Unity Bank FY2020 Audited Results: Strong Asset Growth Reawakens Investor Interest


Tuesday, April 20, 2021, / 01:30 PM / TheAnalyst, Proshare Research / Header Image Credit: Unity Bank Plc.


The COVID-19 pandemic hurt the topline and bottom-line earnings of most banks in Nigeria in 2020, Unity Bank inclusive. Nigeria's top agri-lender, however, pushed against the headwinds to beef up its short-dated assets and improve its liquidity despite a prickly year. The deposit money bank's growth in cash and cash balances with the Central Bank of Nigeria (CBN) caused an increase in its total assets and reinforced investor optimism that the credit institution was gradually fixing its fiscal problems which include pulling away from three consecutive years of declining profits.


There have been speculations that the bank has secured a new core investor and that fresh equity would soon be in play to assist the bank in overcoming its negative shareholder's funds and help grow loan assets faster and provide opportunities to scale up the technology. Analysts close to the bank believe that part of the equity had come in within the previous week and that the total amount expected could be north of US$1.5bn.  


The bank's FY2020 audited result showed a rise in operating cost which caused a rise in its cost-to-income ratio (CIR), the trampoline bounce in the bank's operating cost soared on the back of a hefty rise in administrative, legal, and professional expenses in 2020.



  • Gross earnings down by -4.21% to N42.7bn from N44.59bn in 2019
  • Profit before tax dipped Y-o-Y by -38.96% to N2.22bn in 2020 from N3.64bn in 2019.
  • Total assets grew by +67.90% to N492.02bn from N293.05bn in 2019.
  • Total deposits rose by +38.39% to N356.62bn from N257.69bn in 2019
  • Total loans and advances climbed by +94.28% to N202.08bn in 2020 from N104.02bn in 2019
  • Savings deposit grew by +28.73% to N83.04bn from N64.51bn in 2019
  • Cash and Balances with the CBN rose by +598.61% to N99.28bn from N14.21bn in 2019
  • NPL ratio of 0.001% (near zero), the bank had virtually no delinquent asset. This was the best loan asset portfolio quality for any bank in Nigeria in 2020.
  • An additional strong side of the bank's 2020 performance was that it had a low-cost deposit ratio of 72.7% of its liabilities. 



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Profitability- The Pain of Slumping Bottom lines

Unity Bank's gross earnings have bumped downwards over the last five years as weakness in underlying lending and contingent operations shrunk its topline growth. Although there was a +28.66% rise in gross earnings in 2019, the upward lift was unsustained in 2020 as a result of the revenue-damaging effects of the COVID-19 pandemic in that year.


The FY2020 audited result shows that the lenders gross earnings dropped slightly by -4.21% from N44.59bn in 2019 to N42.71bn. Net interest income, however, moved up Y-o-Y by +7.60% supported by a +8.82% increase in interest income. Nevertheless, income expense grew faster grew by +9.86% Y-o-Y.


In US dollar terms the bank's gross earnings of the lender did worse by slumping a further -22.83% from US$145m in 2019 to US$112.09m in 2020. The bank's gross earnings in US dollars were converted using the official CBN rate (I&E FX Window) for the two periods (see chart 2 below).


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

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Source: Unity Bank's Financial Statement, Proshare Research


Notably, the bank's reversal of its loss to a profit before tax (PBT) was sustained in 2020, even though the profit before tax number declined between 2019 and 2020 it contrasted with the two previous years of losses in 2017 and 2018 (see chart 3 below).


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

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Source: Unity Bank's Financial Statement, Proshare Research


The bank's PBT fell in 2020 fell by -38.96% Y-o-Y from N3.64bn in 2019 to N2.22bn in 2020. This came off the back of a +18.77% in operating expense while operating income fell by -15.10% Y-o-Y. The major drivers of the decline in operating income were the bank's net trading income and foreign exchange gain, which slumped by -1,259.17% and -86.35% respectively. Also, the Bank posted a loss of N4.51bn in securities and trading losses in the year.


In US dollar terms, the bank's PBT slumped by -50.82% from US$11.87m in 2019 to US$5.84m in 2020 which mirrored the fall in the local currency, the Naira.


Impairment Credit/Loss

A review of the FY2020 Audited result of Unity Bank by ThAnalyst highlighted some impairment credit/loss numbers.


The bank's income statement recorded a significant improvement in impairment charges, as N4.13bn was stated as recoveries against a loss of N1.02bn in 2019.


Chart 4: Unity Bank Impairment Charge 2016 - 2020 (N'bn)

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Source: Unity Bank's Financial Statement, Proshare Research


Total Asset- Priming the Pump

Looking up the deposit money bank's total assets, the data shows a steady increase over the last three years. Total assets rose by +67.90% Y-o-Y from N293.05bn in 2019 to N492.02bn in 2020. The major source of growth of the bank's total assets in 2020 was the rise in the bank's cash and balance with the Central Bank of Nigeria (CBN), which grew by +598.61% from N14.21bn in 2019 to N99.27bn in 2020. Also, loans and advances to customers grew by a sizeable +94.28% in 2020.


The highest percentage growth in total assets was recorded in 2020 while 2017 saw the largest percentage decline of -68.23%.


Total assets also grew in US dollar terms, the bank's assets rose by +35.26% from US$954.72m in 2019 to US$1.29bn in 2020 (see chart 5 below).


