On August 6, 2024, the Central Bank of Nigeria approved the merger of Unity Bank and Providus Bank.
A day later, the apex bank approved the request for a N700 billion bailout loan to facilitate the recapitalization of the new banking entity.
According to the circular by the CBN, the financial support would be necessary to “strengthen the stability of Nigeria’s financial system and avoid potential systemic risks”
The move reflects the first in a series of banking consolidations that would define the Nigerian banking landscape over the next two years as banks race to meet the new minimum capital requirements.
Here are ten things to know about the Unity Bank/Providus Bank merger.
1. This is the first Nigerian banking merger in five years
This is the first merger in the Nigerian banking scene since the merger between Access Bank and Diamond Bank in 2019.
It also marks the second major banking consolidation move since the announcement of the recapitalization exercise by the CBN, the first being the license revocation of Heritage Bank. As the details of the merger are being finalized, it is not yet known what name the new banking entity will take.
2. The new bank will have 231 branches
Unity Bank’s 209 branches plus Providus Bank’s 23 branches will give the new banking entity a branch network of 231 branches across Nigeria. Hence, the bank will rank among the top 10 largest Nigerian banks in terms of branch network.
A synchronization of the digital platforms of both banks is also expected. Unity Bank owns a mobile application, Unifi by Unity Bank and Providus Bank owns ProvidusPlus. It is expected that the merger will extend into both platforms.
3. CBN’s N700 billion loan
According to reports, Unity Bank sought N700 billion in financial support as well as approval for a merger with Providus from the CBN in late July. The financial support request alongside the merger request was approved by the CBN on August 6.
The loan is a 20-year tenured loan with a floating interest rate, which will be the MPR minus 11%, with the minimum interest rate at 6%. There is a five-year moratorium on the loan. However, interest payments will be semi-annual, while the principal repayment will be done over the remaining 15 years.
4. The loan will be used to pay off Unity Bank’s N303.7 billion obligations
It was noted that a significant sum of the support would be used to settle N303.7 billion of Unity Bank’s obligations, including its N92 billion liability owed to First Bank of Nigeria. The remaining obligations.
It will also be used to settle the bank’s N51.7 billion liability due to the CBN from the Anchor Borrower Scheme, as well as the N135 billion due to NIRSAL (Nigeria Incentive-Based Risk Sharing System for Agricultural Lending).
5. The loan support will be tier-2 capital
The remaining N392.3 billion left from the settlement of Unity Bank’s obligations would be invested in a 20-year FGN bond and would qualify as tier-2 capital for the bank.
Essentially, it would be makeup calculations of the bank’s shareholders fund, which as of September 30, 2023, was –N190.2 billion. Adding it to Unity Bank’s shareholders fund would take the bank’s shareholders fund to N202.1 billion.
Combined with Providus Bank’s total shareholders fund of N45.26 billion, the new bank will have a total shareholders fund of N247.36 billion.
6. The new bank still requires N151.8 billion in recapitalization funds
The paid-up share capital of the two merged banks will amount to N48.2 billion, thus requiring the bank to raise N151.8 billion in recapitalization funds to maintain the national banking license.
Unity Bank, has a total paid-up capital of N16.3 billion, while Providus Bank has a share capital of N31.9 billion. Although the entity is still listed on the NGX, trading has been suspended on the Unity Bank stock. It is yet to be known how the recapitalization funds will be raised by the bank.
7. This is the second time Unity Bank has been bailed out
In 2009, after the recapitalization move mandated by the CBN, a special examination was carried out on the state of the 24 banks in Nigeria.
According to the CBN at the time, Unity Bank “was adjudged to have insufficient capital but not in grave situation because it has a healthy liquidity position.”
While the recapitalization deadline ended in 2009 for other banks, for Unity Bank, it was extended to June 30, 2010. The CBN then extended financial support to Unity Bank and four other banks: Equatorial Trust Bank, Bank PHB, Wema Bank, and Spring Bank, to help with their “loan recovery efforts”.
While N200 billion was disbursed to the four banks at the time, the amount given to Unity Bank was undisclosed at the time.
8. This is the first bank bailout under Yemi Cardoso
Unity Bank’s bailout marks the first bank bailout under the CBN leadership of Yemi Cardoso. It also marks the first bank bailout since the N1.3 trillion bailout of Polaris Bank in 2018 by the Emefiele-led CBN.
Recall that in 2009, the CBN doled out as much as $4 billion as a bailout to about 10 banks in Nigeria to help them avert bankruptcy, one of which was Unity Bank. It is also a move that confirms the stance of the CBN after the collapse of Heritage Bank.
After the collapse of Heritage Bank, there were fears that the same fate was awaiting Unity, Keystone, and Polaris banks. However, the CBN allayed those fears stating it had no plan to do so.
9. The new bank will have an asset size of about N2.8 trillion
In an email to some of its customers, Providus Bank noted that it has a total asset size of about N2 trillion as of May 31, 2024. Combined with Unity Bank’s N423 billion total asset size, the merged bank should have an asset size of about N2.4 trillion.
However, factoring in the CBN financial support, Unity Bank’s assets will be jerked up to N815 billion, thus the new bank should have an asset size of about N2.8 trillion.
10. Customers deposits will be N848.9 billion
Providus Bank’s customer deposits of N504.5 billion combined with Unity Bank’s N344.4 billion will lead to a total customer deposit of N848.9 billion in the new bank. The new bank’s total liability will be about N1.3 trillion, without factoring in CBN’s support.
The financial support by the CBN to Unity Bank has been a major source of conversation, with observers questioning why such support wasn’t extended to Heritage Bank.
According to the CBN, the situation of Heritage Bank became necessary, as the inability of Heritage Bank to improve its financial performance was a “threat to Nigeria’s financial stability.”
