By Ademola Alawiye

South Africa’s second biggest bank, FirstRand Limited, is in advanced negotiations with Sterling Bank Plc over a strategic investment deal in the Nigerian financial institution.

Our correspondent gathered from a source close to the deal that the discussion had reached an advanced stage, with the South African bank said to have commenced due diligence checks on Sterling Bank.

The source, who craved anonymity because he was not permitted to talk on the issue, said, “The two banks have been talking for so long. In fact, discussions have been on for over one year but they are now making progress on the investment deal. FirstRand has started examining the bank.”

A top official of Sterling Bank, who spoke on the condition of anonymity, also told our correspondent that the discussions had been going on between the two financial institutions for a while.

He said, “The discussions between the two banks are not new. There was a time the two groups could not reach an agreement on the modalities of the investment. However, there is a possibility of the banks reaching an agreement soon because FirstRand has shown so much interest in Sterling Bank.”

When contacted, the spokesperson of the bank, Mrs. Bimbo Sowemimo, confirmed the investment discussions between the two banks but refused to comment on a possible deal.

She, however, explained that Sterling Bank was not being acquired by another bank.

Sowemimo told our correspondent, “No bank is buying Sterling Bank. There is nothing like that, it is a rumour.”

Reuters quoted the bank’s Financial Controller, Mrs. Adebimpe Olambiwonnu, as saying in an interview with CNBC, “The only way we can expand is by injecting more capital into our business. With FirstRand, yes, discussions are ongoing. We are quite positive. They are still at the due diligence stage and more information will be given subsequently.”

The Managing Director and Chief Executive Officer, FirstRand, Mr. Sizwe Nxasana, had said last year that the South African bank was looking to invest “meaningful amounts of capital” in Nigeria and would fund any deal from its reserves.

Banking sources said that FirstRand preferred to enter the Nigerian market through a strategic alliance with a healthy local bank and would be looking to deploy around N45bn to N60bn to fund such an investment.

Sterling Bank, which is not one of the banks rescued by the Central Bank of Nigeria, has a market valuation of around N33.7bn ($225m) as at March 10, 2011.

The Group Managing Director, Sterling Bank, Mr. Yemi Adeola, had said that any cash injection by FirstRand would be used to enhance working capital and finance growth.

He had also expressed his satisfaction with the choice of the investor, which he described as a “top-tier principal investor with a deep bench of senior level talent in the financial services sector, both at the executive and at board levels.”

Sterling Bank recently announced its financial year end result for 2010.

According to the results, the bank recorded a post-tax profit of N5bn for the year, as against the previous year’s loss of N7.2bn. Total assets grew by 25 per cent to N277.1bn from N221.3bn.

The bank’s deposits also grew by 26 per cent to N203.1bn, from N161.3bn in 2009, reflecting slight market share gains; while net loans and advances grew by 25 per cent to N103.8bn from N82.9bn in 2009.

Source: Punch