Soaring operating costs, credit loss expense dent Unity Bank’s FY2013 profits

Unity Bank plc is a Nigerian-based retail bank that is primarily engaged in the provision of banking and other financial services through 242 business offices in Nigeria. It offers consumer products for individuals, corporate products for businesses and agric products for farmers.

The bank also provides services such as e-business, payments and collections, bureau de change, and private wealth management.

The bank operates through nine subsidiaries that comprise Unity Bank Group, namely, Northlink Insurance Brokers Limited, Unity Capital and Investments Limited, Newdevco Fianace Limited, FUG Pensions Limited, Unity Bureaux de Change, Unity Registrars Limited, Caranda Management Services, Pelican Prints Limited, and Hexalix Properties Management Limited.

The bank has 38.44 billion shares outstanding with shareholder funds of N28.21 billion as of December 2013.

Financial performance for FY13

Unity Bank had its growth prospects slowed by huge operating expenses and soaring credit loan expense, analysis of its financial statement posted on the website of the Nigerian Stock Exchange shows. The bank had been recording recurring losses since September, or third quarter of 2013, which affected the full year 2013 numbers.

For the year ended December 2013, it posted a loss profit before tax (PBT) of N33.64 billion; this represents a 421.55 percent decrease from a profit figure of N6.45 billion in 2013FY.

Based on BusinessDay analysis, the reason attributable to the shrinking profits is the surge in credit loss expense by 1497 percent to N21.59 billion in 2013FY from N1.35 billion in 2012FY.

To further exacerbate the already anaemic position of profitability, operating expenses jumped by 74.85 percent to N51.88 billion in FY13, as against N29.67 billion in FY2012.

Despite huge tax write backs, profit after tax also recorded a negative figure of (N22.58b) compared with a positive figure of N6.18 billion in FY12.

Earnings per share (EPS) fell by 265 percent (58.74k) in FY13 from 16.07 in FY12.

The overall top- and bottom-line performance have also hurt the owners of the bank as return on average equity (ROaE) and Return on average assets (ROAA) showed negative figures of (56.7%) and (5.60 %), respectively.

Its total assets for the year ended December 2013 grew by 3.24 percent to N195.23 billion in 2013FY, from N189.04 billion in 2012FY.

Cost to income in the review period jumped to 127.3 percent in 12M13, compared with 78.53 percent in FY12.

Deposits from customers increased by 12.3 percent to N303.27 billion in FY13 as against N270.060 billion in FY12. Loans to deposits ratio, which measures lenders aggressiveness to granting credit facility, fell to 67.37 percent in FY13 from 70 percent in FY12.

The huge operational loss pressured total equity as it slipped by 41.57 percent to N28.21 billion in FY13, as against N51.45 billion in 2012.

Share performance and outlook

The bank’s share price closed at 50k April 28, 2014, on the floor of the Nigerian Stock Exchange (NSE), and market capitalisation was N19.22 billion on the same day.

The bank also has a price-to-book ratio of 0.33x and a price-to-sales ratio of 0.36x, respectively.

BALA AUGIA