In today’s competitive economy, many industries are fragmented, with numerous small players vying for market share. The banking industry is no exception, which is why mergers and acquisitions have become critical strategies for consolidation. Recently, the Central Bank of Nigeria (CBN) granted approval for a significant financial accommodation to support the proposed merger between Unity Bank Plc and Providus Bank Limited. This move, aimed at stabilizing Nigeria’s financial system and averting potential systemic risks, marks a pivotal moment in the country’s banking sector.
To clarify, a merger occurs when two separate entities combine forces to create a new, joint organisation, whereas an acquisition involves the takeover of one entity by another. Globally, mergers have played a critical role in the consolidation of industries, allowing companies to gain a dominant market position, increase pricing power, and reduce competition. A notable example is the 1999 merger of Exxon and Mobil, which created the largest company in the world by market capitalization, with the goal of achieving economies of scale and better responding to crude oil price fluctuations.
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The Unity-Providus merger is particularly significant as it represents the first major banking merger in Nigeria since the merger between Access Bank and Diamond Bank in 2019. This merger brings together the strengths of both institutions. Providus Bank, known for its robust digital banking footprint, boasts assets exceeding N1 trillion and an annual profit of over N40 billion. Unity Bank, despite its challenges, including a negative shareholder capital of over N190 billion, contributes valuable assets worth N500 billion, an extensive branch network of 215 branches, and a strong presence in the agribusiness and retail segments.
The merger, which has been described as a “business combination” by both banks, is contingent on financial support from the CBN. This financial accommodation, speculated to be around N700 billion, is crucial for addressing Unity Bank’s total obligations to the CBN and other stakeholders. According to a statement by the CBN, this strategic move is essential for the financial health and operational stability of the post-merger organization. The CBN’s intervention is consistent with the provisions of Section 42 (2) of the CBN Act, 2007, and highlights the apex bank’s commitment to safeguarding depositors’ interests and ensuring the smooth functioning of the banking sector.
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A key aspect of this merger is its potential impact on financial inclusion in Nigeria. Unity Bank’s extensive branch network, particularly in the northern regions, combined with Providus Bank’s digital capabilities, positions the new entity to play a significant role in extending banking services to underserved areas. This is aligned with one of the CBN’s key goals—enhancing financial inclusion in a country where 37 percent of rural Nigerians are financially excluded.
The merger will result in a combined branch network of 243 branches across Nigeria, placing the new banking entity among the top 10 largest Nigerian banks in terms of branch presence. Additionally, the digital platforms of both banks — Unity Bank’s Unifi by Unity Bank and Providus Bank’s ProvidusPlus — are expected to be integrated, further enhancing the customer experience.
In terms of financial strength, the combined entity will have total assets amounting to approximately N2.43 trillion, a significant increase from the individual assets of Providus Bank and Unity Bank. Providus Bank’s customer deposits of N504.5 billion, combined with Unity Bank’s N344.4 billion, will result in total deposits of N848.9 billion. This merger not only enhances the new bank’s market share but also positions it for sustained growth and stability in Nigeria’s financial sector.
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Moreover, the CBN’s N700 billion financial support, structured as a 20-year tenured loan with a floating interest rate and a five-year moratorium, will be instrumental in stabilizing the new entity. A portion of this support will be used to settle Unity Bank’s obligations, including a N92 billion liability owed to First Bank of Nigeria, a N51.7 billion liabilities due to the CBN from the Anchor Borrower Scheme, and a N135 billion liability to NIRSAL. The remaining N392.3 billion will be invested in a 20-year FGN bond, qualifying as tier-2 capital and shoring up Unity Bank’s shareholders’ fund.
The strategic Unity-Providus merger is not just about consolidation; it represents a critical step in strengthening Nigeria’s banking sector. By combining resources, expertise, and market presence, the new entity is poised to enhance stability, increase market share, and drive growth in the Nigerian financial landscape. This merger, in line with global best practices, is a testament to the CBN’s proactive measures and strategic interventions to maintain confidence in the banking system during this transformative period.
