Analysis: Is First Bank’s acquisition of Heritage Bank and Polaris Bank a game changer?
Age they say is nothing but a number but not when you are 126 and still relevant. FirstBank Ltd, Nigeria’s oldest bank has in so many ways stood the test of time.
If there is any bank you can reference for experience when it comes to transformation and innovation from the second industrial revolution to what many see now as the fourth, then it is perhaps this bank. Innovate or die as they say.
Last week, news reports suggest the bank was considering an acquisition of Polaris and Heritage Banks respectively. The bank promptly issued a press release neither affirming nor denying that a deal was under consideration.
However, it said enough to warrant a review of the consequences of taking yet another bold step in the bank’s ageless journey in survival.
Heritage Bank which began operations in 2012 after acquiring the license and structure of the old Societe Generale Bank of Nigeria is not new to controversy.
In 2014 Heritage Bank did the unthinkable, it was announced by the Assets Management Corporation of Nigeria (AMCON) as the winner of the bid for the acquisition of the defunct Enterprise Bank.
Since then, reports about the bank’s ability to remain as a going concern have dominated the news. Polaris Bank, on the other hand, was created by the CBN after it took over the hugely mismanaged Skye Bank Plc.
The bank is yet to publish its financials and the impression out there is that the bank is on life support on the instruction of the CBN.
So, why could FirstBank or indeed any bank be interested in these banks? Last January, the CEO of Heritage Bank Mr. Ifie Sekibo revealed that it will soon receive fresh capital injection from yet to be disclosed investors, a development that is expected to push up the bank’s capital base and by so doing, drive growth.
This was the first official indication that the bank needed capital to survive and remain competitive. FirstBank’s position as the largest bank by total assets and deposits was also usurped by Access Bank following its acquisition with Diamond Bank.
To wrestle the bank, it’s position at the top, First Bank will have to consider both organic and inorganic means. Thus, an acquisition with Heritage Bank is logical. Heritage Bank also recently launched its digital banking business, Octopus putting it at the forefront of the FinTech driven future of banking.
FirstBank potential acquisition with Polaris is one that is hard to decipher from a value proposition. Thus, a possible deal will have to exclude liabilities for it to make sense.
To be fair, Polaris bank has reinvented itself over the last couple of years despite its legacy challenges and ability to attract deposits. From rebranding to launching new products it has struggled to remain relevant as AMCON continues its search for a buyer.
Last year, the bad loan bank announced it will step up a sale of the bank after the 2019 general elections.
Is this a good move for First Bank? First Bank has its own fair share of challenges and is currently undergoing a transformation. The bank is reining in on its notoriously high cost to income ratio and has also reduced its non-performing loans ratio. It has also led the sector in terms of financial inclusion and is also tech conscious with its very impressive banking app and associated services.
The race to scale driven dominance in the banking sector will likely hinge heavily on inorganic growth such as mergers and acquisitions. For a Holdco like FBNH, First Bank’s parent company, the structure allows target driven acquisitions which could solidify the bank’s position as a leading financial services supermarket.
But the risks are obvious and real. An acquisition is not just a combination of balance sheets, it can be a clash of cultures and an explosion of costs. Recent banking acquisitions have not really resulted in the so-called dominance it touts or cost synergies it hopes to optimize.
Nigeria’s largest banks by profits and market capitalization remain Zenith Bank and GT Bank and both avoided mergers and acquisitions during the Soludo driven banking consolidation race.
If FirstBank is to cut a deal to swallow both Polaris and Heritage Banks respectively, then it needs thorough due diligence and must avoid carrying on liabilities and costs that often weigh down on consolidation gains.
In 2017, we got a chance to ask the CEO of the bank, Dr Adesola Adeduntan if the bank could win the race to get to trillions in gross revenue. In response, he took a deep breath and remarked that First Bank was in it to win it. This acquisition may just be a chance to nick it.