Access Bank Plc (Access), one of Africa’s largest banking groups, is acquiring 80% of Uganda’s Finance Trust Bank, it has been confirmed.
CEO East Africa Magazine first broke news of the transaction but the concerned officials were at the time tight-lipped about the transaction.
But in a press release this morning, the two financial institutions announced the signing of a definitive agreement for Access Bank’s equity investment into FTB.
The two banks also said that once the deal had been approved by the regulators, Access Bank would “concurrently acquire the shares currently held by FTB’s institutional shareholders who have sought to exit to a strategic, long-term shareholder.”
The institutional shareholders who collectively own 79.9% are Oikocredit Ecumenical Development Cooperative Society (Netherlands) which owns 19.6% and Mauritius’ Progression Eastern African Micro Finance Equity Fund which owns 18.3%. The others are RIF North 1, also from Mauritius which owns 18.3%; Investment & Partner Afrique Entrepreneurs, also from Mauritius, with 14.2% and the Ugandan Women Entrepreneurs (Uganda) with 9.5%.
The remaining 20.1% of the bank is owned by the Uganda Women’s Trust (Uganda), a national Non-Governmental Organisation working to achieve women’s empowerment in Uganda.
Commenting on the Transaction, Roosevelt Ogbonna, Managing Director of Access Bank PLC said, “The prospective acquisition of majority equity stake in Finance Trust Bank marks an important milestone for Access Bank as we strengthen our regional presence in the East African Community trade region. This also moves us closer to realising our five-year strategic plan through continued expansion to achieve scaled benefits across key African markets. Beyond our expansion goals, this deal will enable the Bank to deepen its community and women impact initiatives, as we will be building on FTB’s mission to effectively deliver innovative financial solutions to customers and stakeholders, especially women. Our storied history and experience in gender initiatives and women empowerment will greatly benefit FTB’s current deposit and loan portfolio – which currently comprises about 40% women – and the larger Ugandan community.”
Annet Nakawunde Mulindwa, Managing Director of Finance Trust Bank said, “Finance Trust Bank is thrilled to announce this transformative partnership with Access Bank PLC, as it marks a pivotal moment in our growth journey and presents an extraordinary opportunity for our valued customers and stakeholders. This strategic alliance will fortify our position in the financial landscape and enable us to offer our customers a broader array of innovative products and services,” she said in a statement.
“Leveraging Access Bank’s global presence and expertise, we look forward to reaching new heights and continuing to serve as a trusted financial partner to our customers and communities across Uganda,” she added.
A stitch in time
Finance Trust Bank was one of the banks that needed a significant capital boost, following the Central Bank of Uganda’s six-fold increment of capital buffers for financial institutions.
On the 16th of November 2022, the Financial Institutions (Revision of Minimum Capital Requirements) Instrument 2022 was signed into law by Uganda’s Minister of Finance, Planning and Economic Development (MoFPED), Hon. Matia Kasaija. The instrument increased the minimum capital requirements for banks by 6 times or 500% from UGX25 billion (USD 6.7 million) to UGX150 billion (approx USD 40.2 million).
The increment would however be tiered, starting with a minimum capital buffer of UGX120 billion (USD32.2 million) by the 31st of December 2022 and then UGX150 billion by the 30th of June 2024.
Commercial banks also had to have minimum capital funds unimpaired by losses (core capital) of UGX 120 billion by 31 December 2022, and UGX150 billion by 30 June 2024.
Under the same statutory instrument, minimum capital requirements for credit institutions were also increased by 25 times or 1900% from UGX1 billion (USD268,000) to UGX25 billion (USD6.7 million) by 30th June 2024. Similarly, the increments are tiered, starting with a minimum capital buffer of at least UGX20 billion (USD5.4 million) by the end of December 2022.
Micro Deposit-taking Institutions (MDIs) were also required to increase their minimum capital to at least UGX8 billion by 31st December 2022 (from UGX1 billion) and UGX10 billion by June 2024.
As of the end of 2022 Finance Trust Bank’s share capital was UGX27.8 billion⏤ UGX92.2 billion short of the required UGX120 billion by the end of 2023 and UGX122.2 billion short of the required UGX150 billion by the end of June 2024. Similarly, Finance Trust Bank’s core capital was UGX60 billion, which is UGX60 billion short of the required thresholds by the end of 2023 and UGX90 billion short of the required core capital by the end of June 2024.
Of the 25 banks in Uganda, as of the end of 2022, Finance Trust Bank was the 18th by assets (UGX441.3 billion and 1% market share), deposits (UGX276.8 billion and 0.7%); 14th by lending (UGX265.8 billion and 1.4%) and 16th by profits (UGX8.5 billion and 0.7%).
Faced with a decision to fork out another UGX120 billion to recapitalise an in-the-bottom-half-of-the-market Finance Trust Bank, with just a 1% market share, it appears, the shareholders most of whom are profit-seeking investment funds, seem to have found it more commercially sensible to sell out to an investor with more long term look and in the business of banking for the long haul. Taking into consideration that the required recapitalisation is three times the amount Finance Trust Bank has made as combined profit in the 10 years since it acquired a commercial banking licence in November 2013 (UGX44.5 billion), it is not difficult to see why the investment funds cashed out.
Commenting in an earlier interview with CEO East Africa Magazine, a senior banking executive with a rich merger and acquisitions experience in the East African region told this reporter that most of the banks affected by the new rules on capitalisation were ‘squeezed banks’ with little compelling reasons for recapitalisation and acquisition and that most of affected banks may opt for license downgrades.
“The first thing to appreciate is the Return on Equity of the Ugandan banking sector⏤I believe it’s about 15% across the board. So it’s not a super attractive sector from a macro perspective and indeed quite fragmented with the top 5 banks controlling about 80% of market share,” says the executive.
“The banks you refer to are the squeezed banks with no market share to speak of and no deep-pocketed shareholders. But even deep-pocketed shareholders are looking for a return both in absolute terms and in ROE. They will not put good money after bad, especially given all the other opportunities elsewhere. This leaves these banks limited options and the most likely will be to downgrade the license,” added the banking executive.
“There might however be that outlier that convinces a new investor to come in. Mergers or consolidation is also unlikely as adding two low ROE banks seldom makes a healthy bank especially since their customer bases are generally niche-oriented. Such mergers may not create value or cost synergies. In some cases, an exit makes more sense⏤preserve your capital and exit unattractive markets like Uganda,” they conclude.
Access Bank Plc: Towards the world’s most respected African bank in 5 years
Moreover, Access Bank Plc has been on an acquisition spree on the African continent. Just this July, Access Bank Plc (Access) and Standard Chartered Bank entered into agreements for the acquisition of Standard Chartered’s shareholding in its subsidiaries in Angola, Cameroon, The Gambia, and Sierra Leone, and its Consumer, Private and Business Banking business in Tanzania.
Hinting at Access Bank’s pan-continental 5-year growth and expansion plan, Roosevelt Ogbonna, Group Managing Director, Access Bank Plc, said the deal represents a key step in Access Bank Plc’s journey to build a strong global franchise focused on serving as a gateway for payments, investment, and trade within Africa and between Africa and the rest of the world, anchored by a robust capital base; a relentless focus on execution; and best-in-class customer service & governance structures.
“With our recent European expansion and our deepened presence in key trading corridors across Africa, we will bridge the gap between cross-border and domestic transfers across all business segments,” Ogbonna added.
He said the bank seeks to be the World’s Most Respected African Bank in 5 years.