CBN okays Unity-Providus merger, SEC review next

The Central Bank of Nigeria has okayed the merger of Providus and Unity Bank, as both financial institutions await the approval of the Securities and Exchange Commission.

The approval by CBN signals the first merger to be approved following a mandate by the apex bank directing banks to increase their minimum capital base. Per the CBN recapitalisation circular, commercial banks with international authorisation are to increase their capital base to N500bn and national banks to N200bn, while those with regional authorisation are expected to achieve an N50bn capital floor.

A letter dated July 22, 2024, signed by the Acting Director, Banking Supervision Department, CBN, 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”, came as a reply to an earlier letter dated June 19, 2024, which had sought permission for a merger and financial assistance.

While granting permission, the apex bank also approved financial support totalling N700bn to the new entity to be repaid with an interest rate of six per cent.

The CBN said the support, structured as a 20-year term loan, will begin repayment after a five-year moratorium without giving further indication of the source of funds.

The letter obtained by our correspondent on Tuesday read, “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, however, noted that “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, in a statement issued on Tuesday, said the apex bank granted the approval to bolster the stability of Nigeria’s financial system, avert potential systemic risks and avoid a situation like the recent liquidation of Heritage Bank.

The director, however, did not state the amount of financial assistance given to the bank.

The 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.”

This came as impeccable sources at both Providus and Unity Bank confirmed that while the apex bank had okayed the merger, the financial institutions were still awaiting the approval of the SEC.

The According reports that there have been strong indications for over a year on plans by Providus Bank Limited to acquire a majority stake in Unity Bank Plc.

The development was part of Providus Bank’s expansion plan, and, importantly a bold initiative to further shore up its capital base amid the current recapitalisation challenge.

Meanwhile, the two banks, in a joint statement on Tuesday, declared that “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.

“Unity Bank Plc, with its rich legacy of over 18 years, has established a robust retail banking network, comprising more than 220 branches nationwide. With a strategic niche in the agricultural business, our commitment to delivering exceptional customer service and a comprehensive range of financial products has earned us the trust and loyalty of millions of customers.”

The statement added, “Providus Bank Limited, on the other hand, is renowned for its innovative approach to banking, boasting a strong digital footprint, innovative products, high-quality service culture and strong focus on helping customers grow. As a fast-growing new-generation bank, ProvidusBank has consistently pushed the boundaries of technology to deliver cutting-edge financial solutions that cater to the evolving needs of modern consumers.”

They noted that the combination was driven by a shared vision to provide an unparalleled banking experience to our customers.

“By combining Unity Bank’s extensive branch network and deep-rooted customer relationships with Providus’s digital prowess and innovative spirit, we aim to deliver a seamless blend of traditional and modern banking services.

“Our customers will benefit from an expanded suite of products and services, greater convenience, and improved access to banking solutions across various channels. The integration of our digital platforms will offer enhanced security, faster transactions, and a more personalized banking experience.

“As we embark on this journey together, we remain committed to maintaining the highest standards of corporate governance, financial stability, and customer satisfaction. Our united team of dedicated professionals will work tirelessly to ensure a smooth transition and continued tradition of excellence in all our operations,” the banks stated.