AT FIRST blush, African Bank’s acquisition of niched investment property and asset finance-focused Grindrod Bank does not seem to make sense.
While African Bank has indicated a wish to diversify from retail banking, its business banking aspirations are to tackle the lower to middle-income business banking market, such as providing funding for small business owners.
Explaining the merger rationale, Grindrod Bank CEO David Polkinghorne said yesterday that while it was true that Grindrod Bank currently focused on the higher end of the market, it had never in the past been afraid to diversify, such as, for example, a few years back when it had 10 million Sassa customers.
However, he said the bank was at a stage where it had wished to grow into the middle business banking market, so the merger meant that Grindrod Bank and African Bank were aiming to grow into the same market, just from opposite ends of the market.
He said the merger also made sense from Grindrod Bank’s perspectives - it holds some R12 billion in deposits and R9bn in loans - in that its parent Grindrod needed to focus on its freight and transport corridor operations.
He said the much the same kind of thinking went behind Capitec’s recent purchase of Mercantile Bank in 2019, and he foresaw in time the creation of a merged bank with two separate arms, in much the same way as FNB is a retail bank in the FirstRand group, while RMB is the investment banking arm.
African Bank last week announced it had acquired Grindrod Bank for R1.5 billion and yesterday it said it would embark on “an intense one-hundred-day bedding-down process” including an outreach to existing and potential customers.
He said the deal was also good, for African Bank had indicated an intention to list in two or three years, and for that it would require a diversified banking business.
“At the beginning, when I met with the Grindrod team, both the group and bank, there was a shared alignment in how both parties were thinking about the future and how, as banks, they would participate in improving the ability of the country's entrepreneurs to contribute towards the economy and help create jobs,” said Zweli Manyathi, who runs African Bank’s new business banking division.
“While I'm excited at the potential of this transaction, the first task is to establish a clear post-transaction operating environment to make the process as smooth as possible,” said Manyathi.
He said African Bank had been faced with two alternatives once it had decided to pursue a business banking strategy.
“The first was a greenfield exercise and starting from scratch, which would have taken time, but then the fortuitous opportunity arose for us to acquire something as a building block and fast-track our journey into this market.”
He said African Bank had embarked on a thorough evaluation process and found that the match between their joint capabilities and strategic intentions “made for a perfect fit”.
He said one immediate priority was to make sure there was an optimum culture fit. He said he was cognisant of the difference in the markets in which both banks operate.
“A critical thing I have learnt is no matter how the business case stacks up, unless culture aligns, you will find it exceedingly difficult to make this kind of transaction work,” he said.
“However, I believe the joint capabilities that come with this deal will be beneficial to African Bank. This means all of us have got to work hard in making sure there is cultural alignment internally. I do not think it is impossible to do that,” he said.
Polkinghorne said he expected more jobs would be created at the bank through the transaction.
“Right now, it’s vital for us to engage with customers, as well as stakeholders, to make sure all can see the benefits of being banked by a bigger and much stronger entity,” said Manyathi.
He said it would take a year or more, once the two banks were fully merged, for the Grindrod Bank brand to be discontinued.