- Unity Bank Sells N400bn Bad Loans to Lure Investors
Unity Bank Plc sold N400bn ($1.1bn) of bad loans to clean up its balance sheet as it seeks to conclude talks for a cash injection aimed at stabilising the lender.
The disposal to Frontier Capital Alternative Asset Limited of the toxic assets cut the ratio of non-performing loans to near zero from almost 50 per cent and helped to shore up Unity Bank’s liquidity, Bloomberg quoted its Chief Financial Officer, Ebenezer Kolawole, as saying in an interview.
He said the deal helped the lender to sign an agreement with a foreign equity investor that it hopes to finalise during the first half of 2019.
Unity Bank is trying to raise about N270bn to recapitalise its operations after missing a regulatory deadline last year to bolster the amount of cash it sets aside as a buffer against potential shocks.
Formed 12 years ago out of the merger of nine lenders, Unity Bank is only beginning to recover from a 2016 contraction in the nation’s economy that caused bad debts to soar and is making “massive” progress from six months ago, according to the CFO.
“We’re on the verge of completing our capitalisation. We’re raising substantial capital that will block the hole in the bank,” Kolawole said.
The talks come after negotiations with New York-based private-equity firm, Milost Global Inc., for a capital injection fell apart in March. Although Milost said it reached agreement with the lender to invest $1bn in equity and debt, Unity Bank said the talks were only preliminary and didn’t reach the commitment stage.
Frontier Capital Alternative Asset, a unit of Lagos-based advisory and investment firm, Frontier Capital Group, acquired the bad loans after making an initial payment of N6.4bn to Unity Bank, Kolawole said.
It recovered N5bn in the first half of this year, while both companies have an agreement to share the recovered funds over the next five years, he said, declining to give more details.
The Central Bank of Nigeria also appointed Unity Bank to administer an N80bn credit facility for more than 300,000 rice farmers, Kolawole said.
As part of the programme, Unity Bank obtains funding from the central bank at an interest rate of two per cent and then lends this on to farmers at nine per cent, helping to boost its income, he added.
The company has yet to release 2017 financial statements after reporting its second straight year of negative capital adequacy ratios in 2016. That year, net income slid almost 54 per cent to N2.18bn, with assets of N493bn, according to the annual report.