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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