Union Bank profit grows single digit as CBN stringent rules bite

The Central Bank’s stringent policies aimed at curbing inflation and stabilizing the economy is taking a big toll on the lenders in Africa largest economy as Union Bank Nigeria Plc recorded a  1.73 percent single digit growth in profit on the back of increased interest expense.

For the first six months through June 2015, profit was N6.45 billion compared with N6.34 billion the same period of the corresponding year (H1) 2014.

Analysts attribute the decline in profit to the stringent cash reserve requirements imposed by the Abuja based Central Bank.

The Apex bank had said the rules are expedient to tighten liquidity given the country’s dwindling reserves aimed continued falls as oil price.

Industry operators say the   rule which forces banks to place 31 percent of deposits with the regulator, has to be changed as investors are shying away from stocks as a result of the rules.

Early earnings release of banks showed interest expense swallowing most of interest income denting net interest income.

Union Bank’s interest expense rose by 42.16 percent to N16.42 billion in 2015 from N11.55 billion in 2014. Noninterest income (NII) reduced by increased by a mere 11.31 percent to N12.30 billion in 2015 as against N13.87 billion last year.

The Nigeria lender’s cost to income ratio of 82 percent, which is one of the highest in the industry calls for a more cost cut strategy as it spends more operating expenses out of income.

Operating expenses were up by jumped 1.42 percent to N29.84 billion in 2015 compared with N29.41 billion in 2014.

Operating profits were flattish at N36.20 billion as net fee commission income stagnates.

Union Bank was aggressive about lending as loans to deposits ratio moved to 68.11 percent in 2015 as against 59.28 percent the previous year.

Deposit to customer however increased by a mere N549.55 billion in the period under review compared with N527.61 billion last year.

Loans and advances to customers were up by 19.75 percent to N374.58 billion in 2015, from N312.79 billion the following year.

Union Bank’s share price closed at N3.59 on the floor of the exchange while market capitalization was N131.96 billion.

 

BALA AUGIE