Uncertainty dogs banks’ purchase

Almost a year after the Central Bank started an audit of Nigerian banks and declared some banks open to investors due to eroded capital among other infractions, it has remained mute on the details of potential investors or reveal the names of any interested parties.

However, despite experts’ opinion that the banks are unable to attract potential investors due to their balance sheet state, the Central Bank is saying that an encouraging number of prospective buyers have been approaching it for inquiries on the banks.

On Thursday, Reuters reported that Sanusi Lamido Sanusi, the Central Bank governor, said four international banks were among the likely bidders for banks rescued last year in a $4 billion bailout. Mr. Sanusi also said that he expected bids to be in by the end of the month, but kept silent on the names of interested investors in the banks.

“We expect (the bids) by the end of July from local banks, foreign banks, and private equity firms. The bulk of them are local, there are four international banks,” Sanusi said. Reuters quoted him, adding that the bids results would be released by September or October.

Three options

A report by Merrill Lynch that was published recently says there are three options for entrants contemplating the Nigerian bank market. “We present three options for entrants contemplating the market. Buy one of the larger distressed banks in Nigeria. A transaction of this size would be in the US$150 to 300 million range for a 50+1 per cent majority stake or in the US$300 to 600 million for outright control (100 percent). This type of deal would make sense from the perspective that an entrant would pick up a bank that has a good market reputation, despite recent risk management oversight, a broad distribution network (average branch network size of these banks is 280+), and a universal banking model with a broad product offering (retail, investment banking).”

“The second alternative is to buy one of the smaller distressed banks. “For less than US$100 million one could buy these banks outright. The benefits of this type of transaction are that you buy a smaller bank with a modest branch network and less developed franchise but gradually get on the ground training in Nigeria, learning about the industry and the market.

“The risk of this approach is that the buyer is faced with some of the same problems as Standard Bank for instance, that is smaller player in the market who does not have a broad distribution network, which one has to build.”

The third option is to buy one of the existing mid cap banks. “In our opinion, buying a clean bank that has successfully come through the CBN’s special investigation would be the lowest risk option into entering the market,” the report stated. It added that the cost of buying a stake in one of these banks is likely to be higher, but it enables the acquirer to over time increase their stake and learn the market from successful operators with a sound market position.

Investigations reveal that the nine bailed out banks made provisions by the end of September of more than 2.2 trillion naira for loan losses. Potential investors are anxious to see how quickly an asset management company (AMC) can be set up to soak up bad debts and make the banks attractive.

According to the Central Bank, the AMC, will take impaired assets off the banks’ balance sheets and replace them with government guaranteed bonds, expected to provide liquidity to the entire Nigerian banking system and bolster the prospects for long term growth.

The Central Bank of Nigeria had asked for potential bidders to register their interest in the troubled banks by mid-December, to test the enthusiasm for acquisitions.