Driving growth and competitiveness: Impact of banking industry mergers

By Guardian Correspondent , The Guardian
Published at 06:00 AM Jun 13 2024
Kelvin Mkwawa (pictured), is a seasoned banker
Photo: File
Kelvin Mkwawa (pictured), is a seasoned banker

IN January this year, I shared the importance of mergers and acquisitions in the banking industry; improvement of the financial health of the banking industry, improvement of customer experience and making it easier to regulate, and increase efficiency & diversify risks.

One of the principal objectives behind mergers in the banking industry is to expand operations and stay competitive. 

In our market, we have seen several mergers/acquisitions in the last few years. Most notable mergers/acquisitions in our banking industry are; In 2019, Azania Bank acquired Bank M Tanzania Plc (Bank M), and Exim Bank Tanzania Limited acquired UBL Tanzania Limited.

In June 2020, the central bank merged TIB Commercial Bank Limited into TPB (now known as Tanzania Commercial Bank).  Also, in the middle of 2020, Mwanga Community Bank (MCBL), EFC Microfinance Bank, and Hakika Microfinance Bank (HK MFB) amalgamated to form Mwanga Hakika Bank, which advanced to become a commercial bank.

Furthermore, in 2020, The Commercial Bank of Africa (Tanzania) Limited (CBA) and NIC Bank Tanzania Limited (NIC) merged to form NCBA Bank Tanzania Limited, a new financial institution. In 2021, the National Bank of Malawi Plc (NBM) completed the acquisition of a 51% controlling stake in Akiba Commercial Bank Plc (ACB) of Tanzania.

In addition, Exim Bank Tanzania Limited acquired First National Bank (FNB) Tanzania Limited in 2022 and NMB Bank Plc accrued Yeti Microfinance Bank Plc in 2023. Also, in 2023 Access Bank Plc (Access) acquired a majority stake in African Banking Corporation (Tanzania) Limited (BancABC Tanzania).

Lastly, on June 4th, 2024, Selcom Tanzania announced the acquisition of Access Microfinance Bank Tanzania Limited and rebranded it as Selcom Microfinance Bank Tanzania Limited.

The competitive and regulatory developments in the industry are the main reasons for mergers and acquisitions.

Before I divulge into details, let me define an acquisition and a merger; An acquisition is a strategy through which one buys a controlling stake or 100 percent interest in another with the intent of making the acquired one a subsidiary within its organization while a merger is a strategy which one acquires all the assets and all liabilities of another and acquired one ceases to exist while the acquiring one retains its identity.

So why does M&A occur? It is very important to know some of the reasons used by different banks in many M&As; to move/expand into relatively virgin areas where competition is less, to pool together scarce resources thus having more working capital, to enter into new markets via diversification, and to improve efficiency by pooling together management skills.

 Of all the reasons I have mentioned, studies have shown that the most common one is to expand/grow; in today’s business environment, banks may have to grow to survive, and one of the best ways to grow is by merging with another bank or acquiring another bank.

Through M&A, banks can achieve significant growth in their operations, minimize their expenses, and encourage healthy competition in the banking sector. It is worth noting that not all M&As are successful and not each situation is calling for M&A as a growth strategy so I would like to share two situations in which M&A have proven useful as a growth strategy;

Filling gaps created by marketplace changes - When the marketplace changes in response to external events or new laws and regulations, it can create a gap in a bank’s critical offerings. It is a prime opportunity for a strategic merger.

For example, when the Government decided to bar public institutions from depositing their funds in commercial banks and implemented the Treasury Single Account (TSA) which caused a liquidity crisis in the banking industry.

Because of that, some banks lose significant deposits in their balance sheet and could have looked at M&A as a growth strategy to increase their deposits and hence maintain the shareholders’ value.

Leverage synergies – Banks can use M&A to enter into new markets through diversification. We have seen the banking industry’s main competition comes from fintech companies thus the banks that see fintech companies are partners will survive and those that don’t will die.

Banks should look into acquiring some fintech companies that fit their cause since the future of banking is digital banking so they are faced with the choice to either adapt to the digital revolution or lose market share.

To sum it up, bank mergers are unavoidable in today’s World due to globalization and competition in financial institutions. By promoting M&A, we will have fewer healthier banks which will be a good way to restore discipline and confidence in the industry.

Banks should see M&A as an opportunity to expand their reach quicker and achieve higher productivity, diversify risk, increase efficiency, and reduce cost.

Kelvin Mkwawa (pictured), is a seasoned banker, he can be reached via Email address: [email protected]