CBN N700bn bailout aids Unity, Providus Bank merger

The Central Bank of Nigeria (CBN)’s bailout has aided the proposed merger between Providus Bank and Unity Bank.

The CBN’s financial support is particularly instrumental in addressing Unity Bank’s total obligations to it and other stakeholders.

The CBN on Tuesday granted approval for a pivotal financial accommodation to support the proposed merger between Unity Bank Plc and Providus Bank Limited.

According to the CBN, the strategic move is designed to bolster the stability of Nigeria’s financial system and avert potential systemic risks.

A statement signed by Hakama Sidi Ali, acting director of corporate communications, said 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 organization,” the CBN said.

Analysts say the merger will transform the two banks into a stronger group with several branches.

Ayodele Akinwunmi, senior relationship manager, corporate banking group, FSDH Merchant Bank, said: “It will encourage the merger of the two banks to form a stronger bank with wider branch network, which will enable the emerging entity to support the customers better.”

In response to the CBN’s actions, Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, highlighted significant concerns about Heritage Bank and Unity Bank with considerable negative capital in the industry.

“The CBN has been working to resolve the issues with these banks. Heritage Bank’s license was revoked after efforts to find a buyer were unsuccessful,” Olubunmi explained.

He noted that a bank’s failure can severely damage the industry’s reputation and reduce public confidence. The CBN has been actively working to address Unity Bank’s situation, with merger discussions ongoing since last year.

As of the end of 2022, Unity Bank’s last audited financial result revealed a negative shareholder fund of N275 billion, indicating liabilities exceeding assets by this amount. For investors to consider stepping in, the equity must be neutralized, as the current liability holders effectively own the bank.

Olubunmi elaborated, “The CBN’s financial accommodation involves measures to reduce negative shareholding and eliminate toxic assets. Without such interventions, it would be challenging to attract investors willing to commit funds to the bank. Therefore, structural adjustments and accommodations are necessary to facilitate the acquisition.”

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On the implications, he said before Heritage Bank, it had been a long time since the CBN revoked a bank’s license. Even then, the establishment of bridge banks helped manage the assets and liabilities, boosting confidence in the banking sector.

“This move aims to restore faith in the banking industry. Instead of letting Unity Bank fail or revoking its license, which would undermine public trust, the CBN’s actions are set to enhance confidence. Consequently, Unity Bank customers will transition to Providus Bank, ensuring continuity in financial services,” he said.

Tilewa Adebajo, chief executive officer (CEO) of The CFG Advisory, described this as “the beginning of bank recapitalisation and restructuring.”

The banks said in a joint statement on Tuesday that the 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.

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“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,” a joint statement said.

“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.”

The statement noted that the combination is 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.”