Nigeria’s Central Bank approved a financial package worth N700 billion to support the proposed merger between Unity Bank Plc and Providus Bank Limited, according to a document seen by Nairametrics.
According to the apex bank, the bailout is aimed at strengthening the stability of Nigeria’s financial system, as confirmed in an official letter from the CBN, which detailed the terms and structure of the financial accommodation.
The letter, addressed to the Managing Director of Unity Bank, outlines a 20-year term loan designed to ensure the operational stability of the merged entity.
This represents the first financial bailout of a commercial bank under Yemi Cardoso as Central Bank Governor. It is also coming on the heels of the liquidation of Heritage Bank which many had thought was a sign that the apex will not be bailing out banks.
CBN Bailout letter details
Financial Terms and Structure
- Amount: N700 billion
- Structure: 20-year term loan
- Interest Rate: MPR (Monetary Policy Rate) minus 11%, with a minimum rate of 6%
- Repayment Terms:: Payments will be semi-annual. A principal moratorium of five years, meaning no principal payments are required for the first five years.Starting from the sixth year, the new entity will repay the loan in 15 equal installments until maturity.
According to other terms of the transaction seen by Nairametrics, it contained terms that require that Unity Bank’s settle existing obligations of N303.7 billion from the bailout funds.
- This includes a N92.00 billion exposure from First Bank of Nigeria related to clearing obligations,
- Another N51.70 billion financial accommodation from the CBN N25.00 billion under the Anchor Borrowers Programme.
- Others include N135.00 billion obligation to NIRSAL (Nigeria Incentive-Based Risk Sharing System for Agricultural Lending).
- These obligations will be deducted from the N700 billion financial accommodation.
The remaining balance of N396.30 billion from the financial accommodation will be invested in a 20-year Federal Government of Nigeria (FGN) bond.
This investment will qualify as a Tier 2 capital instrument, contributing to the shareholders’ funds of the new entity.
The letter also states that Unity Bank’s current CRR shortfall of N117.90 billion will be waived ensuring that Providus Bank’s CRR balance post-merger will serve as the opening balance for the new entity.
CBN Bailout
The apex bank had in an official statement stated that it granted approval for financial accommodation to support the proposed merger between Unity Bank Plc and Providus Bank Limited.
- It 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.”
In the statement, the CBN noted that the merger is contingent upon this financial support, which is essential for the financial health and operational stability of the post-merger organization.
However, the apex bank failed to disclose the amount of financial support approved for the merger. Nairametrics finding has now confirmed that about N700 billion was extended as bailout.
Cardoso’s First Bailout
This bailout represents the first under the tenure of CBN Governor Olayemi Cardoso, a move that surprised most analyst who spoke to Nairametrics.
- Unlike his predecessor, Godwin Emefiele, who pledged not to allow banks to fail, Cardoso had initially signaled that bailouts might become a thing of the past.
- However, he chose to intervene in the Unity Bank and Providus Bank merger, while refraining from bailing out Heritage Bank, which was recently liquidated.
- Unlike Heritage Bank, Unity Bank Plc is a publicly listed entity and is quoted on the NGX Banking Index.
- It is unclear if the bank will continue to be listed on the Exchange or if it wil delist based on the proposed merger with Providus Bank.
Unity Bank, a publicly listed entity, reported negative shareholders’ funds of N175 billion in its last filing for Q3 2023 on the Nigerian Exchange (NGX).
The bank has not yet released its audited accounts for 2023 but forecasted a profit of N5.8 billion for Q3 2024.
