CBN, Union Bank, and the Trust Deficit

The legal battle over Union Bank of Nigeria is raising fresh concerns over investor confidence and regulatory credibility in Nigeria’s banking sector, writes Sunday Eghiator

The intensifying legal confrontation between the Central Bank of Nigeria (CBN) and the former shareholders of Union Bank of Nigeria is rapidly assuming dimensions far beyond an ordinary banking dispute. What is unfolding in the courtroom has become a defining examination of regulatory accountability, sanctity of investment, and the wider credibility of Nigeria’s financial governance architecture before the global investment community.

At the centre of the controversy is the Federal High Court judgment delivered by Justice Chukwujekwu Aneke, which nullified the CBN’s January 2024 dissolution of Union Bank’s board and management, describing the intervention as ultra vires, unlawful, and inconsistent with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020.

The judgment was particularly damaging because it did not merely question procedure; it fundamentally challenged the legal and evidential foundation of the intervention itself.

While the CBN has approached the appellate court seeking to overturn the ruling, the deeper issue emerging from the dispute is whether the apex bank’s aggressive legal response risks compounding concerns already raised by the lower court regarding due process, regulatory transparency, and investor protection.

The implications are profound because banking regulation depends not only on statutory authority, but also on confidence, confidence that regulators will act lawfully, proportionately, and transparently.

The Federal High Court ruling appears to have struck precisely at those foundations.

One of the most consequential aspects of the judgment was the court’s finding that the former shareholders and directors of Union Bank were denied a fair hearing before punitive actions were taken against them. The court held that the affected parties were sanctioned without adequate opportunity to respond to allegations arising from a purported special examination of the bank.

More significantly, the court reportedly found that the CBN failed to produce the alleged examination report as evidence to justify the drastic intervention.

That omission has become one of the most troubling elements of the dispute.

In regulatory enforcement, especially within the banking industry, extraordinary powers are often justified only by equally compelling evidence. Where a regulator dissolves a bank’s board, restructures ownership, dilutes shareholding, and excludes investors from recapitalisation processes, the expectation within global financial practice is that such actions must be supported by robust documentation and transparent supervisory findings.

The court’s conclusion that no such examination report was produced has inevitably raised uncomfortable questions.

The controversy becomes even more complicated when viewed against the sequence of events leading up to the intervention.

According to documents referenced in the proceedings, Titan Trust Bank had acquired Union Bank in 2022 through Luxis International DMCC and Magna International DMCC, reportedly with financing support linked to African Export-Import Bank. The shareholders subsequently initiated a merger process between Titan Trust Bank and Union Bank and sought regulatory approval for a HoldCo structure intended to absorb acquisition-related obligations.

The court filings suggested that while the merger process received regulatory approval, the HoldCo arrangement was not approved. Yet shortly afterward, the CBN dissolved the bank’s board and management.

For many within financial and legal circles, that sequence created a troubling contradiction.

The question being quietly asked across investment circles is simple: how does a regulator approve a merger process and then, within a relatively short period, proceed to dismantle the same governance structure on grounds severe enough to justify emergency intervention?

That contradiction has become central to growing investor anxiety.

The concern is not merely about Union Bank. Rather, it is about the predictability of Nigeria’s regulatory environment and the extent to which investment rights remain protected once capital has entered the country.

Foreign investors are naturally sensitive to signals emanating from disputes involving regulators. In emerging markets, institutional credibility often matters as much as economic returns. Investors seek assurance that disputes will be governed by transparent rules rather than discretionary impulses.

This is particularly crucial in banking, where transactions involve substantial cross-border financing, long-term commitments, and sensitive governance structures.

The Federal High Court’s finding that the shareholders’ interest was diluted from full ownership to about 40 per cent without lawful justification has therefore intensified concerns regarding investment security.

Equally damaging is the court’s suggestion that aspects of the intervention reflected bad faith.

In global financial systems, regulators derive moral authority not only from legislation but also from perceptions of neutrality, consistency, and procedural fairness. Once accusations of arbitrariness or selective application of power begin to surface, reputational consequences can extend far beyond the immediate dispute.

The CBN’s appeal, while legally permissible, now risks creating another layer of uncertainty.

Ordinarily, an appeal by a regulator seeking judicial clarification on statutory powers would not generate unusual concern. However, in this instance, the lower court judgment appears to have exposed gaps that investors may interpret as institutional weaknesses rather than mere legal disagreements.

The apex bank insists that Union Bank faced severe financial distress, including a negative capital adequacy ratio, non-performing loans, and a capital shortfall exceeding N224 billion. It also maintains that BOFIA empowers it to intervene decisively in troubled institutions to preserve financial stability.

That argument, on the surface, is entirely consistent with global regulatory practice.

Central banks across the world possess emergency supervisory powers precisely because banking failures can trigger systemic crises capable of destabilising entire economies.

But even in advanced regulatory systems, emergency powers are expected to operate within carefully defined legal boundaries. Courts often defer to regulators on technical banking matters, yet such deference weakens considerably when due process appears compromised or evidentiary standards are questionable.

This explains why the Union Bank case is attracting unusually intense scrutiny.

For Nigeria, the timing is particularly delicate. The country is actively seeking foreign portfolio flows, banking recapitalisation investments, and broader international financial partnerships amid persistent currency pressures and macroeconomic fragility.

At such a moment, prolonged disputes that suggest uncertainty about shareholder protection or regulatory consistency can become reputational liabilities.

Investors rarely ignore warning signs in financial governance disputes. Even where regulators ultimately prevail in court, perceptions created during litigation often linger longer than judgments themselves.

The Union Bank dispute may therefore become more consequential for its reputational impact than for its eventual legal outcome.

What is increasingly evident is that the controversy has evolved beyond the technical interpretation of BOFIA. It has become a wider referendum on regulatory conduct, institutional transparency, and the confidence global investors can place in Nigeria’s financial governance framework.

And in international finance, confidence remains the most fragile currency of all.