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Afribank- Primed for acquisition A major news report last week was the disclosure by the Governor of the Central Bank of Nigeria (CBN), Mallam Lamido Sanusi, that the apex bank... had received bids for four of the rescued banks. Although he did not disclose the identities of the banks involved, there is every likelihood that Afribank Nigeria Plc would be among them. Reason: not too long ago when Mallam Sanusi first revealed that results of bids for the acquisition of the rescued banks would be out by September or October, this year, reports quickly emerged that two financial institutions, Fidelity Bank and Ecobank Nigeria, were engaged in a fierce contest to acquire Afribank. Also, the bank's Group Managing Director/Chief Executive Officer, Mr. Nebolisa Arah, has always readily admitted that investors are showing a lot of interest in it. Perennial take-over target Financial experts have proffered several reasons for the bank's appeal including the obvious fact that being among the five oldest banks in the country, it has over the years, established a strong national presence with branches and a loyal customer base in practically every part of the nation. Indeed, even before the CBN intervention, Afribank, which originally began business in Kano in 1959 as the International Bank for West Africa (IBWA), had been the target of several acquisition attempts. Beginning from the pitched battle that was fought by various contenders trying to acquire what was referred to as the BIAO (Banque International Pour l' Afrique Occidentale) stake in the bank several decades ago to the attempts by Access Bank and Bank PHB to acquire it in 2006 and 2007 respectively, down to Union Bank dumping half a billion units of the bank's shares in late 2008, its various managements have been consistently contending, at great costs, with the prospect of a hostile takeover in recent years. For instance, according to reports, Afribank lost N25billion and N19billion staving off take-over bids by Access Bank and Bank PHB respectively. Ironically, it would later emerge that it was the attempt by the immediate past management of the bank to shield it from a hostile takeover that led them into taking certain actions that caused the bank to fail the CBN audit. As the story goes, after Union Bank had dumped Afribank's shares in 2008, in order to ward off predatory competitors, who were set to mop up the shares, the management decided to take the step of buying back its own stocks from large volume investors who had secured their shares at its last public offer. It achieved this by extending loans totaling over N43biillion to firms owned by Mr. Peter Ololo, a major player in the stock market who used these funds to mop up 500 million units of Afribank shares away from the public before the predators could buy them- through a Note Issuance Facility [NIF] with the bank's subsidiary, AIL Securities. However, following the onset of the banking crisis triggered by the collapse of the stock market in April 2008 and the steep fall in the price of oil towards the end of that year, these loans became Non-Performing Loans (NPLs). The CBN intervention According to the result of the first stress test released by the CBN on August 14, 2009, Afribank was among the five banks (Union Bank, Oceanic Bank, Intercontinental Bank , Afribank and Finbank) that had their capital completely eroded by their aggregate Non-Performing Loans (NPLs) of N1.143 trillion, or 40.81 percent, of the industry's total. The list of debtors, who allegedly owed the 10 rescued banks about N747 billion, that was later published by the CBN, last year, showed that the bank had a NPLs portfolio of N141.856 billion. By comparison, other banks like Oceanic Bank had NPLs of N278 billion; Intercontinental Bank, N210.903 billion; PHB has N170.96 billion, Union Bank, N73.582 billion; Finbank, N42.445 billion, Spring Bank, N95.594 billion and ETB, N46.154 billion. Of course, it is no longer news that of the N620billion that CBN injected into the banks to shore them up, Afribank got N50billion. How the bank has fared under the Arah-led management The appointment by the CBN of Mr. Nebolisa Arah as GMD/CEO to replace the bank's fired Chief Executive Officer, Mr. Sebastian Adigwe , was generally welcomed by industry analysts on account of the former's impressive antecedents. A banker with professional experience of close to 30 years, Mr. Arah was the pioneer Managing Director/Chief Executive Officer of Fidelity Bank, a bank he led from 1988 to 2003 when he voluntary retired. A few months after he assumed office, he and his team had started reporting some achievements. These included: recovery /repayment of over N40 billion of outstanding loans and repayment of over N11 billion of exposure on the Expanded Discount Window (EDW) (over 50 per cent of the exposure before intervention). The result was that like the other rescued banks, after the huge losses it recorded last year in the wake of the CBN intervention, Afribank's first quarter 2010 financial statement showed some improvement. For example, the bank recorded a pre-tax profit of N 1.99 billion compared to a loss of N 39.9 billion in a similar period in 2009, while its gross earnings stood at N 25.1 billion compared to N 93.59 billion recorded in 2009. However, financial analysts now agree that this improvement was mainly a result of staff rationalization that the bank carried out in the last two years and its loan recoveries. In his most recent press briefing, Mr. Arah revealed that the bank had recovered N53 billion of its NPLs. The bank's recently released half year unaudited financial results for 2010 showed that it posted a Profit Before Tax (PBT) of N5.52billion for the period ended June 2010. It had recorded a PBT of N3.52billion in the second quarter, which represents a growth of 77 per cent over the N1.99billion recorded in the first quarter of the year ended March 31, 2010. Gross Earnings also moved up from the N25.09billion in the first quarter to N46.56 billion in the second quarter, amounting to 86 per cent increase within the period. Strengths Reckoning with only its financial performance alone would surely not explain why the bank is attracting investors' keen interest as it is not in any way spectacularly better than the other rescued banks'. As earlier indicated, the bank's brand name and its close to 300 branches spread throughout the country are some of its strengths that are going for it. In addition, it is a key player in the national economy and has been an industry leader in public revenue collections. For example, at a time, it was the only financial institution appointed by the Federal Government of Nigeria to co-ordinate the revenue collection and registration of all expatriates working in Nigeria. An industry analyst who declined to be named, told Business Hallmark that among the assets of the Afribank Group that investors would find really valuable is the bank's subsidiary, Afribank Estate Company Limited (AECL) which has many choice residential and commercial estates in high brow areas throughout the country. According to the analyst, “most of the old generation banks have estates all over the country, but Afribank's are clearly some the most modern and best designed.” For a Port Harcourt based economist, however, Mr. Patrick Okonjo, Afribank's NPLs portfolio was not as bad as some of the other rescued banks' and that this could be one of the factors that are pulling investors to it. He also noted with staff strength of below 4, 000 employees, the bank is not likely to be contemplating staff reduction anytime soon. But an industry source who pleaded anonymity told this newspaper, that the bid for Afribank by Fidelity Bank, for example, was linked to the fact that Mr. Arah was the former Managing Director of the bank and there is every likelihood that he could be using his current position to deliver Afribank to his former organization where he would still have some considerable interest. However, in a chat with Business Hallmark, the bank's spokesman, Mr. Moshood Isamotu, dismissed such suggestions, stating that even though it was natural for people to make such insinuations, they were not true. While admitting that there have been expressions of interest in the bank, he stressed that , “Only the financial advisers appointed by the CBN can reveal the identities of financial institutions that are bidding to acquire the bank Business Hallmark 23/08/2010