OLUWATOSIN EMMANUEL OLADETAN Oluwatosin Oladetan, (MBA, ACCA, PMP, NIM, MICBC, FMVA, BIDA, SPY-SP, TRCN), a vice president (finance), public policy expert, corporate and business strategist, independent director, trusted advisor, is a Volunteering Contributing Analyst with Business a.m.    Nigeria is set on a great economic recovery path and trend in 2025 as some of the economic indices indicate strong economic stability and recovery signals. There have also been questions on the sustainability of these positive economic indices as it appears that there are disparities between reported indices and the realities experienced by every Nigerian. The financial services sector is the most predominant in trading volume, value, number of listed companies and equity share. A critical review of the Nigerian financial sector should provide some insights on the future view of the economy.    There have been several concerns and case studies to analyze in the financial services sector such as the withdrawal of licenses, regulators restructuring the board of some institutions, market capitalization, transfer of ownership to the federal government by court ruling, etcetera.    After a careful review, research, analysis and data exposure, it will be appropriate to ask some thought-provoking questions on the merger and acquisition approved by the central bank on August 6, 2024 as further actions towards the formal completion process of the merger is in due course. This is just an opinion and should not form a basis of opinion for decision making on existing and future relationships with any of the institutions mentioned in this case study. Background: During the presidential address at the Nigerian Economic Summit held in November 2023, the 16th president of Nigeria proposed an ambitious target of a $1 trillion economy in 2026 and a $3 trillion economy before 2030 through a double-digit economic growth across economic measures. In November 2023 when the National Society of Engineers held the National Engineering Conference, Exhibition and Annual General Meeting, the Vice-President of Nigeria, Kashim Shettima asserted on Nigeria transitioning into a trillion-dollar economy over a ten year window through her rich population and resources through efforts in creating jobs, increasing access to capital for small, medium and large companies, rule of law inclusiveness and a tough battle to address poverty, corruption and hunger. Let us not spend more time to review the disparity of the $3 trillion economy before 2030 and $1 trillion economy in the next ten years from the office of the Nigerian Presidency, but rather, let us take a mental note  and ask what metric will present a true and fair view of the Nigerian economy among the different measures of economic growth and the only measure that everyone can easily reason with is the gross domestic product (GDP) which is an aggregate measure of the final output of services and goods produced within a region over a period of time.   Analysts were in earnest expectation of the magic wand that will allow Nigeria to achieve a double-digit growth in GDP within the shortest possible time. As at Q4-2023 the real GDP was ₦21.773 trillion, and the Year-On-Year GDP Growth Rate was 3.46 percent. The total real GDP for the year 2023 was ₦76.685 trillion ($118.859 billion based on the average exchange rate for the year @ ₦/$ 645.178). The further devaluation of the naira would make the $1 trillion economy more difficult if substantial growth drivers are not implemented. In Q1-2024, the real GDP measure plummeted to ₦18.278 trillion ($13.982 billion based on the average exchange rate for the quarter @ ₦/$ 1,307.306) with a Year-On-Year growth rate of only 2.98 percent which is not a double digit. We should not be too quick to judge the unreasonableness of the 16th President Office’s statement despite the initial contradiction that we noticed earlier of either a $1 trillion or $3 trillion economy over the next decade, further devaluation of the foreign exchange significantly below the Purchasing Power Parity results obtained when we compare prices of similar goods and commodities between Nigeria and the United States of America, exit of big giant manufacturing and international oil companies from the Nigerian operating region, increased fines on international organisations by the FCCPC, which is further stifling their interest in Nigeria, as they opt to expand their operations in other safe havens outside Nigeria. Rand Merchant Bank published a report last year titled, “Where to Invest in Africa” in which Nigeria ranked 9th from a previous position of being among the top 5 investment destinations in Africa.   Banking recapitalisation: In March 2024, The CBN governor Olayemi Cardoso took a strong stand on positioning the Nigerian banking sector to support the trillion ($) dollar economy through a banking recapitalisation strategy. The director. financial policy and regulation department, Haruna Mustafa, signed a circular dispatched to all non-interest, merchant, commercial deposit money banks on submitting an implementation plan within 30 days due April 30, 2024 on how to increase the capital base within a 24 months window expiring March 31, 2026. Emphasis was made by the CBN governor that the recapitalisation programme should consist of the following listed below:  

