In a significant move to bolster the stability of Nigeria’s financial system, the Central Bank of Nigeria (CBN) has approved the merger of Providus Bank and Unity Bank. This development marks the first merger approved following the CBN’s mandate to increase the minimum capital base for banks. The merger, facilitated by substantial financial support from the CBN, aims to enhance the financial health and operational stability of the post-merger organization.
Background and Rationale
The approval, as stated by the acting Director of Corporate Communications, Hakama Sidi, is in accordance with Section 42 (2) of the CBN Act, 2007. The CBN’s strategic intervention underscores its commitment to averting systemic risks within Nigeria’s financial system. The merger is seen as pivotal, not just for the involved banks but for the broader banking sector, ensuring that weaker banks are strengthened through strategic partnerships and financial support.
Providus Bank’s expansion plan has been in the works for over a year, with the aim of acquiring a majority stake in Unity Bank. This move is part of Providus Bank’s strategy to shore up its capital base amid ongoing recapitalization challenges faced by many Nigerian banks. Unity Bank, which commenced operations in January 2006 following the merger of nine banks, has been struggling financially, recording significant losses and high foreign currency exposure.
Financial Support and Conditions
To facilitate the merger, Unity Bank requested ₦700 billion in financial support from the CBN. This support is crucial in addressing Unity Bank’s total obligations to the CBN and other stakeholders. The bank sought a loan priced at an interest rate of MPR minus 11%, with a minimum of 6%, and a repayment plan starting in the sixth year, to be completed in 15 equal installments until maturity.
The CBN’s intervention is designed to stabilize Unity Bank, which has consistently reported poor financial results compared to its peers. The bank’s CEO, Mrs. Tomi Somefun, attributed the poor financial performance to challenging operating environments but expressed optimism about future government policies’ positive economic outcomes.
Financial Health and Future Prospects
Unity Bank’s financial woes have been a concern for analysts, particularly after its 2022 full-year report revealed that its total liabilities exceeded its total assets by ₦274.9 billion. Despite managing to record a profit of ₦1.04 billion in the first quarter of 2023, the bank’s liabilities continued to surpass its assets, raising questions about its long-term viability.
In September 2023, Unity Bank hinted at plans to complete a recapitalization exercise to improve its financial position. The bank focused on retail growth as a strategic priority before the merger, indicating a proactive approach to strengthening its market position.
Conclusion
The merger between Providus Bank and Unity Bank, supported by the CBN’s financial intervention, is a crucial step towards stabilizing Nigeria’s banking sector. By addressing Unity Bank’s financial challenges and leveraging Providus Bank’s expansion plans, the merger aims to create a stronger, more resilient financial institution. This move is expected to enhance confidence in Nigeria’s banking system and support the broader goal of financial stability.
