THE Central Bank of Nigeria (CBN) has granted a lifeline to Unity Bank Plc to merge with Providus Bank Limited, raising concern about other banks with poor financial status and weak corporate governance structure.

In a statement signed by its Acting Director of Corporate Communications, Hakama Sidi, on Tuesday, August 6, CBN said it would provide a financial accommodation to support the merger.

It anchored its action with the provisions of Section 42 (2) of the CBN Act, 2007, and said the merger was contingent upon its financial support, which is essential for the financial health and operational stability of the post-merger organisation.

“The Central Bank of Nigeria (CBN) has approved 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,” the CBN stated.

The apex bank failed to disclose the amount of financial support it had approved for the merger but hinted that it would be pivotal for addressing Unity Bank’s total obligations to the central bank and other stakeholders.

The merger is contingent upon the financial support from the CBN.

“It is unequivocal to state that the CBN’s action is by the provisions of Section 42 (2) of the CBN Act, 2007. This arrangement is crucial for the financial health and operational stability of the post-merger organisation,” CBN said.

It maintained that no Nigerian bank currently faces a precarious situation comparable to that of Heritage Bank, which withdrew its banking licence and directed the Nigeria Deposit Insurance Corporation (NDIC) to liquidate.

The scheme of merger needs to be examined to understand the details, financial expert, David Adonri, told The ICIR.

“Both are small banks and there could be some synergy in their merger.

“Providus is a new bank and, surprisingly, they are unable to stand the test of time in the industry,” he said.

The ICIR reports that with CBN’s demand for banks’ recapitalisation within two years, the risk exposure of the banks will increase.

Also, the national president of New Dimension Shareholders, Patrick Ajudua, told The ICIR that CBN’s intervention would no doubt save shareholders from losing their investments and ensure the survival of both banks in this era of recapitalisation.

“You will recall that recently, CBN withdrew the licence of Heritage Bank as a result of inherent systemic failure and ongoing concern issue, which adversely affected the shareholders of the bank though not listed on the exchange.

“Therefore, as shareholders of Unity Bank, we are pleased with this approval while praying for a seamless transformative process beneficial to all parties.”

CBN stirs up hornet’s nest with banks’ recapitalisation 

The apex bank had started the recapitalisation of banks in Nigeria to push up their capital base, directiñg 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.

The two-year deadline it approved for banks’ recapitalisation, however, did go down well with many analysts who believed that it would have been ideal if carried out on a gradual process over a longer period.

Over the years, Unity Bank has had poor financial performances which might have necessitated the apex bank to approve a lifeline to save the bank.

On June 3, the CBN revoked the operating licence of Heritage Bank over the bank’s failure to improve its financial performance, a situation which constituted a threat to financial stability.

The revocation attracted speculation that filtered media platforms that CBN planned the termination of the banking licences of Unity Bank,  Polaris Bank Limited, and Keystone Bank Limited.

The CBN denied it in the swift reaction and labelled the news as false rumours intended to trigger panic in the financial system.

It said the Nigerian financial system remains safe, sound, and resilient but without recourse to the state of the financial health of Unity, Keystone, or Polaris Bank.

In a report on June 28, The ICIR analysed why CBN might consider revoking some bank’s operating licences.

The analysis indicated that the financial position and corporate governance of the Unity Bank, Polaris Bank, and Keystone Bank raised quite a few concerns should the apex bank act by Section 12 of the BOFIA Act.

Over the past five years, Unity Bank has been in a financial dilemma, consistently reporting negative net equity that had wiped off investors’ funds.

Besides their weak financial positions, CBN in January this year faulted Polaris Bank, Union Bank, and Keystone Bank over their adherence to its corporate governance guidelines by removing their boards for various infractions.

In 2006, CBN recapitalised 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.

Other banks might go the way of Unity and Providus banks or be downgraded to mitigate CBN’s recapitalisation target.