Business
Ripples over CBN’s intervention in Unity Bank, Providus Bank merger
– Action raises issue of moral conflict – Experts
The Central Bank of Nigeria (CBN), appears to be in the eye of the storm, with many people questioning its regulatory equity and fair play, since the apex bank doled out a whooping N700 billion to facilitate the merger of a struggling Unity Bank Plc with Providus Bank Limited, even in the heat of a banking sector recapitalization.
The sentiments are feeding fat on the fact that the benevolence is coming barely two months after the apex bank revoked the operating license of another distressed lender, Heritage Bank Limited in June 2024, for no worse reasons.
Justifying the withdrawal of the operating license of Heritage Bank, the CBN had in a statement on June 3, 2024, said the measure was necessary due to the bank’s violation of Section 12(1) of Banks and Other Financial Institutions Act (BOFIA) 2020.
The statement highlighted that the bank’s board and management failed to improve its financial performance, “posing threat to financial stability.”
The CBN emphasized that the revocation of Heritage Bank’s license is intended “to strengthen public confidence in the banking system and ensure the soundness of the financial system is not compromised.”
But on Tuesday, August 6, 2024, the apex bank, in a statement signed by its acting Director, Corporate Communications, Hakama Sidi Ali, announced the approval of the merger of Providus Bank and Unity Bank, stating that the action was following the provisions of Section 42 (2) of CBN Act, 2007. It also announced the approval of N700 billion support for the proposed merger between the two banks.
According to a circular by the CBN regarding this move, “the financial support would be necessary to strengthen the stability of Nigeria’s financial system and avoid potential systemic risks.”
Those in the know of the unhealthy state of Unity Bank cannot find words to explain that the CBN is not only tolerating an obviously distressed bank, but also injecting fresh funds into it.
According to reports, Unity Bank sought N700 billion in financial support as well as approval for a merger with Providus Bank from the apex bank in late July, and had the request granted in less than one month on August 6, 2024.
Business Hallmark learnt that the N700 billion loan is a 20-year tenured facility with a floating interest rate, which will be the Monetary Policy Rate (MPR) minus 11 percent, with the minimum interest rate at six percent.
There is also a five-year moratorium on the loan; and interest payments would be semi-annual, while the principal payment will be over the remaining 15 years. Reports further showed that of the N700 billion, about N303.7 billion would be utilized in settling Unity Bank’s obligations, including its N92 billion liability said to be owed First Bank of Nigeria.
Also, N51.7 billion of the loan would be used to settle the bank’s liability due to the CBN itself from the Anchor Borrowers Scheme (ABS) as well as N135 billion due to Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL ).
It is also reported that N392.3 billion of the CBN facility to Unity Bank would be invested in a 20-year FGN bond and would qualify as tier-2 capital for the bank. All these would be pulling up Unity Bank’s shareholders’ fund, which was negative (-N190.2 billion) as of September 30, 2023.
Many have not forgotten that this is not the first Unity Bank would be receiving inexplicable preferential treatment from the monetary authorities. In 2009, the apex bank carried out a ‘special examination’ of the 25 recapitalised banks and reported that Unity Bank “was adjudged to have insufficient capital but not in grave situation because it had a healthy liquidity position.” The bank was, however, eventually bailed out by the apex bank with an unspecified loan facility.
Against this background, many stakeholders see the latest controversial merger in the nation’s banking sector as just an effort by the CBN to ensure the continued existence of Unity Bank.
They note that while the apex bank clearly stated the available options for banks in the guidelines for the ongoing bank recapitalisation, there was no provision for bailout package for any distressed bank from the CBN.
Between politics and economics
An investment analyst and top stockbroker, who does not want his name in print, is of the view that “the situation in Unity Bank has always been political”,
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.”
Also, a source involved in the valuation report for Unity Bank was quoted as saying 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.
In his reaction, President of the Noble Shareholders’ Solidarity Association, Matthew Akinlade, said Unity Bank was being treated as a sacred cow by the regulator. According to him: “I think the approval of the merger between Providus Bank and Unity Bank by the CBN was just to rescue Unity Bank from liquidation. Unity Bank appears to me, as a sacred cow that must be saved.
“I believe that if the same treatment was applied to Heritage Bank, it would have been saved. Going forward, CBN has to apply equity and fairness in their decision-making process,” he said.
For Marcel Okeke, an economist and consultant in Business Strategy & Sustainability, “if the liquidation of the Heritage Bank by the CBN after the commencement of the recapitalisation exercise was a shocker to many, the latest lifeline for Unity Bank from the same apex bank is bizarre, to say the least.”
Okeke speaks further: ”What the CBN has just done for Unity Bank does not seem to have any antecedents nor does it fit into the stated format for the ongoing bank recapitalisation in Nigeria.
“Indeed, when the CBN opted to withdraw the operating licence of Heritage Bank, names of a few other banks — including Unity Bank — were bandied as likely next in line for possible liquidation. Now, those banks, except Unity Bank, are left in the lurch, to keep struggling to survive.
“In the end, the CBN’s arbitrary action in giving Unity Bank a kid gloves treatment reeks of purely political expediency over economic reasoning. But the treatment has again unleashed uncertainty and mutual suspicion in the banking sector. On one hand, who knows what next the apex bank would do, even outside its stated guidelines? On the other hand, who knows what alterations the CBN could still effect in the course of the two-year timeline for the recapitalisation?
“All said, the CBN should have maintained a level playing field for all the banks, having laid out all the rules and guidelines. Packaging and offering of huge loans to any otherwise distressed bank is not part of the bargain.
”And whether the apex bank admits it or not, this singular capricious initiative (bailing out Unity Bank) portends danger with unfathomable ripples in the Nigerian banking system. It also questions the leadership, ethical and professional standard of the apex bank”.
However, the National Coordinator, Shareholders Association of Nigeria, Mrs Bisi Bakare, has a contrary view.
“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 an influential online publication.[
The apex bank had started the recapitalisation of banks in Nigeria from April 1, 2024 to March 31, 2026, to push up their capital base, directing that banks with weak financial muscles could merge, acquire or downgrade to a lower level authorisation.
According to the CBN directive, banks with international licences are to raise a minimum capital base of N500 billion; banks with national authorisation, N200 billion; banks with regional and merchant authorisation, N50 billion; and non-interest banks with national and regional operations, N20 billion and N10 billion, respectively.
In 2006, the CBN also recapitalized banks and raised their capital base to N25 billion. This resulted in the shrinkage of the number of banks from 89 to 25 through mergers and acquisitions involving 76 banks, following their financial health at the time.
The banks’ capitalisation has started to draw a few banks to the capital market to raise funds to meet the CBN’s minimum capital requirements. It is expected that other banks might go the way of Unity and Providus banks or be downgraded to mitigate CBN’s recapitalisation target.
