Wave of activity: Mergers lead to market consolidation

The banking sector has been seeing a significant amount of merger and acquisition activity since early 2011, including one deal that recent reports suggest has given rise to a new industry leader, in terms of banking assets. Some observers predict further merger activity and view recent capital requirement increases as being aimed at spurring consolidation. This would enable the creation of banks that are better able to finance large projects. There have also been calls for mergers in the rural and community banking (RCB) segment, as well as in the universal banking sector. Ghanaian banks are increasingly cooperating, through the form of syndicated loans for example, which some industry players – keen on preserving their banks’ identities and opposed to regulatory-driven consolidation – view as a preferable alternative to mergers for funding large projects. Since the beginning of 2011 the sector has witnessed a number of important deals. In February 2011 the Mali-based Bank of Africa Group, which is majority-owned by Morocco’s Banque Marocaine du Commerce Extérieur and has a presence in 14 other African countries, acquired a majority stake in Ghana’s Amalgamated Bank (AmalBank). AmalBank was rebranded and relaunched that September as Bank of Africa Ghana.

MERGERS & ACQUISITIONS: This was followed in October 2011 by Access Bank, the Nigerian parent company of Access Bank Ghana, acquiring a 75% stake in the Nigerian owner of Intercontinental Bank Ghana (ICB). Access Bank and ICB were, respectively, the 23rd- and 21st-largest banks by assets in 2010, with respective market shares of 1.2% and 1.3%. In April 2012 Access Bank announced that it had completed the integration of the two banks’ IT systems. Access Bank has said that the deal positioned it as the most highly capitalised bank in the country in terms of paid-up capital, which stood at GHS118.3m ($70.1m) following the deal, and one of the top seven banks based on most measurements, with 150,000 customers and an asset base of approximately GHS929.6m ($551.2m).

Then in December 2011 Ecobank Ghana’s Togo-based main shareholder, Ecobank Transnational Incorporated, acquired full control of Ghana’s The Trust Bank (TTB), having bought a 61% stake in TTB from the Social Security and National Insurance Trust (SSNIT) at a cost of GHS220m ($130.4m). Prior to the merger Ecobank had the fourth-largest asset base of all Ghanaian banks (based on 2010 figures), while TTB had the 15th-largest. Based on 2010 figures, the merger has given rise to the second-largest bank by asset base in the country, coming close to rivalling that of Ghana Commercial Bank – indeed some reports, based on mid-2012 results, suggested that Ecobank has already surpassed GCB in terms of assets. The sale of the stake generated political tension among groups opposed to control of the bank passing from a state institution to a foreign bank (though the SSNIT also owns a 1% stake in Ecobank Ghana and a 9% stake in its parent firm). SSNIT is a major player in the Ghanaian banking sector, owning a majority stake of 68.75% in Merchant Bank as well as significant stakes in several other banks and non-bank finance houses.

RURAL CONSOLIDATION: As in the universal banking sector, consolidation is a live theme in the RCB segment. In September ARB Apex called on rural banks to merge in order to boost capitalisation and reduce costs, warning that the Bank of Ghana (BoG) was likely to raise capital requirements again and that some banks could struggle as a result. “Some rural banks are likely to merge, while others are likely to list on the Ghana Stock Exchange in coming years,” Konadu Asiamah, the executive director of the Association of Rural Banks, told OBG. More consolidation may be on the way among smaller indigenous universal banks, in particular in order for them to be able to meet the BoG’s raised capital requirements, something the central bank has encouraged alongside recourse to equity markets. Indeed, many regard the decision to raise the requirements as motivated by a desire to push banks together so they can handle major projects.

“The main goals of the hike in capital requirements were to boost capitalisation in order for local banks to be better able to finance the hydrocarbons sector and encourage consolidation, which local banks need to fund capital-intensive industries, such as oil and gas, or infrastructure,” said Sulemana Mohammed, a research analyst at Ecobank Capital.

SLOW TO ACCEPT: Many banks are resistant to consolidation, with most wanting to maintain their own identity. “Local banks are selective about where capital comes from and several have turned down would-be investors for reasons that often are not clear,” Mohammed told OBG. For this and other reasons, further consolidation is unlikely to take place without more regulatory pressure. “Size matters, and consolidations is needed in Ghana,” said Alhassan Andani, the managing director of Stanbic Bank. “However, it will be driven more by regulation than the market. Banks are still making good money in their niche segments and don’t see the need for consolidation,” he told OBG, adding that if Basel III regulations are enforced, more banks are likely to come together.

Others are opposed to efforts to encourage consolidation. “It is not a numbers game – the sector has to be allowed to grow in its own terms. The principle aim should be to get more people onto bank books rather than pushing for mergers,” said Unibank CEO Felix Nyarko-Pong. However, he agreed consolidation is unlikely to happen without further regulatory action and said it is not as important a trend as some observers believe. “So far we have not seen any of what I would call ‘real’ consolidation,” he told OBG. “None of the recent mergers were related to the capital requirement increases; rather, they were driven by factors like common shareholders wanting to merge separate businesses. I do not foresee any major consolidation in the future unless the BoG raises capital requirements to something in the region of GHS500m ($296.5m). Only forced consolidation is likely.”

Others feel similarly. “The BoG hoped that the new capital requirements would force some banks to merge, but this ended up being limited to Ghanaian banks,” Robert Kow Bentil, CEO of BSIC Bank, told OBG. “The giants in the industry will not merge. Smaller banks will, but overall there is very little consolidation.”

COOPERATION OVER CONSOLIDATION: Even if further consolidation fails to take place, banks are working together in order to provide new services. In May 2012 Ghanaian banks, under the coordination of Stanbic Bank, came together to provide a syndicated loan of GHS410m ($243.1m) to the mobile network operator MTN, which plans to use the funds to help upgrade its network.

The deal, which was over-subscribed by 35%, represented the largest local currency bank syndication in the country’s history, other than annual syndications for the country’s cocoa board.

There are likely to be more such large syndicated loans. The trend suggests that, regardless of further consolidation, the sector will become increasingly able to finance larger-scale projects in the future.