…Afreximbank’s cash backing faulty …apex bank’s intervention protects Union Bank
Titan Trust Bank’s acquisition of a controlling stake in Union Bank of Nigeria in August 2022 violated Central Bank of Nigeria’s (CBN) prudential guidelines; consequently, the deal was never valid, New Telegraph has learnt.
This development comes against the backdrop of legal proceedings initiated by the former core investor, TGI Group, which facilitated Titan Trust Bank’s acquisition of Union Bank, seeking judicial review of the CBN’s appointment of the latter’s current management and board. Industry experts insist that the financing of Titan Trust Bank’s acquisition of a 93.1 per cent stake in Union Bank in 2022 was structured predominantly via a syndicated facility arranged by the African Export-Import Bank (Afreximbank), with minimal direct equity contribution from the acquiring entity.
According to the experts, Union Bank’s subsequent capital weakness is primarily attributable to this shareholder-level acquisition financing structure—not operating losses or asset quality deterioration. The acquiring shareholders funded the purchase of Union Bank shares with significant foreign-currency loans, secured by a pledge of the bank’s shares.
The structure, according to this newspaper’s findings, relied predominantly on cash flows and dividends from Union Bank to service the acquisition debt, creating sustained pressure on earnings and capital, particularly following foreign exchange depreciation.
This arrangement was clearly in violation of the CBN’s longstanding prudential principle, which bars the use of borrowed funds for the purchase of shares. In fact, experts noted that the banking watchdog, in its “Frequently Asked Questions (Supervision)” publication, explicitly states, “borrowed funds cannot be used to buy shares.”
From a regulatory perspective, Nigerian banking and company law further emphasises that acquisition funding must not compromise a bank’s capital or liquidity (BOFIA 2020); banks must not bear risks arising from shareholders’ personal borrowings (CBN Corporate Governance Guidelines); and a company must not directly or indirectly provide financial assistance for the acquisition of its own shares (CAMA 2020).
Similarly, one of the experts, who spoke to this newspaper, stated: “The regulatory intent is unambiguous: share acquisitions must be underpinned by genuine equity capital to safeguard institutional solvency.
