The Central Bank of Nigeria (CBN) has granted approval for the merger of Providus Bank and Unity Bank, with the institutions now awaiting the Securities and Exchange Commission’s (SEC) endorsement to proceed. This merger marks the first under the CBN’s new mandate, which requires banks to increase their minimum capital base significantly.
In a letter dated July 22, 2024, and signed by Adetona Adedeji, Acting Director of the Banking Supervision Department, the CBN confirmed its approval to Unity Bank’s Managing Director. This response followed an earlier request dated June 19, 2024, seeking permission for the merger and financial assistance.
The CBN’s recapitalisation directive requires commercial banks with international authorisation to raise their capital base to N500 billion, national banks to N200 billion, and regional banks to N50 billion.
Alongside the merger approval, the CBN has sanctioned a substantial financial support package of N700 billion to the new entity, structured as a 20-year term loan with a five-year moratorium and an interest rate of six percent.
The CBN letter 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 N700bn to the new entity, structured as a 20-year term loan. The loan will be priced at an interest rate of MPR minus 11 per cent, subject to a minimum of six per cent. 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 obligation of Unity Bank amounting to N303.7bn (comprising N92.00bn of First Bank of Nigeria exposure on clearing obligation, N51.70bn financial accommodation of the CBN, N25.00bn Anchor Borrowers programme obligation and N135.00 billion NIRSAL obligation) will be deducted from the N700bn financial accommodation. The obligations to the CBN and NIRSAL will be settled accordingly.
“The balance of N396.30bn from the financial accommodation is to be invested in a 20-year Federal Government of Nigeria bond. The N396.30bn invested in the 20-year FGN bond will qualify as a Tier 2 capital instrument and component of the shareholders’ fund.
“Unity Bank’s current Cash Reserve Ratio shortfall of N117.90bn is hereby waived from being debited. Providus Bank’s CRR balance, post-merger, will serve as the opening balance of the new entity.”
The letter also noted: “These terms are subject to your acceptance and full compliance. Kindly confirm your acceptance of the outlined terms.”
Hakama Sidi, Acting Director of Corporate Communications at the CBN, affirmed the approval, stating it aims to strengthen Nigeria’s financial system and mitigate potential systemic risks, avoiding a repeat of the recent Heritage Bank liquidation.
“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,” Sidi stated.
He added that the merger is crucial for the financial health and operational stability of the post-merger organisation and reassured that no Nigerian bank currently faces a situation comparable to Heritage Bank’s liquidation.
Both Providus and Unity Bank have confirmed the merger approval and await the SEC’s final decision. Providus Bank’s planned acquisition of a majority stake in Unity Bank is part of its broader strategy to strengthen its capital base amid the recapitalisation challenge.
In a joint statement, the banks announced: “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. This merger represents a strategic and complementary union that will leverage the strengths of both banks to create a leading financial institution in the industry with footprints in retail, corporate, commercial, and digital banking.”
Highlighting their combined strengths, the statement added: “Unity Bank Plc, with its rich legacy of over 18 years, has established a robust retail banking network, comprising more than 220 branches nationwide. Providus Bank Limited, renowned for its innovative approach to banking, boasts a strong digital footprint, innovative products, and a high-quality service culture. Together, we aim to deliver a seamless blend of traditional and modern banking services, providing an unparalleled banking experience to our customers.”
The merger aims to combine Unity Bank’s extensive branch network and customer relationships with Providus’s digital prowess, enhancing security, transaction speed, and personalised banking experiences for customers across various channels.
As the merger progresses, both institutions are committed to maintaining the highest standards of corporate governance, financial stability, and customer satisfaction, ensuring a smooth transition and continued excellence in all operations.
