Union Bank Plc: Strong Growth In Interest Income Drives Gross Earnings

Union Bank of Nigeria (UBN) Plc has remained profitable while maximizing shareholders’ wealth amid a volatile tough operating macroeconomic environment. The lender’s first quarter results are impressive as a strong growth in interest income catapulted gross earnings. Little wonder, Atlas Mara, the African investment vehicle of former Barclays boss, Bob Diamond intends to pay $55 million for an indirect 13.4 percent shareholding in Union Bank of Nigeria. This deal is expected to increase Atlas Mara’s direct and indirect holdings in the bank to 44.5 percent.

Union Bank of Nigeria is one of Nigeria’s oldest banks.The Nigerian lender was established as a Colonial Bank in 1917 and from 1925 until the 1970s was owned by Barclays. The bank’s market capitalization stands at about N103.75 billion, with an estimated N1.29 trillion worth of assets, N695.12 billion in deposits and N277.75 billion in equity at the end of March. It has about 340 branches across Nigeria. Financial Performance for March 2017 Union Bank’s gross earnings increased by 22 percent to N32.60 billion in March 2017 from N26.60 billion as at March 2016; driven by strong growth in loan book and e-business. Interest income was up 24 percent to N26.20 billion in the period under review from N21.10 billion as at March 2016; thanks to the devaluation of the loan book. Non-Interest Income was up 15 percent to N6.40 billion in the period under review as against N5.60 billion as at March 2016; driven by effective loan recovery and growth in e-business channel income and commission lines .

Net Interest Income after Impairment is flat (13.3bn Q1’17 vs 13.3bn Q1’16) N1.3bn in Recoveries in Q1 2017 vs N169m in Q1 2016. For the first three months through March 2017, Union Bank’s net income was down by 10 percent to N4.20 billion in March 2017 as against N4.60 billion as at March 2016.Profit before tax was down 10 percent to N4.20 billion in the period under review as against N4.70 billion the previous year. The drop at the bottom lines (profit) was due to a rise in operating expenses. The Bank’s operating expenses were up 9.10 percent to N15.50 in March 2017 from N14.20 billion as at March 2016. Banks in Africa’s largest economy have been grappling with rising cost of operation brought on a weak naira, regulatory induced costs and high energy costs. Total operating expenses (Opex) by the 14 largest listed lenders on the Nigerian Stock Exchange (NSE) increased by 18 percent to N416.80 billion in March 2017 from N351.93 billion the previous year. Of the total expense figure, N158.50 billion was spent on staff salaries, representing a 10.14 per cent increase from last year’s figure. Other drivers of Opex are the mandatory Asset Management Corporation of Nigeria Charge (AMCON), other insurance premium charge and depreciation and occupancy costs and exchange rate difference coming from translation differences.

There were also increases in electricity tariff and on the back of aggressive drive for revenue by State and Local Governments on water rates, tenement rates, and land use charge. As a result of the aforementioned challenges, Union Bank’s cost to income ratio, a measure of efficiency, increased to 76.55 percent to in March 2017 as against 71.29 percent as at March 2016. Union Bank’s gross loans were down 5 percent to 492.6 billion in March 2017 as against 518.3 billion as at December 2016 as improving FX availability facilitated liquidation of mature obligations in the FCY book. Customer Deposits rose by 8 percent to 686.4 billion in March 2017 from N633.80 billion as at March 2016. The growth was led by new product offerings, increased market penetration and financial inclusion initiatives, as well as improved customer adoption. Union Bank earned 1.3 billion in Non Performing Loans (NPLs) recoveries in quarter one of 2017. In the same quarter in 2016, the bank earned less than 200 million.NPLs ratios increased to 7.70 percent in March 2017 from N6.69 percent as at March 2016. “Yes, recoveries are episodic, but we have a very robust loan recovery engine, and there’s 37 billion in the NPL book, so we are quite confident that as the year progresses, we will see additional successes on the recoveries line,” said Emeka Emuwa, Oyinkansade Adewale and Kandolo Kasongo at the Bank’s investor conference. (BusinessDay)

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