Providus and Unity Bank’s Surprising Merger: 10 things you need to know
The Central Bank of Nigeria (CBN) has recently approved the merger of Unity Bank and Providus Bank, marking a significant consolidation in the nation’s banking sector.
The approval comes with a substantial financial backing from the CBN—a N700 billion loan intended to stabilize and strengthen the new banking entity.
This merger, while surprising to many, represents a strategic move to reinforce the stability of Nigeria’s financial system and mitigate potential systemic risks.
Here are ten key points to understand the impact and implications of this merger:
1. First Nigerian Bank Merger in Five Years
This merger is the first of its kind in Nigeria since the 2019 union of Access Bank and Diamond Bank. It also stands as the second major consolidation move following the CBN’s recapitalisation exercise, the first being the license revocation of Heritage Bank.
2. A New Banking Giant with 243 Branches
The merger will result in a new banking entity with 243 branches across Nigeria. Unity Bank’s extensive network of 220 branches combined with Providus Bank’s 23 branches will place the new entity among the top 10 largest Nigerian banks in terms of branch network. Furthermore, the digital platforms of both banks—Unity Bank’s Unifi and Providus Bank’s ProvidusPlus—are expected to be integrated, offering enhanced digital banking services.
3. CBN’s N700 Billion Financial Support
In August 2024, the CBN approved a N700 billion loan to support the merger. This loan, with a 20-year tenure and a floating interest rate (MPR minus 11%, with a minimum interest rate of 6%), includes a five-year moratorium on repayments. Interest payments will be made semi-annually, while principal repayments will be spread over the remaining 15 years.
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4. Debt Settlement and Financial Stabilisation
A significant portion of the CBN’s loan will be directed towards settling Unity Bank’s N303.7 billion obligations. This includes a N92 billion liability owed to First Bank of Nigeria, N51.7 billion due to the CBN from the Anchor Borrower Scheme, and N135 billion owed to NIRSAL (Nigeria Incentive-Based Risk Sharing System for Agricultural Lending).
5. Strengthening Capital with Tier-2 Investment
The remaining N392.3 billion from the loan will be invested in a 20-year Federal Government of Nigeria (FGN) bond, qualifying as tier-2 capital for the new entity.
This investment will bolster Unity Bank’s shareholders’ funds from N190.2 billion (as of September 2023) to N202.1 billion. When combined with Providus Bank’s shareholders’ fund of N45.25 billion, the total shareholders’ fund will reach N247.36 billion.
6. Expanding Providus Bank’s Northern Reach
Unity Bank’s strong presence in Northern Nigeria, inherited from legacy banks such as Bank of the North and Tropical Commercial Bank, provides Providus Bank with a unique opportunity to expand its market reach in the region. Despite Unity Bank’s troubled legacy, its extensive branch network in the North has served as a financial lifeline for many communities, offering critical services in areas with limited access to banking.
7. A Landmark Merger Under Yemi Cardoso’s Tenure
This merger is the first to occur under the leadership of the new CBN Governor, Yemi Cardoso. It also represents the first bank bailout under his administration, underscoring the CBN’s commitment to maintaining financial stability. The merger is expected to significantly contribute to financial inclusion, particularly in rural areas where 37% of Nigerians remain financially excluded.
8. A New Asset Titan with N2.43 Trillion in Holdings
The merger will create a banking entity with total assets of approximately N2.43 trillion. Providus Bank’s assets, which grew by 189% over three years to N1.5 trillion by December 2023, will combine with Unity Bank’s N423 billion in assets, resulting in a formidable financial institution.
9. Combined Customer Deposits Near N850 Billion
The merger will consolidate Providus Bank’s N504.5 billion in customer deposits with Unity Bank’s N344.4 billion, bringing the total to N848.9 billion. This substantial deposit base will enhance the liquidity and lending capabilities of the new bank.
10. Additional N151.8 Billion Required for Recapitalisation
Despite the merger, the new bank will need to raise an additional N151.8 billion to meet the CBN’s recapitalisation requirements. The combined paid-up share capital of the two banks will amount to N48.2 billion, which is below the threshold required for a national banking license under the new capital guidelines.
The merger between Unity Bank and Providus Bank, backed by the CBN’s significant financial intervention, is more than just a consolidation; it’s a strategic move aimed at strengthening Nigeria’s banking sector. As the dust settles, the new entity is expected to play a pivotal role in the country’s financial landscape, offering enhanced services and broader financial inclusion.
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