CBN Approves Merger of Unity and Providus, Sets Loan Conditions

CBN Fines Fidelity, First Bank, Seven Others N1.35bn for ATM Cash Scarcity

The Central Bank of Nigeria (CBN) has approved the merger between Unity Bank Plc and Providus Bank Limited, subject to certain conditions. This approval, the first since the CBN’s recapitalization mandate, aims to bolster the stability of Nigeria’s financial system and avert potential systemic risks.

According to a letter from the CBN, the merger is contingent upon a financial accommodation of N700 billion to the new entity, structured as a 20-year term loan at an interest rate of MPR minus 11 percent, subject to a minimum of six percent.

This means that if Nigeria’s MPR is 11 percent or less, the interest rate would be six percent (the minimum). However, if the MPR is more than 11 percent, the interest rate would be MPR minus 11 percent, with the difference not being less than six percent. The loan will be repaid in 15 equal installments after a five-year moratorium.

Hakama Sidi, Acting Director of Corporate Communications at the CBN, acknowledged the apex bank’s approval of the merger in a statement, saying:

“The CBN’s action is in accordance with the provisions of Section 42 (2) of the CBN Act, 2007. This arrangement is crucial for the financial health and operational stability of the post-merger organization.”

The CBN also waived Unity Bank’s Cash Reserve Ratio shortfall of N117.90 billion and approved the investment of N396.30 billion in a 20-year Federal Government of Nigeria bond, which will qualify as a Tier 2 capital instrument.

The merger is seen as a strategic move to address Unity Bank’s total obligations to the Central Bank and other stakeholders.

“The fund will be instrumental in addressing Unity Bank’s total obligations to the Central Bank and other stakeholders,” said Sidi.

CBN Recapitalization Programme

Nigeria’s apex bank, in its ongoing efforts to strengthen the country’s financial sector through various means, including a recapitalization mandate, revoked the license of Heritage Bank due to its persistent financial challenges.

The Central Bank’s recapitalization mandate requires Nigerian financial institutions to increase their capital base to meet regulatory requirements, improve financial stability, and enhance lending capacity.

For international banks operating in the country, their capital base has been increased from N50 billion to N500 billion, while the capital base of national banks has been increased from N25 billion to N200 billion.

Although the CBN’s merger approval is subject to the acceptance and full compliance with the outlined terms, including approval by the Securities and Exchange Commission, several Nigerian banks are currently seeking various means to meet the CBN’s recapitalization mandate.

“This strategic move is designed to bolster the stability of Nigeria’s financial system and avert potential systemic risks,” said Sidi, emphasizing the CBN’s commitment to safeguarding depositors’ interests and ensuring the smooth functioning of the banking sector.