From the Archives – Consolidation in the Nigerian Banking Sector: Brand Scenarios & Implications [Alder Consulting]

2 Comments » March 28th, 2009 posted by // Categories: Nigeriawatch 

Consolidation in the Nigerian Banking Sector: Brand Scenarios & Implications



In July 2004, the new Governor of the Central Bank of Nigeria (CBN), Prof. Charles Soludo announced that the new minimum capitalisation for banks in Nigeria is N25billion (approximately $181m). All banks are expected to comply with this directive by December 2005.

This announcement struck the banking sector like a storm on a dark night. And it has left in its wake a heated debate on its appropriateness in relation to Nigerian banks and the current state of the economy. It is undeniable that this announcement brought with it a number of consequences. This discourse will focus on one major aftermath of the N25b requirement – Mergers and Acquisitions.

Mergers & acquisitons: Consequences

A major consequence of the CBN directive is that a spate of mergers and acquisitions has suddenly taken over the banking sector. How will the coming together of the financial brands play out? What possible methods of mergers would be considered? What will this portend for brands and branding within the banking sector?

These, plus more will be addressed as we proceed.

Mergers & acquisitons: Potential scenarios

On careful consideration of the Nigerian banking sector, the current drive for consolidation and the N25 billion minimum capitalisation requirement, the following scenarios are expected:


   Peer mergers

   Acquisitions/mergers by the strong

   Regional mergers

   Root mergers

   Subsidiary acquisitions/mergers

   Foreign capital infusion

   Reverse acquisitions

a. Peer mergers
This is a situation where banks that cannot raise the required N25b single-handedly come together to form stronger entities. These stronger entities jointly raise the N25b minimum capitalisation and also compete in the ensuing business landscape. This is already happening. The following consortia are examples: First Consolidated, Astrabank and Sterling. This approach is common internationally and it was prevalent during the consolidation of the banking sector in India in the late nineties.

b. Acquisitions/mergers by the strong
In this scenario, banks that have the wherewithal to meet the required capitalisation, such as Firstbank, UBA, Union Bank, Zenith Bank and Guaranty Trust Bank, etc. make use of the situation in the market as an opportunity to acquire or merge with other banks. This will help them further increase market share, expand branch networks and deepen their skill base. For example, UBA and Standard Trust Bank are going this route with the announcement of a merger. Guaranty Trust Bank is exploring this methodology with its planned acquisition of other banks. This move will help it increase its geographical presence. Also, Firstbank may acquire another bank because of its competence in a particular sub-sector e.g. capital markets.

c. Regional mergers
Another possible scenario that could arise is the merger of banks to form regional financial institutions. For example, banks that have their primary market in the Northern part of the country may decide to merge to consolidate their strengths and reduce their liabilities. At the same time, they will be able to increase their capitalisation to the required level more easily.

d. Root mergers
Let us consider yet another possible scenario – a situation where one or more banks agree to merge because they have similar shareholders. We will refer to this as a root merger. For example, consider Devcom Bank and Equitorial Trust Bank. These banks function as stand-alone financial institutions, though they share shareholders. Thus, in order to meet the required minimum capitalisation, a root merger could occur. This merger will of course make competing in the unfolding financial sector easier.

e. Subsidiary acquisitions/mergers
Already, certain banks within the banking sector possess other banks as subsidiaries (e.g. Firstbank and FBN Merchant Bankers). A bank may also be the majority shareholder in another bank (e.g. Intercontinental Bank and Equity Bank). For banks in this category, an option that can be explored is the total acquisition or merger of such subsidiaries. The controlling bank can thus meld itself and its subsidiaries into a singular entity. Let’s consider Intercontinental Bank which has Equity Bank as a subsidiary. It also has shares in Gateway Bank and an interest in Global Bank. Intercontinental Bank is already travelling down this route. It recently signed a Memorandum of Understanding with these banks, with a view to evolving a singular institution.

f. Foreign capital infusion
It has long been rumoured that a number of international financial institutions have been seeking entry into the Nigerian market. This current consolidation process avails serious contenders with a unique opportunity. Foreign financial organisations (think HSBC!) may acquire a share in banks that have prospects, but can’t raise the required capitalisation on their own. Depending on the percentage acquired, the bank may retain its current identity or may have to take up that of the foreign organisation. Another aspect of this methodology will only be open to foreign banks already operating within the sector. For these banks (e.g. NIB/Citibank & Ecobank), the required funds can be gotten from the parent organisation based on a predetermined agreement.

g. Reverse acquisitions
Finally, let us consider the option of a reverse acquisition. In this scenario, a smaller bank with a very strong brand and/or management depth is acquired by a much larger “fish”. Now the difference here is that the new entity bears the name of the smaller bank because of its strong brand and/or the management of the smaller institution takes control of the larger institution. An example of this sort of merger is the Traveller’s Group/Citibank merger in 1988. Although Citibank was the smaller entity, the merged entity was called Citigroup while retail outlets retained the name Citibank. This was because Citibank was the stronger brand. In addition, Sandy Weil, the CEO of Citibank became Chairman/CEO a short while after the merger was completed.

