With 210 branches strewn across Nigeria, Unity Bank occupies the 10th position in the list of Nigeria’s commercial banks.
The bank is quoted in Nigerian Stock Exchange (NGX) with 11.689 billion listed shares. Its share price on August 7, 2024 was N1.51.
Established in 2006 to render high quality financial services to millions of customers, Unity Bank cannot be dismissed as a tiny bank. However, it has battled negative shareholder fund for several years as its total assets tumbled to a paltry N400.38 billion. It has been on life support for a pretty long time.
The crisis in Unity Bank was so serious that those de-marketing it spun rumours that the Central Bank of Nigeria (CBN) had marked it for liquidation.
CBN resisted the temptation to liquidate the bank and instead sprang a pleasant surprise last week. Instead of visiting Unity Bank with the calamity that plagued Heritage Bank and its stakeholders, the apex bank engineered a merger to strengthen the weak and ultimately stabilise the entire industry. It engineered a merger with Providus Bank, a tiny bank with stronger asset base than Unity Bank.
Providus Bank, on the other hand, is a smaller but formidable private bank that metamorphosed from United Mortgage Bank Limited. Founded in 2017, the bank is not quoted in the NGX. It has relatively few branches in strategic locations in Nigeria but recently posted an enviable profit after tax (PAT) of N44.87 billion.
One thing that makes the CBN-brokered merger attractive to stakeholders is that the apex bank has done everything to avoid putting undue pressure on Unity Bank.
For instance, Unity Bank’s cash reserve ratio (CRR) deficit of N117.9 billion would be waived, while Providus Bank’s positive post-merger CRR balance will serve as the new balance for the entity emerging from the merger.
The strong point of the merger of a weak big bank and smaller strong one is that it will place the two in good standing for the recapitalisation required by the CBN to stabilise the nation’s banking industry.
The merger between Unity Bank and Providus Bank was crafted by the regulator as a way of avoiding a calamitous liquidation of yet another firm in an industry that saw the unavoidable liquidation of Heritage Bank some months ago.
The collapse of a bank is the greatest calamity to befall a banking industry. If the failed bank has considerable tentacles, its collapse could bring down some firms in the financial industry. The first casualties of a banking collapse are its prime depositors.
Anyone with deposit above N1 million which is not insured by the industry undertaker, the Nigeria Deposit Insurance Corporation (NDIC), would almost certainly forfeit his investment in the collapsing bank. NDIC insures the deposits of small depositors who happen to be the inconsequential majority in a bank’s depositors list.
They account for 97 per cent of depositors but own less than five per cent of the deposits. The consequential minority with overwhelming powers, about three per cent of the bank’s depositors own 97 per cent of its deposit which is not insured by NDIC. In the event of a collapse, the deposit of the powerful minority goes down with the bank.
The other casualties of a bank failure are the shareholders. When a bank fails, its shareholders lose their investment automatically.
That is what happened when CBN liquidated Skye Bank and replaced it with Polaris Bank.
Shareholders of Skye Bank which was quoted in the NGX lost their investments.
The last casualties of a failed bank are the staff of the bank. They are always thrown into the streets with no one to even pay their benefits.
By arranging a strategic merger between Unity and Providus banks, CBN has protected the diverse interests of three different sets of stakeholders: depositors, shareholders and staff of the bank.
The regulator bankrolled the merger with a bailout of N700 billion. Because Unity Bank’s balance sheet was in a precarious situation, the apex bank has allowed a moratorium of five years before the commencement of the payment of the bailout sum.
After the five-year moratorium, the entity emerging from the merger would pay the bailout sum in 15 equal installments over 15 years.
The moratorium and staggered payment are all designed to allow the weak beneficiaries of the bailout sum to gather enough financial momentum to pay back the loan with minimum stress.
Blueprint commends the CBN for a timely intervention, averting a catastrophic collapse of another firm in the nation’s financial system. The merger would rather stabilise the entire industry.
We enjoin the entity emerging from the merger to strictly adhere to corporate governance requirements for the industry and avoid insider abuses that could compel it to seek life support.
