CBN Pumps N700bn into Unity Bank-Providus Bank Merger as Bailout Package

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.

Financial Terms and Structure

• The CBN’s approval includes:
• Long-term Loan:
• 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 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

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.

Settlement of Obligations

The document reveals that Unity Bank’s obligations totaling 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, and N135 billion to NIRSAL.

Investment in Government Bonds:

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 enhance the capital base of the new entity.

Unity Bank’s CRR shortfall of N117.9 billion is waived. Providus Bank’s CRR balance post-merger will serve as the opening balance for the new entity.

Cardoso’s First Bailout under CBN

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.