Unity Bank, a bank formed 12 years ago through the merger of nine lenders, has sold off $1.1 billion (400 billion naira) in bad loans to try and raise money. The lender is working on its balance sheet through the sell-off of non-performing loans. Unity’s balance sheet prior to the sell-off had near 50% toxic assets, but the sale of the loans to Frontier Capital Alternative Asset has lowered the level of toxic assets to near zero.
Unity is working to lure in investors to help stabilize the company’s finances with cash injections. The bank missed its regulatory deadline in 2017, which required the bank to have cash on hand to protect against potential shock in the economy. The bank is trying to raise 270 billion naira.
Nigeria’s economy contracted in 2016, causing bad debts and loans to soar in the country. The impact of the contraction is just being offset, according to the company’s CFO, which says that Unity has made “massive” progress in the past six months.
Milost Global Inc. and Unity had been engaged in talks which would have resulted in Milost investing $1 billion in Unity, but the talks fell apart in March. Unity claimed that the talks were only in the preliminary stages, while Milost announced that an agreement was made.
The alternative finance route, through the agreement with Frontier Capital, provided an initial payment of 6.4 billion naira to Unity. Frontier claims that they have been able to recover 5 billion naira through the first six months of the year, and an agreement between Frontier and Unity is in place to share the recovered funds. The details of the agreement have not been released, but the agreement is in place for a period of five years.
Unity will also benefit from loans to 300,000 rice farmers, which the lender will administer on behalf of the central bank. As per the agreement, United will administer 80 billion naira in loans at a rate of 9% to farmers, with the central bank only imposing a 2% interest rate on Unity Bank.
Unity has not released financial statements since 2016. The lender claims that it submitted its finanial statements to the central bank in April, but the lender’s financials are still under review. Prior statements show that Unity posted two years of negative capital, with the company’s net income falling over 54% in 2016.
The company’s management is confident that the lender has the potential to grow further as it transitions to a transaction income business model.