- Bank recapitalisation crucial for economic growth – SEC
The Central Bank of Nigeria has approved the merger of Providus and Unity Banks.
The apex bank, in a statement signed by the acting Director, Corporate Communications, Hakama Sidi, on Tuesday, said the action is in accordance with the provisions of Section 42 (2) of the CBN Act, 2007.
The development signals the first merger to be approved following a mandate by the apex bank to banks in Nigeria to increase their minimum capital base
The apex bank also announced approval of 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 statement read, “The Central Bank of Nigeria has granted approval for 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 merger is contingent upon the financial support from the CBN. The fund will be instrumental in addressing Unity Bank’s total obligations to the Central Bank and other stakeholders. It is unequivocal to state that the CBN’s action is in accordance with 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.”
There have been strong indications for over a year on plans by Providus Bank Limited to acquire a majority stake in Unity Bank Plc.
The development was part of Providus Bank’s expansion plan and, importantly, a bold initiative to shore up its capital base further amid the current recapitalisation challenge.
In 2018, Milost Global Inc., a New York-based private equity firm, botched a move to invest $1bn in the bank. Since then, the bank has been seeking a preferred suitor.
Unity Bank commenced operations in January 2006, following the merger of nine banks with competencies in investment, corporate, and retail banking.
Founded on June 15, 2016, Providus Bank PLC, is a Nigerian financial services provider, licensed as a commercial bank, by the CBN.
Bank recapitalisation crucial for economic growth – SEC
Meanwhile, the Director General of the Securities and Exchange Commission, Emomotimi Agama, has stated that the ongoing bank recapitalisation is an important step toward unlocking Nigeria’s potential to achieve a $1tn economy.
He disclosed this at a recent forum in Abuja focused on the ongoing bank recapitalisation.
Agama highlighted the need for comprehensive economic reforms alongside strengthening the banking sector.
He noted that recapitalised banks would play a critical role in supporting those efforts.
Agama stated, “Nigeria must diversify its economy beyond oil exports and invest in key areas, such as infrastructure, human capital, and innovation. Enhancing the business environment, reducing regulatory hurdles, and promoting financial inclusion are essential to driving sustainable growth.”
He explained that bank recapitalisation involves increasing a bank’s capital to meet regulatory requirements, improve financial stability, and enhance lending capacity.
“Recapitalisation through the capital market can help banks meet regulatory capital requirements, improve capital adequacy ratios, and increase lending capacity. This, in turn, will enhance financial stability and restore investor confidence,” the SEC boss added.
Agama stated that a recapitalised banking sector could lead to increased lending to key sectors such as agriculture, manufacturing, and infrastructure.
“Such lending will drive economic growth by supporting big projects and industries, attracting foreign investors, and boosting capital inflows,” he said.
He noted that this would deepen the capital market and encourage the listing of banks and other companies on the Nigerian Exchange Limited.
The SEC recently released a framework to ensure, transparent, and efficient capital-raising process for banks and holding companies participating in the recapitalisation programme.
The framework outlines guidelines for raising capital through rights issuances, private placements, or other approved methods during the 2024–2026 recapitalisation periods.
The CBN in March directed deposit money banks to improve their capitalise base.
In the CBN recapitalisation circular, commercial banks with international authorisation are to increase their capital base to N500bn and national banks to N200bn, while those with regional authorisation are expected to achieve an N50bn capital floor.
Agama acknowledged the challenges associated with recapitalisation, such as share price dilution and increased debt servicing.
However, he reiterated that the benefits, including enhanced investor confidence and better risk management, outweighed the potential drawbacks.
“The SEC is committed to facilitating a transparent and efficient capital-raising process to support the CBN’s objectives,” he stated.
According to Agama, Nigeria aims to achieve a $1trn economy by 2030, adding that the SEC’s recapitalisation framework is seen as a crucial step in strengthening the banking sector’s asset base and supporting economic growth.
“The capital market is pivotal in enabling banks to access the necessary funds and explore various business combinations, ultimately fostering a stable financial system and promoting economic stability,” he remarked.
