• Thursday, March 28, 2024
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Union Bank’s ROE hits four year high as asset quality improves

Union Bank H1’20 earnings hit N79.7bn as non-internet income jump 22%

Union Bank Plc, a Nigerian tier 2 money bank, has utilized the resources of its owners in generating higher profit amid a challenging macroeconomic environment as asset quality continues to improve.

The stellar performance means the lender will soon reward shareholders from distributable profit, and it’s been investing in the latest technology with  a view to boosting earnings to ward off the effect of a low yield environment.

With a 42 percent increase in active debit cards compared to the corresponding period of last year, Union Bank has beamed its search light  on customer penetration through digital products and channels.

Its user count is up 128 percent to 1.5 million as at March 2019, while total online users surged by 133 percent to 630k with  new users up 51 percent to 96k in the period under review.

Total Point of Sales (POS) volume is up 41 percent to 3.5 million with the value up by 33 percent from N17.7 billion to N24 billion in the first quarter of 2019.

Union Banks’ total transaction volume accelerated to 20.8 million while the total transaction value is up 4 percent to N187 billion.

Notwithstanding the macroeconomic backdrop, Union Bank’s return on equity (ROE) increased to 9.30 percent in March 2019 from 6.0 percent the previous year; the growth in ROE is the highest in four years, see charts.

Non-interest income was up 38 percent to N 10.81 billion in the period under review from N7.79 billion as at March 2108; thanks to increased loan growth, increase in customer transactions, and significant recoveries.

The uptick in noninterest income helped compensate for a 5 percent drop in gross earnings to N37.7 billion from N39.50 percent in the first quarter of 2018 due to loan book resolutions from the previous year.

Union Bank was not the only lender whose revenue fell in the first quarter, as Nigerian Banks saw a reduction at the top lines since the start of 2018 when short term government securities began to nose dive.

The first quarter earnings results of the largest lenders in Africa’s largest economy showed cumulative gross earnings grow by a mere 3.75 percent to N1.16 trillion as at March 2019,  while combined net profit margin remained flat at 18.15 percent.

Amid the challenges undermining the growth of operators in the industry, Union Bank has remained profitable, posting a profit before tax of N5.43 billion in the period under review, representing a 1 percent jump from N5.40 billion recorded the previous year.

The Nigerin lender’s cost optimization strategy paid off as the increases in total operating expenses were lower than April’s inflation figure.

Union Bank’s total operating expenses were up a mere 4.15 percent to N18.50 billion in the period under review from N17.90 billion the previous year.

With the commencement of our Long-term Efficiency Acceleration Programme (LEAP), the lender expects to record savings on the expense line in 2019.

Union Bank has an excellent risk management strategy as asset quality continues to improve, thanks to aggressive loan recoveries and a slight improvement in macroeconomic activities.

Non Performing Loans (NPLs)  ratio fell to 7 percent in March 2019 from 8.81 percent as at December 2018.  In absolute figures it reduced by 2.33 percent to N37.60 billion in the period under review from N38.50 billion as at December 2018.

A breakdown of NPLs per sector shows exposure to construction, education, finance and insurance, human health and social work, manufacturing, which made up for to 57.7 percent of total NPLs as at December 2018 now make up for 18.30 percent as at  March 2019. 

While other lenders in the counrty have refused to turn on the tap of lending to the economy, Union Bank has been extending credit to Small and Medium Scale Enterprises (SMEs) and the real sector.

For instance, loans and advances were up 4.12 percent to N448.24 billion as at March 2019.

The Bank said it would continue to reduce its exposure in its foreign currency book as it look to mitigate any future foreign exchange risks.

Portfolio diversification by sector shows loans to oil and gas make up 36.90 percent of total loans as at the first quarter of 2019; Manufacturing, 14.20 percent; General Commerce, 9.70 percent; Power and Energy, 7.50percent; 9Construstion, 7.20 percent; Retail Segment, 6.90 percent, Information and Communication, 6.40 percent; Agriculture, 4.30 percent, and others 6.70 percent.

Union Bank launched Series 1 and 2 debt notes under the N100 billion Commercial Paper issuance programme. It also raised N23 billion from the domestic capital market across tenors ranging from 90 to 180 days.

The lender launched its TechVentures in January to support tech-based businesses in various life cycle stages, providing them with funding and advisory services.

Union Bank remains well capitalized with a Capital Adequacy Ratio (CAR) of 16.5 percent, which provides room to grow quality risk assets as the economy recovers.

“The Group’s resilience in a challenged environment is demonstrated in these first quarter numbers. While Gross Earnings declined by 5% to 37.7 billion from 39.5 billion in Q1 2018 due to loan book resolutions from the  previous  year, our Non-Interest Income grew by 39% from 7.8 billion to 10.8 billion driven by recoveries, credit-related fees and dividends from investments,” said Joe Mbulu, Chief Financial Officer of Union Bank Plc.

About Union Bank of Nigeria Plc

Established in 1917 and listed on the Nigerian Stock Exchange in 1971, Union Bank is a household name and one of Nigeria’s long-standing and most respected financial institutions. The Bank has a net work of over 300 Sales and Service Centers across Nigeria.

Following recapitalization in 2012 from new investors and a new Executive Management team,UnionBank has under gone an award winning transformation programme to re-establish the bank as a leading provider of financial services in Nigeria.

Union Bank is focused on Retail , Commercial and Corporate Banking businesses. In addition to standard current and savings product portfolio, Union Bank has launched pioneering products into the Nigerian retail market including UnionKorrect, UnionGoal and Union Betta.

 

BALA  AUGIE