Bank consolidation: Consequences

No matter which approach is selected by banks within the Nigerian financial sector, the current consolidation will have a number of effects and implications. These effects and implications can be broken into 2 broad categories:


1. Brand implications

2. Structural implications

Let’s begin with the brand implications.

Brand implications
Typically, differentiation in the financial sector is determined by financial might and capital base. However, with the current consolidation, this differentiation factor will gradually become commoditised. This is because more banks, such as Guaranty Trust and Zenith, will possess more financial might bringing them closer to the establishment banks (e.g. Firstbank). These series of acquisitions will also ensure that the gap in size (branch network is greatly reduced). In view of this, differentiation in the unfolding financial sector will be greatly impacted upon by the strength of a bank’s brand within the marketplace, and not just the size of its balance sheet.

The current situation in the market attests to this. Consider that banks with strong brands (i.e. Firstbank, Guaranty Trust Bank and Zenith Bank) are attracting a lot of attention and may most likely serve as lead banks in whichever merger or acquisition scenario they get involved in. On the other hand, banks with weak brands face an uphill task. They become devalued and may be forced to merge or be acquired by stronger banks.

Whatever the situation, the new entities that will arise from the dust of consolidation will need to deal with brand related issues, if they are to survive in the long term. Some of the most critical issues are as follows:


1. Change of name
The financial sector will witness a lot of name changes within the next few months. A number of names that we are currently familiar with will cease to exist. The name of an organisation is its primary token of identification in the marketplace. Thus, organisations resulting from the consolidation process are faced with two options:

a. Adoption of the name of the organisation with the strongest brand name (this is often the case if the situation is an acquisition).

b. Adoption of a new name (more common with mergers).

Whatever approach is taken, the introduction of the name of the new entity must be done in such a way that the brand equity resident in the names of the organisations involved is not lost but leveraged adequately (because each of the names already has certain associations and implications). Careful consideration must be given to what the association’s new name would evoke in the market. Therefore, it is important that a strategic approach be applied in the development of the name because of its importance to the brand.

2. Change of logo
In addition to name changes, it is very likely that a number of new logos will be unveiled as the mergers & acquisitions spree continues. The word logo is derived from the Greek word ‘Logos’. The logo of an organisation is its graphical mark of identity in the market. It is therefore important to ensure that like the name, the logo for the entity resulting from a merger or acquisition scenario takes into consideration the brand equity resident in the constituent organisations. Such equity may be in the form of colours or symbols. For example, oil giant, British Petroleum (BP Plc) wanted to revamp its brand after its merger with Amoco in 1998 and the further acquisition of two other oil companies, Arco and Castrol in 1999 & 2000 respectively. It settled for the strongest name in the group of companies i.e. BP. It also maintained BP’s colour palette of green and yellow as the corporate colour because it was considered a brand asset and unique in the petroleum sector. Another example is the merger between Citibank and Traveller’s Group. The merged firm was named Citigroup. Although Citibank was the smaller of the two, it was the stronger brand. Citigroup incorporated Citibank’s corporate colour – blue and a key element of the Traveller’s group logo – the red umbrella – into the Citigroup logo.

On the other hand, France Telecoms departed from its staid logo and symbols because it wanted to communicate an entirely new concept as it metamorphosed from a state-owned monopoly into a free market competitor. The new logo, an ampersand, symbolised the “bringing together of people and the decision by the company to never go out of style.” In the same vein, some of the consolidated entities in the banking sector may wish to signify entirely new concepts and strategic direction through their logos.

It is important to note that the design of a logo for an organisation is not primarily a design function but a strategic function. Also, as a result of the new logo, it will be necessary to redesign the corporate function and visual identity materials (letterheads, business cards, identity cards, account opening booklets, cheque books, websites, etc) for the new entity.

3. Brand culture
Perhaps the most important determinant in the progression of the new banks that would result from the merger and acquisition process, is how well the culture of the various constituent banks can be melded into one unique cultural system. If this is not properly done, the resulting banks will experience cultural clashes among employees. Every organisation has its own distinct way of life and its own way of doing things, This is what culture is all about. It is like an invisible hand that guides the thoughts and actions of employees. If a unique culture is not developed for the new brand, then the battle is over before it begins. It is interesting to note that in most of the mergers that have been witnessed in the Nigerian financial sector thus far, the focus has been on meeting the required minimum capitalisation. But once that is done, the resulting entity will only progress as far as critical brand issues like culture have been resolved. In the words of Jack Welch, Ex-CEO of GE, “Culture counts big time!”

4. Brand message
At the end of the merger or acquisition process, a critical brand issue that will arise is “what message will the new entity put out into the market?” It is a safe assumption that each of the institutions that make up the new entity touted a particular message. But now that they are one, what should they be saying? It is critical that the organisation presents a clear and consistent message. This message will determine what the brand will become known for over time.

