The Central Bank of Nigeria (CBN) has announced its approval for a landmark financial takeover of Unity Bank Plc by Providus Bank Limited. Under the terms of this pivotal agreement, Providus Bank will hold an 80 percent stake in the newly formed entity, with Unity Bank retaining a 20 percent ownership.
The takeover is supported by a substantial financial accommodation from the CBN, including a 20-year term loan valued at N700 billion. The loan, priced at an interest rate of Monetary Policy Rate (MPR) minus 11 percent, with a minimum of six percent, aims to provide significant financial backing to the merged entity. Payments for the loan will be made semi-annually, with a five-year principal moratorium and subsequent repayment commencing in the sixth year through 15 equal installments until maturity.
The CBN’s approval letter, dated July 22, 2024, and signed by Dr. Adetona Adedeji, Acting Director of Banking Supervision, details that Unity Bank’s existing obligations amounting to N303.7 billion will be deducted from the N700 billion financial accommodation. These obligations include N92 billion owed to First Bank of Nigeria, N51.7 billion in CBN financial accommodations, N25 billion related to the Anchor Borrowers Programme, and N135 billion for NIRSAL. Additionally, the balance of N396.30 billion will be invested in a 20-year Federal Government of Nigeria (FGN) bond, qualifying as Tier 2 capital and a component of shareholders’ funds.
The CBN has also waived Unity Bank’s current Cash Reserve Ratio (CRR) shortfall of N117.90 billion. Providus Bank’s CRR balance post-merger will be used as the opening balance for the new entity. This strategic merger is designed to enhance the stability of Nigeria’s financial system and mitigate potential systemic risks.
In a statement by Mrs. Hakama Sidi Ali, Acting Director of the CBN’s Corporate Communications Department, the apex bank emphasized that the merger, contingent upon the CBN’s financial support, is crucial for the operational stability and financial health of the post-merger institution. Ali confirmed that this decision aligns with Section 42 (2) of the CBN Act, 2007, and reflects the CBN’s commitment to safeguarding depositors’ interests and maintaining banking sector stability.
Providus Bank and Unity Bank have expressed their satisfaction with the CBN’s approval, viewing the merger as a strategic opportunity to leverage their respective strengths. Unity Bank, with its extensive network of over 220 branches and a focus on agricultural finance, will combine its robust retail banking presence with Providus Bank’s innovative digital banking solutions. Providus Bank, known for its technological advancements and high-quality service, aims to enhance the banking experience by integrating its digital capabilities with Unity Bank’s traditional banking strengths.
The merger is expected to provide customers with a broader range of products and services, greater convenience, and improved access to banking solutions. The integration will also enhance security, speed up transactions, and offer a more personalized banking experience.
Both banks have committed to maintaining high standards of corporate governance and financial stability throughout the merger process. They anticipate that this union will mark the beginning of a new era in the banking sector, characterized by innovation, growth, and enhanced customer satisfaction.
Providus Bank has demonstrated strong financial performance, with a notable increase in Profit After Tax (PAT) to N44.87 billion in 2023, up from N8.03 billion in 2022. Its assets have grown to N1.75 trillion, and the bank has reduced its Non-Performing Loans (NPLs) to 2.5 percent. Despite these positive metrics, industry experts, including Dr. Ike Chioke, Chief Executive of Afrinvest Group, have highlighted potential challenges related to new capital raises and their impact on achieving the $1 trillion economy target.
The proposed merger is subject to final approvals from the boards, shareholders, and relevant regulatory bodies.