• Fresh Capital Injection: This could be any private placement, right issues, offer for subscription and right issue offering.
• Upgrade or downgrade of license 

• Mergers and acquisition
• The new threshold set for the Nigerian banking sector players are as listed below:

• ₦500 billion for commercial bank with international authorization
• ₦200 billion for commercial bank with national authorization
• ₦50 billion for commercial bank with regional authorization
• ₦50 billion for merchant bank with national authorization
• ₦20 billion for non-interest bank with national authorization
• ₦10 billion for non-interest bank with regional authorization

  Despite the tough economic climate of the Nigerian market, the banking recapitalisation programme is a programme that will help enhance market liquidity, attract inflow of foreign investments, revise banks valuations, enhance government taxation opportunities from windfall and non-windfall taxes, strengthening of the capital markets, enhance cost savings opportunities, increase efficiency in the Nigerian banking system among other benefits. This programme commenced as early as 1969 and has gone through 9 upward reviews to the current position communicated in March 2024. There were two upward reviews in 1988, one in 1989 and another in 1990 (four recapitalisation programmes between 1988 and 1990).   The last banking recapitalisation announced on July 6, 2004, reduced 89 deposit money banks to only 25 deposit money banks at the close of the first phase as at December 31, 2005. The 25 banks which accounted for about 93.5 percent of the deposit liabilities of the banking system attained success by raising a total of ₦406.4 billion from the capital market of which ₦360 billion was verified and accepted by the CBN, the process also raised FDI of $652 million and £162 thousand, drastically reduced interest rates, increased lending to the real sector by over 40 percent to advance productivity and actual economic growth, increased single obligor limit for processing of large value transactions, increased local banks access to credit lines from foreign banks, reduced corporate governance abuse within the banking sector, increased the listing of banks on the capital market (the current All Share Index has over 50 percent of its valuation from the financial services sector which was not the case prior to the 2004 capitalisation), increase depositor confidence, reduced bank charges to customers from increased bank economies of scale, deepened capital market and increased consciousness among the public. This is not to discredit the fact that this 2004 recapitalisation also came with some challenges for the Central Bank of Nigeria and the CBN took a proactive step by drafting a new code of corporate governance for banks, increased monitoring to ensure compliance with the merger schemes, update of the CBN BLACK BOOK, zero tolerance regarding infractions: misreporting, non-transparency, among others, migration of the prudential supervision arm of the CBN to a risk-based approach to supervision, increased training of the CBN in risk management, increase compliance with the Basel Accord.   There were eight banks who found a way to bully the CBN as at December 31, 2005 after their failure to meet the minimum capitalisation or secure a merger who formed the “Alliance Group”. Members of the alliance group were known for poor corporate governance, negative capital of up to ₦54.3 billion. CBN was forced to give conditional approval-in-principle (AIP) after their promoters strongly affirmed that they would recover and pay into a CBN escrow account the sum of ₦10.5 billion insider-related debts before December 30, 2005. The Alliance Group failed to comply with the conditions clearly listed for them and they lost their position on the Nigerian banking list. There were six other banks with disheartening financial conditions that could not meet the recapitalisation requirement, the CBN proposed a tender offer to the 25 gallant banks to absorb these six weak banks and restructure their position but no bank was ready to bail them out. The 2004 CBN was very strict and revoked the operating licenses of the 14 banks that could not meet up with the tide.   