Chart 5: Unity Bank Total Assets 2016 - 2020 (N'bn)

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Source: Unity Bank's Financial Statement, Proshare Research

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Loans and Deposit-Lifting the 'B' Sheet

Unity Bank's loan-to-deposit ratio (LDR) improved in 2020 but was still short of CBN's statutory rate of 65%.  


The bank's LDR rose to 56.67% from 40.37% in 2019, this was on the back of a +94.28% growth in loans and advances to customers while deposits from customers rose Y-o-Y by +38.39% (see chart 6 below).


A breakdown of the Bank's deposit by type of account showed that its demand deposit was the greatest catalyst to the growth of deposits in the year. Demand deposit grew by +50.99% Y-o-Y, time deposits grew +44.79% while savings and domiciliary deposits grew by +28.73% and +15.79% respectively.


Chart 6: Unity Bank Loan-to-Deposit Ratio 2016-2020

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Source: Unity Bank's Financial Statement, Proshare Research


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Shareholders Fund- A Hop, Step, and Jump; The Search for Redemption

The bank is still stuck with negative shareholders' fund, although there was a marginal improvement in 2020, from a negative position of N278.86bn in 2019 to a negative position of N275.41bn in 2020 (see chart 7 below).


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

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Source: Unity Bank's Financial Statement, Proshare Research


The bank is expected to show a major reversal of its negative shareholder fund number in 2021 as a new core investor puts cash at the disposal of the bank to improve shareholder's funds and enhance the bank's working capital. The rise in share capital is expected to naturally lead to a fall in the bank's short-term return on equity (ROE) but this is not likely to be a problem as it becomes balanced by an expansion in the bank's loan asset portfolio with noticeable growth in its forward-facing net interest income, profit before tax, and after-tax bottom line, particularly from 2022.


The foreseeable rise in the bank's loanable funds would increase its forecast gross earnings and net interest margin adding joy to the lender's profit and loss statement. The improvement in the bank's P&L statement may turn out modest in 2021 but could end up better in 2022 and 2023 with a larger vaccination of the population and a wider spread of herd immunity allowing the economy's supply chains to be rebuilt and pre-COVID-19 production output to be restored, even if slowly.  


By rebuilding its share capital the commercial lender should be able to heal its wounded balance sheet and restore health to its profit and loss account (the bank has been able to sustain profitability over the last two years despite its negative shareholder's fund, an oddity that analysts may consider worthy of further study).


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Costs-Wrestling with a Bear

The agribusiness-focused bank saw a significant rise in its cost-to-income (CIR) ratio in FY2020. The bank’s CIR rose from 84.3% in 2019 to 91.3% in 2020 which was the highest the bank recorded over the last five years (see chart 8 below).

The major drivers of the rise in operating expense were legal costs, which rose Y-o-Y by +397.27%, and professional fees which climbed by +88.27%.

Chart 8: Unity Bank Cost-to-Income Ratio 2016 - 2020

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Source: Unity Bank's Financial Statement, Proshare Research


With a new investor on the books, the cost structure of the bank would have to come under critical review as the new owners of equity would want to see cost-effectiveness in the application of the fresh injection of cash and would desire a tighter corporate ship. A CIR of over 100% is unsustainable and the bank would have to scale back costs in non-critical areas of its operations. Administrative expenses would have to come down as a proportion of income as general and legal costs are wound down.


The high legal costs and professional fees in 2021 may be related to the cost of professionals that put together the capital reinjection programme and may represent a one-off charge to the bank's books. This assumption may require validation based on further inquiry.


The bank may find difficulty in adopting a cost leadership strategy in the near term but over the next three years management must scale down the bank's CIR if it is to remain competitive (see illustration 1 below).


Illustration 1 Unity Bank; Forging a Competitive Strategy

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Looking Ahead

Unity Bank's future looks significantly better in the hope of a return to positive shareholder's funds as the bank devises a more stable statement of financial position over the next two to three years with shareholders enjoying modest initial dividend payments.


Analysts do not expect the bank to pull a rabbit out of a hat and so the repair work on its overall business may require some time in yielding the strong results that investors would love to see, but the bank is tangibly moving operations in the right direction. A lot, however, rests on its speculated recapitalization.


Different scenarios could emerge with a recapitalization but all appear to strengthen the operational stability of the bank, what may not be clear would be whether the injection of fresh funds into the bank would be an offer for sale (meaning old shares holders are bought out at an agreed price per share)  or an offer for a fresh subscription (meaning new shares are issued to new pre-qualified core investor/s).


If US$2bn were to be invested in the bank, for example, the new investors could decide that between 50% and 60% of the new money would go into buying shares, and the rest committed to working capital. Even if the core investor decided on a US$1bn investment, the same technical split would reverse the bank's negative shareholders fund and provide it with the opportunity of growing new businesses. Those close to the bank and industry are not yet certain of the specific numbers and timing but they are sure that the bank would be recapitalized in 2021 (see illustration 2 below).


Illustration 2: Unity Bank; Cranking A New Cash Engine

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The wheels of Unity Banks fortunes are turning slowly in the right direction but whether the bank will fulfill or betray its resurgent destiny is yet to be established, a lot depends on the new cash engine and the driver's roadmap.

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