T he Central Bank of Nigeria (CBN) has approved the merger of Providus Bank and Unity Bank, with both institutions now awaiting the approval of the Securities and Exchange Commission (SEC). This approval is the first since the CBN mandated banks to increase their minimum capital base. According to the CBN recapitalisation circular, commercial banks with international authorisation must raise their capital base to N500 billion, national banks to N200 billion, and regional banks to N50 billion.
A letter dated July 22, 2024, signed by the Acting Director of the Banking Supervision Department, Adetona Adedeji, and addressed to the Managing Director of Unity Bank Plc, confirmed this development. The letter titled, “Re: Request for Merger Approval and Financial Support,” responded to a June 19, 2024, request for merger permission and financial assistance.
In addition to approving the merger, the CBN has sanctioned financial support of N700 billion to the new entity, structured as a 20-year term loan with a six percent interest rate. This support will begin repayment after a five-year moratorium.
The letter, obtained by our correspondent, stated: “Following a review of your letter, we write to inform you that the Central Bank of Nigeria has approved your request as follows:
- A financial accommodation totalling N700 billion to the new entity, structured as a 20-year term loan. The loan will be priced at an interest rate of MPR minus 11 percent, subject to a minimum of six percent. Payments are to be made semi-annually, with a principal moratorium of five years. Beginning in the sixth year, the new entity will commence repayment in 15 equal instalments until maturity.
- Total obligations of Unity Bank amounting to N303.7 billion (including N92 billion exposure to First Bank of Nigeria, N51.7 billion financial accommodation from the CBN, N25 billion Anchor Borrowers Programme obligation, and N135 billion NIRSAL obligation) will be deducted from the N700 billion financial accommodation. The obligations to the CBN and NIRSAL will be settled accordingly.
- The balance of N396.3 billion from the financial accommodation is to be invested in a 20-year Federal Government of Nigeria bond, which will qualify as a Tier 2 capital instrument and a component of the shareholders’ fund.
- Unity Bank’s current Cash Reserve Ratio (CRR) shortfall of N117.9 billion is hereby waived. Providus Bank’s CRR balance, post-merger, will serve as the opening balance of the new entity.
“These terms are subject to your acceptance and full compliance. Kindly confirm your acceptance of the outlined terms.”
Confirming the letter, the acting Director of Corporate Communications, CBN, Hakama Sidi, said the apex bank granted the approval to bolster Nigeria’s financial system stability, avert potential systemic risks, and avoid a situation like the recent liquidation of Heritage Bank.
The director's statement read, “The Central Bank of Nigeria has granted approval for a pivotal financial accommodation to support the proposed merger between Unity Bank Plc and Providus Bank Limited. This strategic move is designed to bolster the stability of Nigeria’s financial system and avert potential systemic risks.
“The merger is contingent upon the financial support from the CBN. The fund will be instrumental in addressing Unity Bank’s total obligations to the Central Bank and other stakeholders. It is unequivocal to state that the CBN’s action is in accordance with the provisions of Section 42 (2) of the CBN Act, 2007. This arrangement is crucial for the financial health and operational stability of the post-merger organisation.
“Furthermore, it is important to emphasise that no Nigerian bank currently faces a precarious situation comparable to that of Heritage Bank, which was recently liquidated. The CBN remains committed to safeguarding depositors’ interests and ensuring the smooth functioning of the banking sector through proactive measures and strategic interventions.”
Sources at both Providus and Unity Bank confirmed that while the CBN had approved the merger, the institutions were still awaiting SEC approval. There have been strong indications for over a year that Providus Bank Limited planned to acquire a majority stake in Unity Bank Plc, part of Providus Bank’s expansion plan to shore up its capital base amid the current recapitalisation challenge.
In a joint statement on Tuesday, the two banks declared, “We are pleased to announce that the Central Bank of Nigeria has approved the merger between Providus Bank Limited and Unity Bank Plc, marking a significant milestone in the evolution of our respective institutions.”
0 Comments