Union Bank FY2020 Audited Result: Dip in Top Line Earnings but Marginal Bottom Line Growth


Saturday, March 26, 2021, /04:30 AM / by Adaeze Nwachukwu, Proshare Research / Header Image Credit: Union Bank of Nigeria Plc

In the face of business headwinds induced by the coronavirus pandemic, Union Bank Plc FY2020 results showed a rise in both earnings and costs. The group equally saw asset quality improvement and a leap in loan impairment losses. The banking group's customer deposit-base crossed the N1trn mark by settling at N1.13trn in 2020 from N886.26bn the previous year, 2019.


Key Highlights

  • Gross Earnings down by -3.75%, from N166.55bn in 2019 to N160.29bn in 2020
  • Profit before tax for The Group grew by +4.55% from N24.84bn to N25.97bn in 2020
  • Total Assets grew significantly by +17.03% from N1.87trn in 2019 to N2.19trn in 2020.
  • Total equity up by +4.75% Y-o-Y from N252.34bn in 2019 to N264.32bn in 2020.
  • Debt-to-equity ratio grew from 60.62% in 2019 to 99.27% in 2020
  • ROE for the period was 10.0% against 10.20% in the previous year while ROA declined from 1.60% in 2019 to 1.20% in 2020.
  • NPL ratio for the Group was 4.0% a decline from 5.8% in 2019.
  • Gross loans for the Bank grew by +25.82 from N550.61bn in 2019 to N692.80bn in 2020.
  • Total deposit increased Y-o-Y by +27.54% from N886.26bn in 2019 to N1.13trn in 2020.
  • Return on assets dipped from 1.60% in 2019 to 1.20% in 2020
  • Return on equity dipped marginally from 10.20% to 10.00% in 2020
  • Earnings per share from continuing operations increased marginally from 83kobo in 2019 to 85kobo in 2020.
  • The total dividend paid for the year ended 31 December 2020 was 25kobo.


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Share Price and Volume Movement- of Calmness and Shocks

The banking group's share price movement was modest and fairly stable in 2020 and the group's year-to-date (YTD) performance has followed a similar track. In contrast to the share price movements of sector rivals, the moneylender had a countercyclical experience in 2020. At the peak of the COVID-19 pandemic, there was an uptick in share price, while with the slow reopening of economic activities the lending group's share price dived below pre-COVID-19 values. April 2020 saw the highest bank share price of N6.75 while the share fell to its lowest price of N5.30 in August 2020.  At the end of the year share price of the bank slumped by -10.83% which contrasted with the +10.14% growth in the banking sector index on the Nigerian Stock Exchange (NSE).

On year-to-date (YTD) performance, the lender's share price has dipped by -0.93% as of 23rd March 2021.


Share volume trend was dissimilar, the banking group's share volume grew by over +400% in 2020. The bullish trend traded volume continued into 2021, rising above +4000% as of 23 March 2021, with spikes seen in January and March (see chart 1). The rise in volume traded in 2021 was on the news of an alleged core investor buying out another large existing investor in the bank. The news of Atlas Mara selling off its interest in Union Bank Plc has swirled around the stock market for over a year but the sizable number of shares that have changed hands in the first two months of 2021 appears to give credence to speculation of those that insist that a large chunk of the lender's equity capital was up for sale.  


Chart 1: Union Bank's Share Price and Volume of Share Traded as of 23 March 2021

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Source: NSE, Proshare Research


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Profitability-Squeezing Mullah from Rocks

The group's gross earnings dipped marginally by -3.75% in 2020, from N166.55bn in 2019 to N160.29bn. Despite sober gross earnings, the group was still able to squeeze a +9.30% increase in net interest income and a +3.83% growth in non-interest income. However, net fee and commission incomes slipped by -7.18% in 2020 (see chart 2).


Converting to US dollars, gross earnings dropped by -22.46% from US$542.58m in 2019 to US$420.71m in 2020, this was on the back of a devaluation of the domestic currency. CBN's official rate at the different periods was used in translation.


Chart 2: Union Bank's Gross Earnings 2016 - 2020 (N'bn)

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Source: Union Bank's Financial Statement, Proshare Research


The group's profit before tax (PBT) has risen steadily over the last four years, however, the percentage growth took a knock in 2020. PBT rose Y-o-Y by +4.55% against the +37.47% growth recorded in 2019. PBT rose from N24.84bn in 2019 to N25.97bn in 2020, this was in the face of COVID-19-induced headwinds in 2020 (see chart 3).


Responding to the impact of the devaluation of the Naira against the US dollar in 2020, PBT slumped by -15.77% from US$80.94m in 2019 to US$68.17m in 2020.


