Sterling Bank Plc has ended talks to buy rival financial institution, Keystone Bank Limited. It deemed the bank an unsuitable fit for its future plans and is now focused on raising funds and assessing other acquisitions.
“We reviewed Keystone Bank and concluded the strategic fit was not strong enough. We will continue to evaluate all the options. As new candidates come into the market, we will also review them,” said Abubakar Suleiman, Sterling Bank’s Chief Finance Officer (CFO), while speaking to Reuters.
Sterling Bank revealed its intention to acquire one or two medium-sized lenders as banks are now looking to recapitalise, due to increased regulatory pressure and the persistent fall of the Naira. Keystone Bank is the last nationalised bank that the state-backed Asset Management Corporation of Nigeria (AMCON ) is looking to sell. Sterling’s strategic plan still involves the acquisition of rival lenders, but the decision is only likely to take place after last month’s 30 percent fall in the Naira is adequately assessed, according to CFO Suleiman.
Despite the Central Bank of Nigeria’s (CBN) decision to leave the currency to market forces of demand and supply in an effort to end dollar shortages, the green back remains scarce as Nigeria experiences a plunge in oil production which has battered its currency and stoked inflation to a decade high. Nigeria is on the verge of a recession, the IMF predicts a contraction of GDP by 1.8 percent in 2016. Such an economic climate is suitable for mergers as bigger firms look to take advantage of competitors whose valuations have fallen. Global mergers and acquisition activity is known to increase in a recession as exemplified by the 2007 global downturn and this is expected as Nigeria heads into a recession.
Sterling Bank has completed book building for a N35 billion bond sale, but the bank looks to raise only 20 percent of that amount to gauge appetites once it receives regulatory approval. Bond yields in Nigeria are currently below inflation at 16.5 percent in June. The most liquid 5-year government bond traded at a yield of 15.17 percent on Tuesday. “Once we see that the structure is acceptable and yields are moderate, we will complete series one this year. If the market remains turbulent, we will do it next year,” Suleiman said.
