Six commercial banks are likely to seek mergers and acquisitions in the New Year – no thanks to the shock created in their assets and balance sheet sizes in the face of declining oil prices.
Crude oil prices have fallen to as low as $37.11 per barrel from over $110 per barrel a year ago. This has adversely affected banks’ oil assets.
Besides, the level of non-performing loans in the sector has risen.
The Managing Director, Sterling Bank Plc, Yemi Adeola, who disclosed this yesterday said he envisaged possible shrinking in the number of local banks in the New Year. There are already moves suggesting that trend, he said, but did not name any bank.
Speaking at an end-of-year media briefing in Lagos, the bank chief said two international banks were discussing with local lenders on possible acquisition. He said the year has been a challenging one for the economy and the banking sector, adding that banks are now finding ways to wriggle out of these challenges, including a tough regulatory environment.
Adeola said the Nigerian banking industry was the most regulated sector in the country thereby affecting banks’ performance.
“To say that everything will be rosy in 2016 will be deceiving ourselves. I think if the opportunities arise for banks to pursue further consolidation, we could see two or three. I also know that one or two international banks are interested in pursuing acquisitions in Nigeria and they are indeed having discussions already,” he said.
“So, you could see a combination of one or two international banks taking over one or two Nigerian banks or merging with them. And nothing also stops two or three Nigerian banks having merger discussions in 2016.”
Adeola said Sterling Bank is ready for either a merger or an acquisition, provided it will add value to stakeholders. “For us at Sterling Bank, we are always open to mergers or acquisitions. We are open to anything that can give us scale. Whether it is a merger or acquisition, we are open, but the synergy must be there. We must see the benefits clearly. Any merger must be one that ensures stakeholders will benefit more; otherwise it will not be worthwhile,” he said.
Adeola added: “We have every cause to remain optimistic in 2016, despite the fact that it is going to be a challenging year for the banking sector. We are determined to keep the momentum going. We first started a merger of five banks, and all the consultants predicted that all the entities will struggle for the next 10 years. It was challenging but we got out of it. Experience has shown globally, that mergers don’t work, especially when you are merging five institutions.”
Adeola said Sterling Bank did first merger in 2006 and ran as a bank from day one, despite the fact that five banks came together. “In 2011, we did another merger with Equitorial Trust Bank (ETB), and was done in record time and you will never see cultural differences. We are one bank, and it means we have perfected the act of acquisitions. Could there be an opportunity to pursue an acquisition again, we will try,” he said.
Adeola said the foreign exchange challenge remained a tough one for banks and the economy. “You can only spend what you have and if our reserves are at $29.4 billion as at December 15, there will barely fund four to five months of import. The options are usually two: to adopt capital control and focus on key sectors. In other words, you determine where you want the forex to go to in order to curb wastages,” he said.
In Adeola’s view, Nigeria cannot sustain capital controls for so long. He said the government does not want the forex to be used for speculative purposes. “But it is a double edged sword. If you adopt capital controls, investors are reluctant to come in, because if they bring their money in at N200 to dollar, they will not be able to know what rate when they are going. So, you shut your door to new money coming in. The other option, is let the naira find its true value. The question is what is the true value for the naira?”
To Adeola, the right thing to do is find the true value of the naira and devalue it from there. “Some will suggest the street value, while others will suggest the Central Bank of Nigeria rate. But it is also not the true value. The true value of the naira is between the CBN rate and the parallel market rate. But there are ways we can find the true value of the naira and devalue to that extent. If people are sure, they are getting true value for their dollars, then the dollars will come down,” he said.
Adeola said Sterling Bank continued to survive in spite of such tough regulations because it plays by the rules. “We do not flout regulations. We keep strictly to regulations. We will continue to face challenges that come our way with maturity. He said the bank desires to be a top six bank, from top 10 currently, and also be a leading consumer banking franchise,” he said.
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