The merger between Unity and Providus Banks has been approved by the CBN, pending SEC review.
Providus and Unity Bank have received approval from the Central Bank of Nigeria to merge; however, they are still waiting for confirmation from the Securities and Exchange Commission.
The recent approval by the CBN marks the initial merger to receive endorsement subsequent to a directive from the apex bank mandating an increment in banks’ minimum capital base. According to the circular issued for recapitalization by CBN, commercial banks possessing international authorization are required to raise their capital base up till N500bn whereas national banks must reach at least N200bn and those holding regional authorisation should attain a capital floor of N50bn.
The confirmation of this occurrence was conveyed in a letter addressed to the Managing Director of Unity Bank Plc, signed by Adetona Adedeji – Acting Director, Banking Supervision Department at CBN – and dated July 22nd, 2024.
In response to a previous letter dated June 19, 2024 seeking approval for a merger and financial aid, an epistle entitled “Re: Request for Merger Approval and Financial Support” was received.
The apex bank authorized a new entity and provided financial assistance of N700bn with an interest rate of six percent, to be repaid by the recipient.
According to the CBN, the assistance will take the form of a 20-year loan and repayment is slated to commence following a five-year suspension; however, no additional information regarding funds origins was provided.
On Tuesday, our correspondent received a letter that stated: “Your request has been approved by the Central Bank of Nigeria after reviewing your previous correspondence.”
The new entity will receive a financial accommodation of N700bn in the form of a 20-year term loan. The interest rate for this loan is MPR minus 11 per cent, with a minimum of six per cent. Semi-annual payments are required, but there’s no need to pay off principal debt within five years on the property or asset that was invested into initially. Starting from year six until maturity period ends on equal terms: fifteen installments at once each time they’re due!
Unity Bank’s total debt of N303.7bn, which includes exposure to First Bank of Nigeria amounting to N92.00bn for clearing obligation and financial accommodation by the CBN worth N51.70bn, Anchor Borrowers program obligation at N25.0Bn along with a liability towards NIRSAL valued at 135 billion will be subtracted from their granted financial allowance totaling N700 billion.Based on this deduction procedure, Unity bank is obliged to settle its debts owed precisely according as required by both CBN and NASRAL accordingly in an accurate manner without fail or delay.
An amount of N396.30bn from the financial accommodation will be utilized for purchasing a 20-year bond issued by the Federal Government of Nigeria, contributing towards Tier 2 capital and shareholders’ fund components.
The deficiency in Unity Bank’s Cash Reserve Ratio, which amounts to N117.90bn, will not be deducted anymore. Instead, the combined CRR balance of Providus Bank and Unity Bank after merger will serve as the opening amount for the newly formed organization.
The letter mentioned that the stated terms are dependent on your agreement and complete adherence. Please confirm your acceptance of these outlined conditions.
In a statement released on Tuesday, Hakama Sidi, the acting Director of Corporate Communications for the CBN confirmed that approval had been granted by the apex bank to enhance Nigeria’s financial system stability and prevent any potential systemic risks. This action was taken in order to avoid situations such as Heritage Bank liquidation which occurred recently.
The amount of financial assistance given to the bank was not stated by the director.
