– ‘It’s politically induced’
–‘It’s good for financial system stability’
August 12, (THEWILL) – The planned merger of Unity Bank Plc and Providus Bank Limited, 37- and 8-year-old financial services institutions respectively, recently approved by the Central Bank of Nigeria (CBN), has sparked mixed reactions among stakeholders and industry experts. Both sides express divergent sentiments over the deal which is coming barely two months after the apex bank revoked the operating licence of the 12-year-old Heritage Bank Limited in June 2024.
The CBN had explained that its decision on the Heritage Bank licence revocation was made due to the bank’s inability to improve its financial performance. The regulator said Heritage Bank, which was nationally licensed, had not improved and “has no reasonable prospects of recovery”, thereby making revoking the licence the next necessary step.
The CBN had settled the over N400 billion owed to First Bank by the defunct Heritage Bank, according to the lender which confirmed that First Bank had exited the exposure as CBN settled the Bank which undertook Heritage Bank’s clearing obligations at the behest of the apex bank under its former leadership.
Why preferential treatment?
A solicitor who is versed in financial sector matters and highly involved in the banking consolidation fallouts since 2009, accused the CBN of favouring Unity Bank because of the powerful interests behind it.
The legal practitioner, who would not want his name in print because of the matters he is handling, told THEWILL that the CBN was pandering to the interest of a section of the country by offering a 20-year facility to Unity Bank which has been in deep trouble over time. “Why did CBN not treat Unity Bank the way it treated Heritage Bank? Both were bad markets in the industry,” the solicitor queried, alluding to the huge bailout the CBN pumped into Unity Bank.
Humongous bailout
A day after announcing the approved Unity-Providus Banks merger, the apex bank approved the request for a N700 billion bailout loan to facilitate the recapitalization of the new banking entity.
The CBN said the financial support would be necessary to “strengthen the stability of Nigeria’s financial system and avoid potential systemic risks”
According to reports, Unity Bank had sought N700 billion in financial support as well as approval for a merger with Providus from the CBN in late July. The financial support request alongside the merger request was approved by the CBN on August 6.
Reports further revealed that a significant sum of the support would be used to settle N303.7 billion of Unity Bank’s obligations, including its N92 billion liability owed to First Bank of Nigeria.
“The situation in Unity Bank has always been political”, said an investment analyst and top stockbroker. According to him, even when the first banking consolidation happened, Unity Bank was spared while Savannah Bank, which was stronger and paying customers, was liquidated because of the sectional interest Unity Bank represents.”
THEWILL further gathered from a source involved in the valuation report for Unity Bank that two former Nigeria’s military leaders and the Asset Management Corporation of Nigeria (AMCON) are among the biggest shareholders of Unity Bank. “They are too influential for CBN or FG to shut down the bank,” the source stated.
A financial consultant, Gabriel Ebomwonyi, argued that Unity Bank ought to have been treated the way of Heritage Bank because, according to him, “The bank’s shares have since been suspended in the stock market and their account is in big red.”
The flipside
However, the CBN had stated that the situation in Heritage was too grave for remedy and incomparable with any other lender.
“The merger is contingent upon the financial support from the CBN. The fund will be instrumental in addressing Unity Bank’s total obligations to the Central Bank and other stakeholders.
“Furthermore, it is important to emphasise that no Nigerian bank currently faces a precarious situation comparable to that of Heritage Bank, which was recently liquidated,” the CBN stated in its statement dated August, 6, 2024 and signed by its Ag. Director, Corporate Communications, Hakama Sidi-Ali (Mrs).
Miffed by the position of the ‘pro-Heritage Bank’ group, the National Coordinator, Shareholders Association of Nigeria, Mrs Bisi Bakare, tongue-lashed those who blame CBN for its actions on Unity Bank and Heritage Bank.
“How can an ‘industry expert’ compare Unity Bank with Heritage Bank? Heritage Bank was not quoted on either the NASD or NGX. Being a private company, Heritage Bank had no due diligence in its corporate governance space and was not thoroughly monitored by the relevant regulators, unlike Unity Bank that is quoted,” Bakare said in a note to THEWILL.
Anthony Omojola, Managing Director/CEO Credible Associates Limited, a consulting and investment advisory firm, said Unity Bank’s case may not be too good, but that it found a suitor in the entity called Providus Bank made its case different. He argued that Heritage Bank had no suitor and the CBN did not stop it from going into merger, if it was possible.
In his response, Chairman, Ibadan Zone Shareholders Association, Eric Akinduro commended the CBN for approving the Unity Bank and Providus Bank merger.
“CBN has done well at least to salvage Unity Bank from liquidation and to stabilize the financial system to avert another systemic risk ,” he said.
In more granular details, the investment consultant said, “Heritage Bank’s financial position was very troubling with bad loans of over N590bn which translated to over 90% of the bank’s active loans that were not performing. Only 5% of its loan was performing and the bank’s earnings were in deficit of over N1 trillion. Unity Bank’s loan portfolio was never that bad.”
In his response, the Managing Director/CEO at Decof Investment Limited, Moses Igbrude, applauded the CBN for approving the Unity-Providus Banks merger.
He described development as the best decision for the two parties that are involved to cross the hurdles of the ongoing recapitalization. He said it was not a CBN-induced merger, rather the two banks saw synergy in this business combination.
An investor activist and Co-founder, Noble Shareholders Solidarity Association, Gbadebo Olatokunbo, condemned insinuations that the merger was politically motivated. He said Heritage Bank’s situation was hopeless and that the CBN acted professionally in liquidating it.
Prospects ahead
Head of Corporate Communications at Unity Banik, Matthew Obiazikwor, said those opposed to the merger plan do not understand the CBN position, which is ensuring financial system stability.
“The CBN said the situation in Heritage Bank was not comparable to that of Unity Bank. The CBN is the regulator and has its way of determining the state of every bank.
“I can tell you that the banking sector is the most regulated. The CBN would not approve the merger and also grant the bailout if the situation was as bad as that of Heritage Bank, because the major point is financial system stability.
The paid-up share capital of the two merged banks will amount to N48.2 billion, thus requiring the bank to raise N151.8 billion in recapitalization funds to maintain the national banking license.
Unity Bank, has a total paid-up capital of N16.3 billion, while Providus Bank has a share capital of N31.9 billion
Both of them are strong in the digital space which will give them a quantum lift in service delivery. Unity Bank owns a mobile application, Unifi by Unity Bank and Providus Bank owns ProvidusPlus. It is expected that the merger will extend into both platforms and boost their support for the SME sector which they are both renowned for and boost their role in financial inclusion.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
