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Business News of Tuesday, 6 December 2011

Source: Daily Graphic

Merchant Bank For Sale?

From next year, the banking sector in the country will experience lots of vibrant activities as banks face unused lending capacity and depressed market values leaving the industry ripe for takeovers and acquisitions.

Officials of cash-stressed Merchant Bank are on an excursion to Southern Africa to gauge regional interest of some financial institutions for the acquisition of the bank. Preparatory discussions have already begun with a number of financial institutions from Nigeria and South Africa for a possible acquisition.

Although management of the bank have remained mute on the matter, a highly placed source close to the board says some board members and top executive management of the bank have held discussions with a number of banks from within the sub-region.

“We want a bank that can turn things around for this bank, and that is our ultimate preoccupation at the moment,” the source said.

The GRAHIC BUSINESS can confirm that a local bank is shying away from merger talks due to Merchant Bank’s weak balance sheet.

Two Nigerian banks are also lobbying hard for the Merchant Bank’s stake. First Rand Bank of South Africa which is hungry to establish its footprints on the continent is, however, highly tipped to seal a deal on the acquisition of Merchant Bank.

All agreements related to the acquisition by First Rand has been firmed up apart from the selling cost.

The decision to sell Merchant Bank comes after the acquisition of Amalgamated Bank by the Bank for Africa Group and the merger between two Nigerian banks, Access Bank and Intercontinental Bank.

The country’s pension fund managers, SSNIT, which holds majority of shares in some Ghanaian banks, have also just sold First Atlantic Merchant Bank to a Nigerian equity firm.

Analysts attribute the search for prospective buyers for Merchant bank to the inability of the bank to meet the Bank of Ghana’s (BoG) 2012 deadline for the recaptalisation of local banks to GH¢60 million.

The search for a buyer for Merchant bank, accordingt to analysts, is one of the last cards played by desperate liquidity stressed local banks in an attempt to raise the GH¢60 million minimum capital requirements before the fast approaching January 2012 deadline.

The Central Bank Governor, Paa Kwesi Bekoe Amissah-Arthur, had hinted that the central bank will not entertain any request for extension and this has forced some banks to merge while others have been wholly acquired.

Only last week, the BoG approved the sale of SSNIT’s interest in First Atlantic Merchant Bank to a Nigeria-based equity-firm, Kaderi Nominees. This is expected to see Kaderi take over SSNIT’s 50 per cent stake in the bank. First Atlantic thus becomes the second bank SSNIT is working to offload its stake in after the TTB.

Sources at SSNIT say, the pension fund manager want to sell off its holdings in some banks because it has become increasingly difficult to meet their commitments. They argue the implementation of the pension reforms has resulted in a dip in their investments – necessitating such initiatives to generate more yields for their investments.

Merchant bank which, about ten years ago, was one of Ghana’s blue chip banks started recording a dip in its fortunes due the banks over exposure.

Now SSNIT wants to get out of the financial services sector and looking investors to take over their investments in the banking sector and the management of the bank is under pressure to reach a deal with a prospective buyer by June next year.

SSNIT owns 55 per cent of Merchant Bank’s shares with the 45 per cent being in the hands of the bank’s permanent staff of the bank (10 per cent), SIC Insurance Company (15 per cent) with the bank itself holding t he remaining 20 per cent shares in treasury.

OPERATING COSTS

Mercahnt Bank’s profit before tax in 2010 decreased by 11.9 per cent while its profit after tax stood at GH¢4.99 million, representing a 16.6 per cent decline from the previous year’s figure of GH¢5.99 million.

The figure for impairment increased by one per cent to GHC41.27 million compared to GH¢40.88 million in 2009.

Merchant Bank weak performance in 2010 was mainly due to the banking industry’s wide phenomenon of increasing interest expense at the time.

That notwithstanding, the bank’s Net Interest Income increased by 29.6 per cent to GH¢ 71.11 million in 2010 compared to the GH¢54.88 million recorded in 2009.

Net Loans and Advances on the other hand reduced by 32.5 per cent in 2010. This was a calculated decision in order to achieve a fine balance between risk and returns thus ensuring the risks were reduced to the barest minimum at this particular time.

The bank recorded a total deposit of GH¢652.69 million which makes up 87.6 per cent of total liabilities increased by 27.8 per cent over that of 2009. Mangers of the bank say they intend to expand their retail banking operations to attract lower cost deposits.

PROFIT AND LOST ACCOUNTS

Merchant Bank’s 2010 decline in profit after tax of 16.6 per cent compared to 2009 was as a result of the high level of impairment losses.

At the end of the 2010 financial year, Interest Income stood at GH¢143.70 million while Interest Expense was at GH¢72.59 million.

As a result of higher funding costs, Interest Expense increased by 32 per cent. Net Interest Income increased by 29.6 per cent to GH¢71.11 million for the year ended December 2010.

Customer deposits which make up 87.6 per cent of total liabilities increased by 27.8 per cent between end 2009 and end 2010. The Bank in 2010 implemented the Direct Sales Model in its deposits mobilisation drive.

Deposits from individuals and private enterprises continue to make up the largest proportion of total deposits.