Unity Bank H1 2021: Earnings Jump, But Shareholding Still A Worry

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Saturday, August 07, 2021 / 7.00 AM / Adaeze Nwachukwu, Proshare Research/Header Image Credit: Unity Bank 



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The H1 2021 unaudited result of Unity Bank reveals improvement both in the top and bottom-line earnings and the financial position of the bank both on a year-on-year Y-o-Y) and on a quarter-on-quarter (Q-o-Q) basis. However, the bank still shows a weak shareholder's fund, and analysts point out that it needs to tackle the bogey bear quickly.

 

Key Highlights

  • Gross income up by +3.26% to N23.61bn from N22.86bn in H1 2020
  • Profit before tax grew Y-o-Y by +34.08% to N1.50bn in H1 2021 from N1.12bn in H1 2021.
  • Credit/Loss expense improved in H1 2021 to a recovery of N719.71m.
  • Total assets were up by +22.74% to N547.38bn from N445.95bn in H1 2020.
  • Deposits from customers grew marginally by +4.02% to N318.79bn from N306.47bn in H1 2020
  • Loans and advances to customers increased significantly by +87.79% to N246.90bn in H1 2021 from N131.48bn in H1 2020.
  • The cost-to-income ratio rose to 94.07% in H1 2021 from 88.20% in H1 2020.

 


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Gross Income

The credit lender's gross income inched slightly in H1 2021; it rose Y-o-Y by +3.26% to N23.61bn from N22.86bn in H1 2020. The rise resulted from a +20.77% growth in net fee and commission income and an +8.92% rise in net interest income.

 

Also, gross income increased on a Q-o-Q basis; it grew by +7.62% to N12.32bn from N11.45bn in H1 2020. The bank saw a significant drop in 2018; however, between 2019 and H1 2021, it observed a gradual rebound in earnings, even though, admittedly, below 2017 levels (see chart 1 below).

 


 

Chart 1: Unity Bank Gross Income H1 2017 - H1 2021 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research

 

Profit Before Tax

Unity bank's profit before tax for the period inched up Y-o-Y by +34.08% to N1.50bn from N1.12bn in H1 2020. Attributable to a +8.80% rise in operating income, though the growth in operating expense outpaced the increase in operating income. Also, recoveries of N719.71m helped bump PBT upwards.

 

The bank witnessed its highest percentage decline in PBT in H1 2018, which declined by -77.00%, while H1 2019 records the highest percentage growth by +96.33% during the period under review.

 

However, on a Q-o-Q basis, PBT dipped by -8.45% to N718.01m from N784.28m in Q1 2021 (see chart 2 below).

 

 


Chart 2: Unity Bank Profit Before Tax H1 2017 - H1 2021 (N'm)

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Source: Unity Bank Financial Statement, Proshare Research




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Credit Loss Expense

The H1 2021 result reveals the bank had recoveries, thereby improving credit loss expenses notably and PBT. The credit lender recorded N719.71m in recoveries in H1 2021 from a credit loss of N310.96m in H1 2020 (see chart 3 below).

 

Chart 3: Unity Bank Credit Loss Expense H1 2017 - H1 2021 (N'm)

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Source: Unity Bank Financial Statement, Proshare Research

 

Total Assets

Total assets were up by Y-o-Y by +22.74% from N445.95bn in H1 2020 to N547.38bn in H1 2021. Resulting from a +87.79% Y-o-Y rise in net loans and advances to customers and a +14.92% rise in cash and balances with central banks.

 

The financial institution recorded declines at the income statement and financial position in 2018; it had the highest percentage decline in H1 2018, total assets fell by -59.77%, while H1 2020 recorded the highest percentage growth in total assets by +66.53% during the period under review (see chart 4 below).

 

Chart 4: Unity Bank Total Assets H1 2017 - H1 2021 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research

 

Loans-to-Deposit Ratio

In H1 2021, the bank's loan-to-deposit ratio (LDR) improved noticeably, from 42.90% in H1 2020 to 77.45%, which was above the CBN's minimum statutory benchmark rate of 65%.

 

The growth in LDR was driven majorly by a +87.79% Y-o-Y growth in net loans and advances, while deposits from customers had a marginal increase of +4.02% in the period.

 

H1 2017 saw the bank's highest LDR of 119.31%, but in H1 2018, its LDR slumped devastatingly to 4.89%, led by a -95.78% decline in net loans and advances. This was principal because the bank sold off most of its loan portfolio to a debt factoring company.  In H1 2019, the bank saw its LDR rebound, resulting in a more substantial earnings growth that rode on the bank of improved quality risk assets (see chart 5 below).

 

Chart 5: Unity Bank Loan-to-Deposit Ratio H1 2017 - H1 2021 (%)

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Source: Unity Bank Financial Statement, Proshare Research

 

Total Equity

Unity bank recorded a -1.16% decline in its shareholder's fund, to a negative of N281.87bn. The bank continued its stream of drops in shareholder funds over the last five years, a sore point that added a stain to what should have been an all-around sterling performance (see chart 6 below).

 

Chart 6: Unity Bank Total Equity H1 2017 - H1 2021 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research

 

Unity Bank's H1 2021 result shows a continued rebound in its performance from the declines it recorded in 2018, except its shareholder's fund.  Analysts believe that the need to address the bank's weak shareholder's fund should be on the front burner, especially if the deposit money lender intends to remain a credible player in the domestic Nigerian banking sector in the years ahead.

 


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