Thursday, 11 March 2021


  Besides The Rumours of Access Bank Acquiring Union Bank Nigeria

Besides The Rumours of Access Bank Acquiring Union Bank Nigeria
What is in a rumour? The latest is that Access Bank is acquiring Union Bank Plc Nigeria. Of course when you see the problem the majority shareholder of Union Bank is in, the rumour passes the basic tests: “Atlas Mara, which is owned by Bob Diamond, 69, has about 50 percent stake in Union Bank, and currently seeking to raise fund for his dwindling investments caused by impact of coronavirus.  Since its listing on the London Stock Exchange in 2013, the company has lost over 95 percent of its value, and is now seeking fresh opportunities to shore up its balance sheet.  This has also led to its decision to sell its Tanzania and Rwanda interests to KCB Group Plc of Kenya”. 

Period, Atlas Mara has to sell assets. But whether Union Bank will be part of the yard sales is something that is not clear.

The rumour apart, the Union Bank’s challenging trajectory is evident. As banks become technology companies that offer banking services, the construct of network effect begins to play a major role in the industry. Just as we cannot have another WhatsApp of value in Lagos, or Twitter in Boston, or Facebook in London, or Google in Toronto, Nigeria cannot have many banks of value by 2025. As we digitize these banks, what I have called the Invertibility Construct and the Construct of Diminishing Free Monetization begin to happen, creating a vicious circle for most smaller banks. Simply, most smaller banks will fade over time as winners-take-all paradigm begins to work. 

Today, if you remove Zenith Bank, GTBank can buy most local banks in Nigeria and still have a change. Those gaps will keep expanding as the banking ecosystem attains a steady state where category-kings become extremely dominant, digitally. It is what it is because this construct – winner-takes-all – works irrespective of the sector, provided everything is moving to the web.

The FUGAZ (First Bank FBH, UBA, GTB, Access and Zenith) will triumph as they are doing at the moment. The digitization of the sector is offering them leverages which the smaller banks do not have: for 2020, “UBA reported growth of 10.8% cent and 28% in gross earnings and profit after tax (PAT) respectively.” In most African countries where UBA operates, it is well ahead on digital therein – and if that is the case, UBA becomes the category-king, and that means, it would capture more value, going forward.

Back to Union Bank, it has to find a working path because as time goes, most small national banks – all boutique services –  will keep losing value as winners-take-all begin to shape the industry. This does not mean that it has to exit, it simply needs to find a category to win. That is what tech firms do, they find a category within a sector, and try to dominate it. The digitizing banking ecosystem is running that playbook through fintechs which find a category. But doing everything when you are small, and lagging, may not be a good idea! Why? You have limited leverageable factors which can compound over time.

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