The approval for the merger of Providus and Unity Bank by the Central Bank of Nigeria has been granted, pending the approval of the Securities and Exchange Commission.
This approval from CBN marks the first merger to be given the green light following the directive from the apex bank for banks to raise their minimum capital requirements. According to the CBN recapitalisation circular, commercial banks with international authorization are required to increase 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 the Acting Director of the Banking Supervision Department at CBN, Adetona Adedeji, and addressed to the Managing Director of Unity Bank Plc, confirmed this milestone.
In the communication titled, “Re: Request for Merger Approval and Financial Support,” which was in response to an earlier request for approval dated June 19, 2024, the CBN granted permission for the merger and also approved a financial support package totaling N700 billion for the new entity, to be repaid with an interest rate of six percent.
The support provided by CBN, structured as a 20-year term loan, will commence repayment after a five-year moratorium period, without specifying the source of the funds.
The letter, obtained on Tuesday, stated, “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 assistance package totaling N700 billion for the new entity, structured as a 20-year term loan. The loan will bear an interest rate of MPR minus 11 percent, with a minimum of six percent. Repayments are scheduled semi-annually, with a principal moratorium of five years. Starting in the sixth year, the new entity will commence repayment in 15 equal installments until maturity.
“The total obligation of Unity Bank amounting to N303.7 billion will be deducted from the N700 billion financial package. The remaining N396.30 billion will be invested in a 20-year Federal Government of Nigeria bond, qualifying as a Tier 2 capital instrument and a component of the shareholders’ fund.
“Unity Bank’s current Cash Reserve Ratio shortfall of N117.90 billion will be waived, and Providus Bank’s CRR balance post-merger will become the opening balance of the new entity.”
However, the letter emphasized that these terms are subject to acceptance and full compliance, requesting confirmation from the concerned parties.
In a statement issued on Tuesday, the acting Director of Corporate Communications at CBN, Hakama Sidi, confirmed the approval, stating the decision was made to enhance the stability of Nigeria’s financial sector, prevent potential systemic risks, and avoid scenarios like the recent liquidation of Heritage Bank.
The statement underscored that no Nigerian bank is currently facing a situation as critical as that of Heritage Bank, emphasizing the CBN’s commitment to safeguarding depositors’ interests and ensuring the smooth operation of the banking industry through proactive measures.
Sources from Providus and Unity Bank disclosed that while the merger has CBN’s approval, the final endorsement from SEC is awaited.
Reports have indicated a year-long speculation about Providus Bank Limited’s acquisition of a majority stake in Unity Bank Plc, as part of Providus Bank’s expansion strategy and efforts to bolster its capital base amid the current recapitalization challenges.
In a joint statement, the two banks expressed delight over the approval of the merger, highlighting their combined strengths in various banking segments and customer-centric approach.
The strategic union aims to offer an enhanced banking experience by leveraging Unity Bank’s established branch network and Providus Bank’s digital innovations, emphasizing a commitment to excellence, financial stability, and customer satisfaction in all operations.