An effective brand message must find its basis in the essence of the brand.

5. Communication
A major consequence of the consolidation of the banking sector will be an increased effort by banks to propagate themselves within the market place. For this to be effective, it must be based on more than just a need to put out information on the new entity. It must be a strategic initiative that communicates the essence of the brand and its strengths and competencies (both quantitative and qualitative). Communication issues are critical and must be tackled properly, or else all the organisations will begin to sound alike.


Structural Implications

In addition to the aforementioned brand expectations, the current consolidation of the banking sector will leave in its wake a number of structural issues. These are issues that have direct impact on staff, customers and the structure of the entire banking sector. Consider the following:


1. Reduced number of banks
One of the major expectations of CBN and a definite outcome of the consolidation within the financial sector is the reduction of the number of banks within the sector from the current 94. Considering the activity taking place within the sector, a reduction in the number of banks is inevitable. A similar situation occurred in the consolidation of the Malaysian banking sector in the early 90s, where the number of banks reduced to 10 banking groups from 54 local banks. The actual number of banking groups that will be left in the Nigerian financial sector by December 2005 cannot be determined at this stage.

2. Increased competition
The entities resulting from the consolidation of the Nigerian financial sector should be bigger (in terms of size, capability and financial might) and thus, be able to compete more aggressively in the market. Also, because the number of banks will be drastically reduced, more opportunities may be available to the evolved banking groups.

3. Emergence of the Princes (New contenders)
Taking a lead from the above, in addition to increased competitiveness within the sector, the rule of the establishment banks may be coming to an end and new contenders may arise. Front runners for the crown are Guaranty Trust Bank, Zenith Bank and Standard Trust Bank (STB). Each of these banks have been able to acquire billions of Naira through IPOs and public offers. Consider that Guaranty Trust Bank currently has a capitalisation of N34b against Firstbank’s N99b, while Zenith has N49b. When the dust from the current spate of mergers settles, additional contenders may yet emerge.

4. Acquisition digestion issues
In a merger scenario, a critical issue is how the constituent organisations integrate their operations and processes. The need to integrate operations effectively will lead to the following:

a. Loss of jobs: This will occur from the middle level to executive level due to overlaps and duplication of functions within the system.

b. Consolidation of branch locations: In a situation where the resulting entity possesses more than 1 branch in a particular location, these branches may be coalesced into a singular entity. This will help reduce cost overheads and duplication of functions. That is unless the banks want to use the clustering scenario favoured by Starbucks, Zenith Bank and The Redeemed Christian Church of God.

c. Tackling of inefficiencies and bureaucracies: Size creates a certain level of inefficiency and bureaucracy within systems. The new banks will be combinations of 3 or more banks. Therefore issues of inefficiencies must be tackled.

Other structural issues

In addition to the aforementioned, the following will also occur:

1. Customers will have fewer banks to choose from, due to the reduced number of banks that will exist in the banking sector. But this may augur well for the customer as too many choices is a problem.

2. The Management and Boards of the banks will be reconstituted.

3. CEOs will lose their jobs or become Executive Directors.

4. More IPOs and public offers should be expected within the next few months.

5. More sophisticated products should be expected from the evolving banking groups as a differentiation strategy.

6. True financial supermarkets will emerge as a result of the coming together of banks with varying competencies and strengths.

7. Technology will become much more important. More capital will be devoted because of integration issues.


The mergers and acquisitions currently taking place within the Nigerian banking sector are here to stay and will most certainly change the face of the banking sector beyond recognition. It is quite impossible to say at this stage what will obtain by December, 2005 within the sector, but it is certain that a lot of banks would have ceased to exist and the new banking groups will be stronger and more viable.


Who stands to benefit from the mergers and acquisitions parade?
1. Customers: There will be more competition, more value for money and better products.

2. Nigerian Stock Exchange: Activities on the Stock Exchange will heat up due to more IPOs, public offers and private placements.

3. Media Platforms: There will be an increase in advertising spend due to a need to communicate information about the emerging banking groups.

4. Management consultants: Lots of briefs for the management of the merger/acquisition process.

5. Technology consultants and organisations: The need for integration and consolidation of diverse platforms into a singular fluid platform. Also issues of website redesign and redevelopment will arise.

6. Brand consultants: The consolidation occurring within the banking sector will bring to light a number of critical branding issues and scenarios for the consultants to resolve.

7. The economy: The evolution of stronger and more viable banks.

8. Small banks with strong brand profiles: They will become the darlings. Every other bank will desire to merge with or acquire them.

Who stands to lose?

1. Customers: Fewer options will be available to them.

2. Middle level managers and executives: Loss of jobs to avoid duplication of roles.

3. Small banks without high brand profile: They may be acquired below their actual value.


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2 Responses to “From the Archives – Consolidation in the Nigerian Banking Sector: Brand Scenarios & Implications [Alder Consulting]”


    It’s a great influence on me.


    It’s a great influence on me.

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