To ensure the stability of Nigeria’s financial system, the Central Bank of Nigeria (CBN) has provided substantial support for the merger between Providus Bank and Unity Bank, which reported losses of ₦38.8 billion during the first half of 2023. This intervention is seen as crucial to maintaining the operational stability of the banking sector.
Financial Support and Merger Details
The CBN has not officially disclosed the exact amount of the financial facility. However, a source close to the situation informed TechCabal that the support amounted to ₦700 billion. This financial backing is aimed at addressing Unity Bank’s obligations to the Central Bank and other stakeholders, ensuring a smooth merger process with Providus Bank.
Request for Merger Approval and Financial Support
According to a letter from Unity Bank’s Managing Director to the CBN, dated July 22, the bank sought “merger approval and financial support.” The request included a loan “priced at an interest rate of MPR minus 11%, subject to a minimum of 6%,” with repayment to commence in the sixth year in 15 equal installments until maturity.
CBN’s Official Statement
Hakama Sidi, the acting director of corporate communications at the CBN, emphasized the importance of this financial support. “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.”
Unity Bank’s Financial Health
Unity Bank has faced financial challenges, highlighted by KPMG’s audit, which questioned its viability. As of December 31, 2022, Unity Bank’s total liabilities exceeded its total assets by ₦274.9 billion. Despite reporting a ₦1.04 billion profit in the first quarter of 2023, its total liabilities continued to surpass its total assets, raising concerns about its financial health.
CEO’s Statement and Future Plans
Unity Bank’s CEO, Mrs. Tomi Somefun, attributed the bank’s poor financial performance to the challenging operating environment. She expressed optimism about future economic policies’ positive impact, which she believes will adjust the bank’s position. In September 2023, Somefun hinted at the bank’s plans to complete a recapitalization exercise, focusing on retail growth before the merger.
Context and Implications
Unity Bank’s struggles have been a point of concern since analysts from KPMG highlighted its financial issues in their audit report for the year ending December 31, 2022. The CBN’s intervention is seen as a proactive measure to prevent a potential crisis similar to the recent revocation of Heritage Bank’s license.
This merger and the CBN’s support are crucial steps to ensuring the stability of Nigeria’s banking sector, particularly in the face of Unity Bank’s ongoing financial difficulties.
Conclusion
The CBN’s financial support for the merger between Providus Bank and Unity Bank is a strategic move to stabilize Nigeria’s financial system. This intervention highlights the CBN’s commitment to maintaining the health and stability of the banking sector, especially in challenging economic condition