According to a document obtained by THE NEWS CHRONICLES, Nigeria’s Central Bank has authorized a financial package of N700 billion to assist the proposed merger of Unity Bank Plc and Providus Bank Limited.
As stated in a formal letter from the CBN outlining the conditions and framework of the financial accommodation, the Central Bank of Nigeria affirms that the goal of the bailout is to reinforce the stability of the country’s financial system.
The letter, which is sent to Unity Bank’s managing director, describes a 20-year term loan that is intended to guarantee the combined company’s operating stability.
This is the first commercial bank financial rescue under Yemi Cardoso’s leadership as Central Bank Governor. Additionally, it follows the liquidation of Heritage Bank, which many had interpreted as a signal that the federal government would no longer be supporting banks.
Details of CBN Bailout letter
Financial Terms and Structure
- Amount: N700 billion
- Structure: Term loan of 20 years
- Interest Rate: MPR (Monetary Policy Rate) minus 11 percent, with a minimum rate of 6%
- Terms of Repayment: Semi-annual payments will be made. a five-year principal moratorium, which exempts the first five years’ principal payments. The new corporation will return the debt in fifteen equal installments till maturity beginning in the sixth year.
Other details of the transaction that Nairametrics was able to view stated that Unity Bank was to use the bailout monies to settle its outstanding commitments of N303.7 billion.
- This includes First Bank of Nigeria’s exposure of N92.00 billion for clearing commitments.
- An additional N51.70 billion in financial accommodations under the Anchor Borrowers Program, from the CBN, totaling N25.00 billion.
- N135.00 billion is owed to NIRSAL (Nigeria Incentive-Based Risk Sharing System for Agricultural Lending), among other obligations.
- The financial accommodation of N700 billion would be used to pay these liabilities.
Federal Government of Nigeria (FGN) bonds with a 20-year maturity period would be purchased with the remaining N396.30 billion from the financial accommodation.
This investment will add to the new entity’s shareholders’ money and be eligible as a Tier 2 capital instrument.
The letter further says that Providus Bank’s CRR balance following the merger will be the starting amount for the new company and that Unity Bank’s present CRR deficiency of N117.90 billion will be waived.
The CBN’s Bailout
In a formal statement, the apex bank said that it had approved financial accommodations to support Unity Bank Plc and Providus Bank Limited’s proposed merger.
It said: “The Central Bank of Nigeria (CBN) has approved a critical financial accommodation to facilitate the proposed merger of Unity Bank Plc and Providus Bank Limited. This strategic step is intended to improve the stability of Nigeria’s financial system and avoid potential systemic concerns.”
The CBN stated in the statement that this financial support is necessary for the post-merger organization’s operational stability and financial stability and that the merger is dependent upon it.
Nevertheless, the central bank neglected to reveal the total amount of funding authorized for the combination. The News Chronicles’ findings now reveal that around N700 billion was extended as a bailout.
Cardoso’s initial bailout
The majority of analysts who spoke with Nairametrics were startled by this bailout, which is the first during CBN Governor Olayemi Cardoso’s term.
- In contrast to Godwin Emefiele, his predecessor, who promised not to let banks fail, Cardoso had first hinted that bailouts might eventually end.
- He did not, however, decide to save Heritage Bank, which was just placed into liquidation, instead choosing to become involved in the merging of Unity Bank and Providus Bank.
- Unity Bank Plc is mentioned on the NGX Banking Index and is a publicly listed company, in contrast to Heritage Bank.
- In light of the planned merger with Providus Bank, it is uncertain if the bank will remain listed on the Exchange or delist.
A publicly traded company called Unity Bank disclosed N175 billion in negative shareholders’ funds in its most recent Q3 2023 filing on the Nigerian Exchange (NGX).
The bank predicted a profit of N5.8 billion for the third quarter of 2024, but it has not yet released its audited books for 2023.
