The year 2024 has started with fireworks in the Zambian financial markets environment. Merger talks between Access bank Zambia Limited and Atlas Mara have since culminated in the complete acquisition of the later. The announcement of the acquisition was made on Monday, 8th January by the CEOs of the two banks.
This acquisition has created a mega bank in the Zambian financial market almost reminiscent of JP Morgan Chase on American soil. The new status automatically pushes Access Bank into the coveted big 5 of the Zambian banking industry by revenue with ambitions to break into the top 3 by 2027.
Both CEOs waxed lyrical on the move that will leverage the strength of both banks and deliver first class banking services. Lishala Situmbeko of Access added, ‘we look forward to leveraging the operational and cultural strengths of both businesses to create a stronger and more competitive financial institution that will benefit all stakeholders’. His counterpart at Access bank noted that the combination of two banks brings together the best qualities, capabilities and resources of both organisations.
This acquisition will no doubt bring about massive benefits to clients (and potential clients) with access to over 60 branches, 160 ATMs and over 5300 Tenga agents. More importantly is the combined balance sheet that will be a buffer to service SMEs and corporate clients.
Analysts on the street have expressed excitement on the move; ‘it definitely has more benefits than costs to customers and the wider macroeconomy’, added one senior banker in one of the banks.
But what are the costs? This acquisition might just bring about the age of mega banks on the Zambian banking scene and the notion that financial economists dread like a plague, ‘too big to fail’. What ‘too big to fail’ does to system if not properly handled by a regulator in the early stages is bring about systemic risks to the entire system in the case of market dislocations. These deadly systemic risks that might arise are a pain to handle especially in an emerging financial market that is still growing.
The notion of too big to fail also automatically births, ‘too small to succeed’. In a market where the big 5 will have 90% of deposits, 74% of total revenue and almost 80% of customers, the other 11 banks have to do with what is left. Small banks will find it extremely challenging to compete with the big boys with outsized balance sheets; much like bringing a slingshot to a shootout.
All in all, Bank of Zambia has done a remarkable job thus far in terms of banking supervision and we can be assured that their assessment of benefits of this deal far outweigh the costs presented. However, it must always be on notice, markets change, dislocations happen and systemic risks arise unexpectedly.