- Advertisement -
27.2 C
Lagos
Sunday, January 17, 2021

Access Bank Acquisition of Transnational Bank Kenya Brings Little Shareholder Value

Must read

In a statement released last week, Access Bank, which is one of Nigeria’s largest Banks by assets said it had successfully completed the acquisition of Transnational Bank Kenya.

The tier-one Nigerian lender said this followed the receipt of full regulatory approvals and fulfillment of all conditions precedent to completion of the deal.

MoneyCentral decided to look into the most recent numbers for Transnational Bank of Kenya to understand what value if any Access Bank, saw in the Kenyan lender to trigger an acquisition.

Total Assets
Transnational Bank Kenya had total assets of KES9.7 billion which is equivalent to $90 million (N34 billion) as at the end of the first quarter (Q1) of 2020.

Net Loans and advances to customers (the largest component of total assets) was KES5.6 billion as at Q1, or $51 million (N20.1 billion).

For context Access Bank had total assets of N7 trillion as at Q1, 2020 and net loans to customers of N3.15 trillion as at March 2020.

Liabilities
Total liabilities for the Kenyan lender came in at KES7.889 billion which is equivalent to $73.1 million (N28.3 billion).

Customer deposits which formed the major component of liabilities came in at KES7.3 billion or $67.7 million (N26.2 billion).

For Access Bank standalone customer deposits increased by 5 percent to N4.46 trillion in March 2020.

Profitability
The Kenyan lender reported total operating income of KES 892.6 million ($8.2 million) in its audited 2019 financial statements.

However total operating expenses of KES 948.8 million ($8.8 million), wiped out operating income totally, leading to a loss after tax position of -KES 83.94 million or -$778,736 (-N302 million).

The trend continued into the first quarter (Q1) of 2020 for the Kenyan lender, as it reported a loss after tax position of –KES 2.463 million.

Access Bank reported after-tax profits of N40.9 billion in Q1, 2020.

Non-Performing Loans
The Kenyan bank reported net non-performing loans and advances of KES 1.09billion as at March 2020.

Insider loans and advances was also elevated at KES 867.2 million, equivalent to 15.4 percent of the banks net loan book of KES 5.6 billion.

Capital Strength
The Kenyan bank reported it outperformed on all major capital ratios including core capital as a percentage of total deposits= liabilities which came in at 22.5 percent, compared to minimum statutory ratio of 8 percent.

Core capital as a percentage of risk weighted assets was 18.9 percent compared to a minimum statutory ratio of 10.5 percent, while total capital as a percentage of total risk weighted assets was 20.9 percent in Q1, compared to a minimum statutory ratio of 14.5 percent.

Liquidity
The liquidity ratio for the Kenyan lender was 38.9 percent in Q1 2020, while the minimum requirement by the regulator is 20 percent.

Conclusion
The Access Bank purchase of Transnational Bank of Kenya makes little shareholder value sense and it will entail Access Bank pumping significant resources into the lender to help end its loss making trend and improve its risk management practices.

Herbert Wigwe, Access Bank’s Group Managing Director/Chief Executive Officer, commenting on the acquisition had said:

“We are excited to make an entry into the vibrant Kenyan market. We pledge to put our customers at the forefront of everything we do. Through the creation of a world class payment system, we will build and support our wholesale and retail customers using our strong customer insights to deliver beyond their expectations.”

It is possible that Mister Wigwe truly believes what he said above but even he must know that the payments space in Kenya is already dominated by M-Pesa, offered by Kenya’s largest Telco safaricom, which will be difficult to displace in any scenario.

Kenya’s tough banking environment where a cap on lending rates hitherto in place (although now lifted) will also be a challenge for Access Bank, as well as tougher supervision by the central bank and an over-proliferation of lenders.

Transnational Bank of Kenya is rated as a Tier-4 lender and has 28 branches in the country.
This acquisition is non-value accretive to Access Bank and will instead lead to significant costs being incurred in the medium term whether the bank chooses to go on an organic growth drive to increase its footprint or embarks on further acquisitions.

Access Bank shares closed trading at N6.30 on Monday. The shares have largely gone nowhere in the past 4 years (see chart below).

 

- Advertisement -

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

- Advertisement -

Latest article