These were African Express Bank; AllStates Trust Bank; Assurance Bank of Nigeria; City Express Bank; Eagle Bank; Fortune International Bank; Gulf Bank; Hallmark Bank; Lead Bank; Liberty Bank; Metropolitan Bank; Societe Generale Bank; Trade Bank; and Triumph Bank. The NDIC obtained the court approval and eventually liquidated the fourteen banks that could not meet up with the revised capitalisation programme and the NDIC paid 100 percent of the private sector deposit for both individual and corporate depositors. A point to note is that the 2004 CBN recapitalisation programme did not provide an opportunity for the CBN to bail out or offer a lifeline of capital injection to any of the 89 banks that was made to pass through the resilience test.   Brief history: Unity Bank Plc was among the 25 banks that crossed the 25 billion threshold hurdle in the 2004 recapitalisation programme through a merger and acquisition strategy. Intercity Bank Limited was incorporated as a private limited liability company in Nigeria on April 27, 1987, granted commercial banking license on October 28, 1987 and commenced full banking operations in October 28, 1988; after surviving a 1989-1991 banking recapitalisation window, she listed as a public limited liability company on September 8, 1992. The 2004 banking recapitalisation programme started her merger journey with five other banks on December 22, 2005 to emerge with a new brand name Unity Bank Plc. The second phase of the merger was with three banks in March 02, 2006 having a total of nine financial institutions (the largest consolidation merger in the Nigerian Financial Services Industry). We can clearly state that Unity Bank is a consortium of Intercity Bank Plc, First Interstate Bank Plc, Tropical Commercial Bank Plc, Pacific Bank Limited, Centre Point Bank Plc, Societe Bancaire Bank Limited, NNB International Bank Plc, Bank of the North Limited and New Africa Bank Plc. Unity Bank Plc attracted ₦17.3 billion or 72 percent of its first right issue of ₦23.9 billion in 2010.   In line with the compliance with the CBN directive that State mortgage banks have a minimum capital base of  ₦2.5 billion, United Mortgage Bank Limited and Spring Mortgage Bank Plc held a merger ceremony at Eko Hotel Lagos with United Mortgage Bank Limited representing 85.21 percent of total votes in June 2015 to birth United Mortgage Bank Plc. A special resolution was passed to change the name to Providus Bank Plc on December 31, 2015 and was duly incorporated, sealed and delivered on January 6, 2016.    Providus Bank Limited was licensed by the CBN to commence operations as a regional bank on June 15 2016 with branches majorly in Lagos, Ondo and Abuja   Key people:  Hussaini Diko: a graduate of quantity surveying from Ahmadu Bello University and current executive chairman of El-Rufai & Partners Limited is the chairman of Providus Bank Limited.   Walter Akpani: an M.Sc finance graduate from University of Strathclyde with over 20 years banking experience is the chief executive officer of Providus Bank Limited   Hafiz Mohammed Bashir: an M.BA business administration from Business School of Netherlands is the current acting chairman of Unity bank after joining the board as a non-executive director in October 2017.   Halima Babaginda: a daughter of the 8th president of Nigeria is a graduate of business management from AGSB University and business administration from Montreux School, is the chairperson of Unity Bank board credit committee.   Iyabo Obasanjo: a daughter of the 5th and 12th president of Nigeria and an associate professor, faculty affiliate, Africana studies programme at College of William and Mary, Williamsburg, Virginia USA, is the chairperson of Unity Bank board governance and nominations committee.   Tomi Somefun: A graduate of English Language form University of Ife, an alumnus of Insead, Columbia Business School, Harvard Business School, is the chief executive officer of Unity Bank Plc.   Thomas Etuh: The founder of Tak Group of Companies, chairman of Notore Chemical Industries Plc,  9 Mobile Limited, Jennifer Etuh Foundation, formerly the vice-chairman and chairman of Unity Bank Plc.   Coverage: As of the financial year ended December 2022, the table below shows the coverage of both banks  

