The journey of fresh recapitalisation in the Nigerian banking sector began after the Governor of the Central Bank of Nigeria, Yemi Cardoso, announced the fresh exercise on March 31, 2024.
One of the major aims of the exercise is to further enhance the financial capacity of banks to fund an N1 trillion economy proposed by the Federal Government. Some banks, especially the tier-one commercial lenders have hit the street running, offering fresh shares to investors while existing shareholders have the opportunity to invest through Rights Issue, to meet the target set by the CBN.
Meanwhile, Providus Bank and Unity Bank, two tier-three banks in the Nigerian banking space are exploring the merger and acquisition option aided by the apex bank.
But there are indications that the younger of the two is on the path to making history to acquire the older in the real sense of it.
Background
Unity Bank Plc, the older of the two commenced operations in January 2006 following the merger of nine banks with competencies in investment, corporate and retail banking.
Today, Unity Bank is one of Nigeria’s leading retail banks with 213 business offices spread across the 36 States and the Federal Capital Territory.
The bank claims to be Nigeria’s 8th largest bank by business locations. Unity Bank focuses in particular on SMEs and Agribusinesses.
On the other hand, Providus Bank Limited, a commercial bank, was founded in 2016 by Walter Akpani, during the tenure of the immediate past CBN Governor, Godwin Emefiele.
The financial institution has a strong IT infrastructure and digital channels which it deploys to provide service to its customers.
Providus Bank is an innovative financial institution that provides personal, private, corporate, commercial and digital banking products and solutions. Its tailored financial services delivery includes business advisory, portfolio management, personalised relationship management, fast-tracked service delivery and self-service solutions.
Board/Directors
Seated on the board of Unity Bank Plc as Directors are the daughters of two past presidents of Nigeria.
Professor Iyabo Obasanjo, a Non-Executive Director is the daughter of former president Olusegun Obasanjo while Halima Babangida also a Non-Executive Director is the daughter of Ibrahim Babangida, former president of Nigeria.
Prof. Obasanjo is an Associate Professor, Faculty Affiliate, Africana Studies Programme at College of William and Mary, Williamsburg, Virginia, USA. She was also an Assistant Professor at College of William and Mary, Williamsburg, Virginia USA, State Commissioner for Health, Ministry of Health, Ogun State, and a Senator of the Federal Republic of Nigeria.
Halima Babangida studied Business Management at AGSB University, Switzerland and Business Administration from Montreux School of Business, Switzerland. She has cognate experience in stevedoring, logistics, and farming/food chain industry and in the real estate and property management businesses.
“The KPMG noted that Unity Bank did not meet the required minimum Capital Adequacy Ratio of 10 percent and the minimum capital requirement of N25 billion for a national bank as required by the Central Bank of Nigeria”
A female banker, Mrs. Tomi Somefun is the Managing Director/CEO of Unity Bank Plc. Before her appointment in August 2015, she served as the Executive Director overseeing the Lagos and South West Business Directorates, the Financial Institution Division and Treasury Department of the Bank.
She is a member of the Board Finance; General Purpose Committee, Board Risk Management Committee, Board Credit Committee, amongst others. She is a career professional with 35 years post qualification experience, over 26 of which were in the banking sector, spanning key segments including Treasury; Investment Banking, Corporate Banking, Retail, and Commercial Banking Operations. Tomi had a distinguished career with UBA group where she led two major subsidiaries of UBA as MD/CEO including a start-up company, UBA Pensions Custodian where she was the pioneer Managing Director. Prior to UBA, Tomi worked with two leading consulting firms, KPMG and Arthur Andersen (now KPMG).
Walter Akpani is the Managing Director / CEO of Providus Bank. He is a banker with over three decades of experience. He holds a Master of Science degree in Finance from the University of Strathclyde, Scotland. Walter has been actively involved in bank start-ups in Nigeria. He was a pioneer staff member of ICON Stockbrokers, a restructuring team member at Commercial Trust Bank, pioneer staff at Standard Trust Bank Plc now United Bank for Africa and pioneer staff at Platinum Bank Ltd.
