Union Bank’s Future Hangs in the Balance: Recapitalization Uncertainty

With the Central Bank of Nigeria’s recapitalization mandate on the horizon, Union Bank’s journey to compliance is fraughht with uncertainty, fueling widespread speculation about the bank’s future trajectory.

The above fear may not be farfetched.With a deadline of April 2026, Union Bank must navigate a complex web of financial restructuring, strategic partnerships, and regulatory hurdles to meet the new capital requirements, leaving investors and analysts wondering: can the bank successfully recapitalize and thrive in an increasingly competitive banking landscape, or will it succumb to the pressures of a rapidly evolving financial environment?

The acquisition of the old distressed Union Bank by new owners had raised the hope for its successful turnaround. Stakeholders expected the new management to inject fresh capital, revamp operations, and restore the bank’s competitive edge. However, the reality on the ground tells a different story. Despite the change in ownership, Union Bank has continued to struggle, failing to regain its footing in the highly competitive banking industry.

The new management’s inability to effectively manage change and drive transformation has been a major stumbling block. Instead of revitalizing the bank, they seem to have struggled to adapt to the changing landscape, leaving the institution still grappling with the same challenges that led to its distress in the first place. This failure to turn the bank around has left stakeholders disappointed and raised questions about the management’s strategy and leadership capabilities.

Althogh the new management raised a hope of changing the once rigid managerial frame of the past management of the Union Bank,instilling some genetic variety in thinking and operating as well as innovating and investing in new ideas and technologies, the uncertainty surrounding its recapitalization is raising very deep concerns .

A source very close to the management told the Decisionmakers the bank is in a talk with some new investors already. But the fear is that will the bank be able to meet the deadline? Besides that , could the bank’s health position make it irresistible to any potential investor within the remaining time frame?

In August 2024, Fitch downgraded Union Bank’s long-term issuer default ratings from ‘B-‘ to ‘CCC’ due to concerns over the bank’s capital adequacy ratio and lending practices. This downgrade followed an earlier rating action in January 2024, when Fitch placed Union Bank’s ratings on Rating Watch Negative after the Central Bank of Nigeria’s intervention and dissolution of the bank’s board and management. The Rating Watch Negative reflected uncertainty surrounding the CBN’s intervention and potential regulatory actions.

Although Union Bank’s capital adequacy ratio stood at 16% in Q3 2023, above the 10% minimum regulatory requirement, Fitch expressed concerns about the bank’s ability to maintain this ratio and absorb potential losses. This concern likely contributed to the downgrade of the bank’s rating, highlighting the challenges Union Bank faces in maintaining its financial stability.

The bank’s CEO Yetunde Oni who claimed she has initiated a recapitalization process to meet the CBN’s regulatory standards appeared to be banking on the result declared in 2024 . According, to her the bank’s strong financial performance in the first half of 2024, with a 58% increase in gross earnings, positioned it well for this process

Unfortunately, since that half year results were flaunted , non has been made public since then . What cannot be disputed is that acquisition is a childplay , it usually involves a tedious process .

A similar experience in the past to acquire it ended in fiasco. The acquisition of Union Bank by Titan Trust Bank has been marred by controversy, with allegations of impropriety and lack of transparency. A Special Investigator claims that former CBN Governor Godwin Emefiele used proxies to establish Titan Trust Bank and acquire Union Bank, with questions raised over whether the purchase price was fully met. Despite these concerns, Titan Trust Bank has asserted its financial stability and commitment to transparency [1][4].

Beyond that , the immediate past management of Union Bank was removed by the Central Bank of Nigeria (CBN) in January 2024, due to alleged non-compliance with regulatory requirements and corporate governance failures. The CBN identified violations related to sections 12(c), 12(f), 12(g), and 12(h) of the Banks and Other Financial Institutions Act (BOFIA). These violations include failure to meet minimum thresholds in critical prudential and adequacy ratios, involvement in situations that threaten financial stability, and non-compliance with the Act or other directives and regulations issued under the Act.

The investigation has sparked debate, with Titan Trust Bank officials refuting allegations of wrongdoing and expressing willingness to cooperate. The Special Investigator has recommended that the government take over Union Bank, citing concerns about ownership structure and financial stability. The SEC has confirmed the acquisition’s completion, except for the consolidation of the two entities [4][2].

The Central Bank of Nigeria (CBN) has been actively involved in regulating and strengthening the banking sector, with a notable intervention being the recapitalization program.

In March 2024, the CBN directed banks to increase their minimum paid-in common equity capital to specified amounts based on their license category and authorization. Commercial banks with international authorization, like Union Bank, are required to have a minimum capital base of N500 billion

The recapitalization program aims to enhance the stability and resilience of Nigerian banks, attract greater investments, and support the country’s economic growth目标.

Banks have until April 2026 to meet the new capital requirements. Banks can raise capital through various means, including rights issues, private placements, mergers, and acquisitions.

The CBN’s intervention is part of a broader effort to strengthen the Nigerian banking sector and support the country’s economic development goals. By increasing their capital bases, banks will be better equipped to support large-scale lending and long-term investments, driving economic growth and development .