 Chart 3: Union Bank's Profit Before Tax 2016 - 2020 (N'bn)

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Source: Union Bank's Financial Statement, Proshare Research

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Asset Quality-Catching A Poor Asset Breather

The non-performing loan (NPL) ratio of the group dipped from 5.80% in 2019 to 4.00% in 2020 which signified an improvement in the lender's asset quality. The latest result released by the banking group showed an increasing exposure to the oil and gas sector in 2020. The breakdown of NPL shows oil and gas accounted for 25% of the bank's NPL in 2020 as against 4% in 2019 (see chart 4).


Chart 4: Union Bank's Non-Performing Loan 2016 - 2020

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Source: Union Bank's Financial Statement, Proshare Research


Impairment Charges-Get Clever at Lending

The group's impairment charges/credit improved significantly in 2020. In 2020 an impairment credit of N2.25bn was posted as against the N184m impairment charge in 2019, this represents a +1000% improvement on impairment charges. Nevertheless, the group equally recorded a -17.35% Y-o-Y fall in recoveries in 2020 (see chart 5).



Chart 5: Union Bank's Impairment Credit/Charges for Credit Losses  2016 - 2020 (N'm)

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Source: Union Bank's Financial Statement, Proshare Research

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Total Assets-Muscles Up

Union Bank's total assets have grown over the last five years. In 2020, total assets grew Y-o-Y by +17.03% from N1.87trn in 2019 to N2.19trn. The group had its highest percentage growth in 2019 by +27.93% while 2018 records the lowest percentage growth of +0.54% in total assets.


The growth in 2020 was largely due to a +396.31% increase in pledged assets (financial assets that are resold or repledged by counterparties). Treasury bills grew Y-o-Y by +1016.82% which was the main cause for the growth in the group's pledged assets.


The lender's loan-to-deposit ratio fell marginally in 2020, from 62.13% in 2019 to 61.29% in 2020. Total deposit grew +27.54% while total loans and advances grew Y-o-Y by +25.82%.


In US dollar terms, total assets slipped Y-o-Y by -5.72% from US$6.09bn in 2019 to US$5.75bn in 2020 (see chart 6).



Chart 6: Union Bank's Total Assets 2016 - 2020 (N'trn)

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Source: Union Bank's Financial Statement, Proshare Research

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Shareholders Fund-Rising with Butterfly Wings

The audited result of Union bank reveals total equity grew marginally by +4.75% which is also the highest percentage growth in total equity of the group. From N252.34bn in 2019 to N264.32bn in 2020. In 2018, the group recorded its highest percentage decline in total equity declining by -0.34%.


The marginal growth in total equity was on the back of a +9.15% rise in retained earnings and a +12.58% growth in other reserve components of shareholder's fund.


The significant rise in the group's debt-t0-equity ratio shows how leveraged the financial institution is. Its debt-to-equity ratio has fluttered up over the last five years, from 60.62% in 2019 to 99.27% in 2020. This was as a result of a +71.53% rise in total debt of the group (see table 1 below).



Table 1 Union Bank; Breaking Down Debt-to-Equity (2016-2020)

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Translating to US dollar term, total equity declined Y-o-Y by -15.61% from US$822.09m in 2019 to US$693.75m in 2020 (see chart 7).


Chart 7: Union Bank's Total Equity 2016 - 2020 (N'bn)

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Source: Union Bank's Financial Statement, Proshare Research




Costs-Still  Raging

Union bank's cost-to-income ratio (CIR) increased marginally from 74.10% in 2019 to 75.40% in 2020. This was as a result of a +10.49% increase in total expenses while operating income increased Y-o-Y by +9.42%.


In 2018, the banking group saw its highest CIR of 79.20% while 2017 recorded the lowest ratio of 63.00%, the more recent CIR ratios of the lender indicate difficulties in controlling operating expenses, a major sore point for new and existing shareholders (see chart 8).


Chart 8: Union Bank's Cost-to-Income Ratio 2016 - 2020

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Source: Union Bank's Financial Statement, Proshare Research


Conclusion-Back from the Infirmary

The contemporary Union Bank narrative reveals a bank pulled back from the brink as operating data for the last five years suggest a reversal from a date with the devil as the bank spiraled towards illiquidity and insolvency. The turnaround has been tough but reliable and has put some smiles on the faces of investors even though its share price has moderated within a neutral flag, meaning that the group's share price movement has been within a narrow band looking neither up nor down. The group, however, appears to have forward-looking strategies to turn modest growth into heart-gripping profitability (see illustration 1 below)


Illustration 1 Union Bank; Driving Growth Through Strategy

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However, considering the swelter of rumours on a possible merger with a local banking rival, investors are likely to place the lender on a ‘watch list’ as they think about trading actions that would put decent cash on the table. Since the bank is out of its financial infirmary, the state of play is one of deciding how to process information for a potentially improved portfolio return. These appear to be times that try investor's brains and, unfortunately, emotions.  


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