If the news doing the rounds is anything to go by, Zenith Bank Plc, founded by astute businessman , Jim Ovia, may soon cause disruption of immense proportion in the banking sector as reports say the bank is poised to buy Union Bank Plc.
Unconfirmed reports indicate that Zenith, which recently posted an unprecedented profit after tax of N208.8 billion in the year ending December 2019, thus achieving the feat as the first Nigerian bank to cross the N200 billion mark, has been given the go-ahead by both the Securities and Exchange Commission and the Central Bank of Nigeria to begin the merger and acquisition process of Union Bank.
While information about the deal remain skeletal at the time of filing this report, a source regarded as authoritative in the nation’s finance industry confided in TheCapital on the condition of anonymity that the Zenith Bank, team led by Jim Ovia, was upbeat about becoming the biggest should the deal be sealed. Both parties were said to have consummated arrangements to commence due diligence, though they have maintained sealed lips about the whole process.
The reason for the M & A might not have been revealed, there are speculations that the major factor for the merger is divestment, as Atlas Mara, owners of 49% stakes in Union Bank, has been under pressure to exit their African holdings.
Just over a year ago (February 2019 precisely), Atlas Mara co-founder, Bob Diamond announced his decision to resign his post as Chairman of the company. The company said it was looking at selling off banking assets in countries where it was not the dominant player.
If it eventually sees the light of day, the merger will firmly solidify Zenith Bank’s position as the largest bank by total assets after falling second to Access Bank with N7.1 trillion. It will also give Zenith Bank control over several juicy assets and right of ways owned by Union Bank from its legacy years.
There are insinuations that the merger could also have been facilitated by the CBN, as nationalization of a bank the size of Union Bank would come with some bottlenecks that merger and acquisition would easily deal with.
About two months ago, Union Bank sold its United Kingdom subsidiary to London based management investment firm, MBU Capital Limited, which emerged as the most preferred bidder. The sale of the subsidiary, according to the Union Bank, was “aligned with Union Bank’s strategy to geographically streamline its business operations to focus on growth opportunities in Nigeria.”
Union Bank also recently raised N20 billion in series 3&4 commercial paper after successfully raising N24.3 billion through the issuance of the Series 1 and 2 of its N100 billion commercial paper programme.
According to Zenith Bank audited financial results for the 2019 financial year released in Lagos on three weeks ago, profit after tax rose by 8% to N208.8 billion from the N193 billion recorded in the previous year.
The group also recorded a growth in gross earnings of 5% rising to N662.3 billion from N630.3 billion reported in the previous year.
This growth was driven by the 29% increase in non-interest income from N179.9 billion in 2018 to N231.1 billion in 2019. Fees on electronic products continues to grow significantly with a 108% Year on Year (YoY) growth from N20.4 billion in 2018 to N42.5 billion in the current year.
The bank said the increase in the figures was a “validation of the bank’s retail transformation strategy which continues to deliver impressive results”.
Profit before tax also increased by 5% growing from N232 billion to N243 billion in the current year, arising from topline growth and continued focus on cost optimisation strategies. Cost-to-income ratio moderated from 49.3% to 48.8%.
