The Central Bank of Nigeria (CBN)
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.
