Hello guys! In this article, we'll walk you through the "Providus-Unity Bank Marger" and explain everything you need to know about the approval of proposed merger of Unity Bank and Providus Bank in Nigeria. On August 6, 2024, the Central Bank of Nigeria (CBN) approved the merger of Unity Bank and Providus Bank. The following day, the CBN granted a N700 billion bailout loan to support the recapitalization of the newly merged entity, aiming to strengthen the stability of Nigeria's financial system, address Unity Bank's financial challenges and prevent potential systemic risks.
The funding is structured as a 20-year term loan with an interest rate set at the Monetary Policy Rate (MPR) minus 11%, with a minimum rate of 6%, includes a five-year moratorium, with interest payments due semi-annually and principal repayments spread over the remaining 15 years. This loan will help settle Unity Bank's obligations, totaling ₦303.7 billion, including debts owed to various stakeholders and the Central Bank of Nigeria (CBN).
That's, a significant portion of the N700 billion loan will be used to settle Unity Bank’s N303.7 billion in obligations, including liabilities owed to First Bank of Nigeria, the CBN from the Anchor Borrower Scheme, and NIRSAL. The remaining N392.3 billion will be invested in a 20-year FGN bond, qualifying as tier-2 capital for the new bank. This investment would raise Unity Bank’s negative shareholders' fund from –N190.2 billion to N202.1 billion. Combined with Providus Bank’s shareholders fund, the total will reach N247.36 billion, though the new entity will still require N151.8 billion in recapitalization funds to maintain its national banking license.
Unity Bank has faced ongoing financial difficulties, struggling to meet minimum capital requirements and recording significant losses, including a ₦47.917 billion loss after tax in 2023. In contrast, Providus Bank, established in 2016, has demonstrated strong financial performance, with a profit after tax of ₦44.87 billion in 2023, up from ₦8.03 billion in 2022. The merger between the two banks is seen as a strategic move for Providus Bank to expand its operations and strengthen its market presence.
This merger is the first in the Nigerian banking sector since the 2019 merger of Access Bank and Diamond Bank, and it also represents the second major banking consolidation following the CBN's recapitalization exercise, with the first being the license revocation of Heritage Bank. As the merger details are being finalized, the new entity's name has not yet been determined.
This merger and bailout mark the second time Unity Bank has received financial support, the first being in 2009 after the CBN’s recapitalization mandate. It also represents the first bank bailout under the leadership of Yemi Cardoso at the CBN and the first since the 2018 Polaris Bank bailout. Despite previous fears of Unity Bank facing a similar fate as Heritage Bank, the CBN’s intervention demonstrates its commitment to stabilizing Nigeria’s banking sector.
The newly merged bank will have an estimated asset size of about N2.8 trillion. Providus Bank, with an asset size of N2 trillion as of May 31, 2024, combined with Unity Bank's N423 billion in assets, will initially result in a total of N2.4 trillion. However, factoring in the CBN's financial support, which boosts Unity Bank's assets to N815 billion, the new entity's assets will increase to approximately N2.8 trillion.
The combined bank will also have total customer deposits of N848.9 billion, merging Providus Bank's N504.5 billion with Unity Bank's N344.4 billion. The new bank's total liabilities will be around N1.3 trillion, excluding the CBN's support. The merger involves an 80-20 asset ownership split favoring Providus Bank, indicating Providus will lead the merged entity. The combination aims to leverage Unity Bank's broad branch network with Providus's digital banking capabilities, creating a stronger institution that offers a wider range of services to customers.
The merger of Unity Bank and Providus Bank will create a new banking entity with 231 branches across Nigeria, ranking it among the top 10 largest banks in the country by branch network. The merger is expected to extend to the synchronization of their digital platforms, Unifi by Unity Bank and ProvidusPlus.
The CBN's financial support to Unity Bank has sparked discussions, especially in light of the different approach taken with Heritage Bank, which was deemed a threat to Nigeria's financial stability. However, CBN cited that it deemed action on Heritage Bank was necessary because its failure to improve financial performance posed a "threat to Nigeria’s financial stability."
