The Central Bank of Nigeria (CBN) has given its approval for the merger between Providus Bank Limited and Unity Bank Plc. This significant development is now pending the review and approval of the Securities and Exchange Commission (SEC).
This merger marks the first approval under a new CBN directive mandating banks to increase their minimum capital bases. According to the CBN recapitalisation circular, commercial banks with international licenses must raise their capital base to N500 billion, national banks to N200 billion, and regional banks to N50 billion.
A letter dated July 22, 2024, signed by Adetona Adedeji, the Acting Director of the Banking Supervision Department at CBN, was sent to the Managing Director of Unity Bank Plc, confirming the approval. The letter, titled “Re: Request for Merger Approval and Financial Support”, responded to an earlier request from June 19, 2024, seeking permission for the merger and financial assistance.
The CBN has also approved financial support totaling N700 billion for the new entity, with a repayment period of 20 years and a five-year moratorium. The loan will carry an interest rate of six percent. This support is intended to help the new entity meet various financial obligations and stabilize its operations.
The letter outlined specific terms for the financial support, including the deduction of Unity Bank’s total obligations amounting to N303.7 billion. The remaining N396.30 billion will be invested in a 20-year Federal Government of Nigeria bond, which will qualify as a Tier 2 capital instrument and part of the shareholders’ fund.
Moreover, Unity Bank’s current Cash Reserve Ratio (CRR) shortfall of N117.90 billion has been waived. Providus Bank’s CRR balance post-merger will serve as the new entity’s opening balance.
Hakama Sidi, Acting Director of Corporate Communications at CBN, confirmed the approval in a statement issued on Tuesday. He emphasized that the merger aims to bolster the stability of Nigeria’s financial system and avert potential systemic risks.
Sidi noted, “The Central Bank of Nigeria has granted approval for a pivotal financial accommodation to support the proposed merger between Unity Bank Plc and Providus Bank Limited. This strategic move is designed to bolster the stability of Nigeria’s financial system and avert potential systemic risks.”
The CBN’s action aligns with Section 42 (2) of the CBN Act, 2007, and aims to ensure the financial health and operational stability of the merged entity. There is no indication that any Nigerian bank faces a precarious situation comparable to the recent liquidation of Heritage Bank.
Both Providus Bank and Unity Bank have confirmed that they are still awaiting the approval of the SEC. Providus Bank has been planning to acquire a majority stake in Unity Bank as part of its expansion strategy and to address the current recapitalisation challenge.
In a joint statement on Tuesday, the banks declared, “This 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.”
