Why CBN supports Providus Bank to take control of Unity Bank

The endorsement of the Central Bank of Nigeria on Providus Bank’s takeover of Unity Bank has been attributed to its role in safeguarding banks’ financial health and operational stability.

According to multiple reports, the CBN’s decision was primarily driven by the role and influence of Unity Bank in providing banking services in the north, where it is largely regarded as the foremost banking institution.

The amount of depositors’ funds at the bank was less of a concern than the bank’s geographic significance as Unity Bank serves as a lifeline for numerous communities in the north.

The CBN believes that the bank’s customers — most of whom are farmers — would be left without access to essential financial services if the bank collapses.

The apex bank was also of the view that, if the bank is left to go down, its collapse would jeopardize Nigeria's regional food security and the federal government’s agricultural initiatives.

The Unity Bank’s precarious situation is further complicated by its history of non-performing loans (NPLs), many of which were inherited from the nine legacy banks that formed the bank during the 2006 consolidation.

According to sources, these were the major considerations of the CBN when it approved the bid for the bank to be taken over.

It was also disclosed that Providus Bank’s financial strength was a key factor in the CBN’s approval of the takeover as the bank is reportedly set to inject 80% of the capital required to revive Unity Bank, with an initial ₦75 billion already set aside.

The development is seen as a strategic move to ensure the continued provision of banking services in northern Nigeria.

“The central bank was clear that allowing Unity Bank to go under would result in many people being unbanked and without access to financial services,” the source told THISDAY newspaper.

The source said efforts to stabilize the bank in the past did not succeed as it continued to struggle with capital adequacy and liquidity.

It's a strategic move - CBN

Speaking on the CBN's support for takeover recently, the CBN’s Acting Director of the Corporate Communications Department, Mrs Hakama Sidi-Ali, described the arrangement as a strategic move designed to bolster the stability of Nigeria’s financial system and avert potential systemic risks.

“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,” she said.

According to her, no Nigerian bank currently faced a precarious situation comparable to that of Heritage Bank, which was recently liquidated.

She added that the apex bank remained committed to safeguarding depositors’ interests and ensuring the smooth functioning of the banking sector through proactive measures and strategic interventions.