	Unity Bank	Providus Bank
Bank Class	National (Tier 3)	Regional
Branches	215	23 (updated)
ATMs	449	Subscribe to view
POSs	5,800	Subscribe to view
Active Cards	1,161,759	Subscribe to view
Professional Staff	1,301	Subscribe to view
Contract Staff	2,363	Subscribe to view

  Financial Indicators: As of the financial year ended December 2022, the table below shows the key financial indicators of both banks

Financials (₦,000)	Unity Bank	Providus Bank
Gross Earnings	57,149,854	62,861,708
Interest Expense	(29,647,236)	(28,811,845)
Net Interest Income after Impairment	20,547,459	18,142,445
Operating Expense	(27,086,511)	(21,720,766)
Profit Before Tax	1,100,845	8,635,343
Profit After Tax	941,375	8,025,885
Customer Deposits	327,429,673	504,462,667
Share Capital & Premium	16,330,540	31,872,734
Total Assets	510,143,959	735,808,121
Total Equity	(274,948,167)	45,264,737
Risk Assets	289,355,699	281,647,938
Cash Reserve with CBN	47,116,736	466,458,944
Liquidity Ratio	30.50%	52.00%
LDR Ratio	88.37%	55.83%
Capital Adequacy Ratio	(89.69%)	13.31%
Cost to Income Ratio	(94.82%)	(71.08%)
Independent Auditors	KPMG	PWC

  Lifeline and bail out funds: In December 21, 2023 the Central Bank of Nigeria notified the managing director of Unity Bank Plc of the need for the bank to furnish the regulatory authority with response on the allegations against the bank in a publication by West Africa Weekly through a letter addressed as “Unity Bank Fraud- An Unfolding Story of Nigerian Corporate Malfeasance. Rather than CBN to uphold the authenticity of the banking industry through appropriate regulatory and supervisory control, the CBN became too weak to discharge her duties effectively and proceeded with the approval of a very worrisome merger of Unity Bank Plc and Providus Bank Limited through the injection of ₦817.90 billion structured as (₦117.90 billion waiver on CRR and ₦700 billion 20-Year Term Loan injection to the new entity). This injection of ₦817.90 billion by the CBN raises analysts’ concerns about the CBN potential loss of regulatory foresight and control required to advance the development of the Nigerian Economy or further increase the chance of attaining a $1 trillion economy over the next decade.  

• • Pricing: Interest rate of the Monetary Policy Rate at 26.75% less than 11% subject to a minimum of 6%.
  • Payment schedule: Semi-annually with a principal moratorium of five years, beginning in the sixth year, the new entity from the unison of (Unity Bank Plc and Providus Bank Ltd) will repay in fifteen equal installments until maturity.
  • Deductions: ₦92 billion exposure to First Bank of Nigeria on clearing, ₦51.70 billion exposure to the Central Bank of Nigeria, ₦25 billion exposure on the faulted Anchor Borrowers Programme, ₦135 billion exposure on NIRSAL obligation to amount to a total of ₦303.7 billion

• Investments: The balance of ₦396.30 billion after a deduction of ₦303.7 billion from the ₦700 billion lifeline to be invested in a 20-Year Federal Government of Nigeria Bond and qualify as a Tier 2 capital instrument and a component of shareholders’ fund.

• Waiver: a Cash Reserve Ratio (CRR) shortfall of ₦117.90 billion expected to have been injected by Unity Bank Plc into their books and waived from being debited. The CRR balance post-merger will serve as the opening balance of the new entity

  This development by the Central Bank is very concerning and raised a lot of questions on the integrity of the CBN as the CBN had revoked the license of Heritage Bank Plc and appointed the NDIC as the liquidator in pursuant to section 12(2) of the Bank and Other Financial Institutions Act (BOFIA) 2020 with depositors with up to ₦5 million settled their balance through their alternate account linked with the same BVN. Depositors with funds in excess of ₦5 million were to be paid liquidation dividend upon realisation of the bank’s assets and recovery of debts owed to the bank on June 3, 2024. Earlier in the same year the CBN had replaced the board of directors of Union Bank, Polaris Bank and Keystone Bank due to the recommendations of the special investigator Jim Obazee, appointed by Nigeria’s 16th President in July 2023. Charges pressed against the banks vary from regulatory non-compliance, corporate governance failures, disregarding the conditions under which licenses were granted, active participation in activities that threaten financial stability, to mention a few among others. There was linkage to the questionable ownership and obligations linked to the former CBN Governor Godwin Emefiele. The CBN had to settle First Bank of Nigeria to the tune of ₦400 billion owed by Heritage on cheques clearance and related matters. The CBN had sacked the board of directors of First Bank of Nigeria Limited and FBN Holdings Plc in April 29, 2021 due to insider credit and non-performing insider loans linked to Oba Otudeko and others, corporate governance failures, insider abuse and other infractions.   Based on the foregoing, are we going to say that the Unity Bank Plc monster was too big for the CBN to swallow and to either change the board of directors or offer it as a lamb of sacrifice for true economic growth to the NDIC? The jury is still out on this!