in the remaining period of the financial year.
“Our loan impairment charge increased by 62 per cent Year on year to N7.5billion, being a deliberate policy of aggressive provisioning early in the year to enable a fairly sustained position and avoid high concentration in the last quarter of the year. Non-interest income improved by 15 per cent YoY to N17.6billion compared to N15.2billion of the corresponding period in 2013.”
To analysts, combining Mainstreet Bank numerous branches with Skye Bank’ the new status may sure give First Bank, Zenith and GT Bank a run for their money.
Skye Bank parades Sterling management team. As if they knew they would go this big, there has been continuous restructuring in the last few months, including a new Managing Director/Chief Executive, Mr. Timothy Oguntayo, with futuristic outlook working with people of equal strength.
