In a significant move to stabilize Nigeria’s financial sector, the Central Bank of Nigeria (CBN) has approved a N700 billion financial package to support the merger between Unity Bank Plc and Providus Bank Limited.
Financial Terms and Structure
The CBN’s approval includes the following financial terms:
– **Amount:** N700 billion
– **Term:** 20 years
– **Interest Rate:** Monetary Policy Rate (MPR) minus 11%, with a minimum rate of 6%
– **Repayment:** Semi-annual payments with a five-year principal moratorium. Repayments will commence in the sixth year, spread over 15 equal installments.
This marks the first financial bailout under the leadership of CBN Governor Yemi Cardoso. The bailout comes shortly after the liquidation of Heritage Bank, leading many to speculate that the CBN would not engage in further bailouts.
CBN’s Official Statement
The CBN confirmed the approval of the financial accommodation in an official statement, emphasizing the merger’s importance for the stability of Nigeria’s financial system. The statement read: “The Central Bank of Nigeria (CBN) 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.”
Utilization of the Financial Support
The document outlines that Unity Bank’s obligations, amounting to N303.7 billion, will be settled using part of the financial accommodation. These obligations include:
– **N92 billion to First Bank of Nigeria**
– **N51.7 billion in CBN financial accommodation**
– **N25 billion under the Anchor Borrowers Programme**
– **N135 billion to NIRSAL**
The remaining N396.3 billion will be invested in a 20-year Federal Government of Nigeria (FGN) bond, qualifying as a Tier 2 capital instrument to strengthen the new entity’s capital base. Additionally, Unity Bank’s CRR shortfall of N117.9 billion will be waived, and Providus Bank’s CRR balance post-merger will serve as the opening balance for the new entity.
Implications for the Banking Sector
Governor Olayemi Cardoso’s decision to approve this bailout contrasts with his initial stance, which suggested a move away from bailouts, a policy shift from his predecessor, Godwin Emefiele. Emefiele had pledged to prevent bank failures, but Cardoso’s intervention in the Unity Bank-Providus Bank merger indicates a more flexible approach.
Unity Bank, which is publicly listed on the NGX Banking Index, reported negative shareholders’ funds of N175 billion in its last filing for Q3 2023. The bank has not yet released its audited accounts for 2023 but forecasted a profit of N5.8 billion for Q3 2024. The future listing status of Unity Bank on the Nigerian Exchange (NGX) remains uncertain pending the completion of the merger with Providus Bank.
Bottom Line
The N700 billion bailout by the CBN is a significant step towards stabilizing the Nigerian financial system. It highlights the apex bank’s commitment to maintaining financial stability and supporting critical mergers that can strengthen the banking sector. As the merger progresses, stakeholders will be keenly observing the outcomes and the impact on Nigeria’s broader financial landscape.