Financial strengths
It should be noted that Unity Bank Plc is a bank listed on the Nigerian Exchange Limited with its shares being traded by its shareholders and open to the investing public for investment. Providus Bank on the other hand is a private company whose shares are owned by a limited number of shareholders and its activities unlike that of Unity Bank Plc are not open to public scrutiny.
Meanwhile skeletal information on the financial figures obtained by The Point showed that Providus Bank exhibits better financial strength than Unity Bank Plc as of the financial year ended 2022.
In its 2022 audited results for the year ended December 31, 2022, and 2021, the 18-year-old lender also posted negative performances as liabilities exceeded its assets.
In 2022, the bank posted an unfavourable financial position as the total liabilities of N785.092 billion exceeded its total assets of N510.143 billion by N274.948 billion.
In 2021, the bank reported a similar unfavourable financial position as total liabilities at N815.022 billion exceeded its total assets at N538.868 billion by N276.153 billion.
In its 2022 independent auditor’s report signed by its professional services chartered accountants, Akinyemi Ashade, KPMG raised concerns over the bank’s financial health after total liabilities exceeded its assets.
The KPMG noted that Unity Bank did not meet the required minimum Capital Adequacy Ratio of 10 percent and the minimum capital requirement of N25 billion for a national bank as required by the Central Bank of Nigeria.
Pointing to Note 35 in the financial statement, it said the conditions and other matters outlined in the note indicated a material uncertainty that might cast significant doubt on the bank’s ability to continue as a going concern.
“We draw attention to Note 35 of the financial statements, which indicates that the bank made a profit of N941.4million for the year ended 31 December 2022. As of the same date, the bank’s total liabilities exceeded its total assets by N274.9billion, and the bank did not meet the required minimum Capital Adequacy Ratio (CAR) of 10 per cent and the minimum capital requirement of N25 billion for a national bank as required by the Central Bank of Nigeria.
“As stated in Note 35, these events or conditions, along with other matters as set forth in Note 35, indicate that a material uncertainty exists that may cast significant doubt about the bank’s ability to continue as a going concern,” KPMG noted.
Meanwhile, financial highlights of Providus Bank for the period ended December 31, 2022, showed that Gross Earnings stood at about N62.9 billion with Profit before Tax being N8.64 billion.
The bank’s Cost to Income Ratio was 71.55 percent, Capital Adequacy Ratio stood at 13.31 percent and Liquidity Ratio was recorded at 52 percent.
CBN’s requirement
The statutory requirement by the CBN as at its last Monetary Policy Committee meeting in July is that deposit money banks must maintain a Cash Reserve Ratio of 45 percent while Liquidity Ratio should be at 30 percent.
Acquisition plot
Feelers in the industry showed that Providus Bank Limited had been in talks to acquire a majority stake in Unity Bank Plc. The move comes amid the new recapitalisation hurdles imposed on banks by the Central Bank of Nigeria.
The development was part of Providus Bank’s expansion plan, and importantly a bold initiative to further shore up its capital base amid the current recapitalisation challenge.
Sources said the odds are in favour of Providus Bank, adding that the deal appeared to have been officially approved recently.
Industry sources who sought anonymity hinted that Unity Bank had been struggling to beef up its minimum capital requirement since 2017. In 2018, there was a botched move by Milost Global Inc., a New York-based private equity firm to invest $1 billion in the bank and since then the bank has been seeking a preferred suitor.
Implications of merger
A public affairs analyst, Ade Adesokan, noted that the CBN’s approval of the merger of these banks is a strategic move aimed at stabilizing the financial sector and addressing systemic risks.
“While the merger presents opportunities for enhanced stability and operational efficiencies, it also poses integration and compliance challenges. The success of this merger will depend on the effective management of these challenges and the ability to realize the anticipated synergies.
“While there are prospects for career growth and enhanced job security, there are also risks of redundancies and the need for cultural and operational adjustments,” he said.
He noted that effective communication and support from management will be key to ensuring a smooth transition for all employees involved.
