Unity Bank Q2 2018 and FY 2017 Results: Prudence Inspires Positioning


Friday, July 27, 2018 / 06:15 AM / Proshare Research


Unity Bank Plc submitted its long awaited accounts to the NSE yesterday, indicating a net loss of N14.92bn for FYE 2017 and a Profit after Tax (PAT) of N492.79mln for the period ended Q2, 2018. The bank has a negative capital.


View /Download Results

·         Unity Bank Plc / IR Page / Results 

·         Unity Bank results – news post


Unity Bank Plc recorded consistent growth in Gross Earnings all through the first three quarters of 2017; which it began on a positive note as it recorded N20.17bn in Q1, growing its earnings by 110% and 53% to N42.35bn and N65.03bn consecutively over the two preceding quarters to end FY2017 with N89.93bn earnings. 

In its Q2 2018 results, gross earnings nosedived by -58.72% YoY from N42.35bn in Q2 2017 to N17.49bn consequent upon -68.34% decline in net interest income to N7.74bn in Q2’18 from N24.45bn in Q2’17. OPEX dropped from N12.19bn in Q2 2017 to N10.36bn in Q2 2018 with -14.86% decline recorded after growing at a consistent interval to end FY2017 at N24.46bn. This, however, offsets the margin of the decline in OPEX over net interest income as it averaged at 52.67% in FY2017 compared to 134% recorded in Q2 2018. 

It would appear that the drop in OPEX in Q2 2018 by 14.87% as against the Q2 2017 figure is reflective of a cost reduction measure that may have been employed by management, the sustainability of which will be tested in Q3’ 2018 PAT, and going forward.


Figure 1: Gross Earnings, Net Interest Income, OPEX

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Source: NSE, Proshare Research


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Key Takeaways and Notes


Delay In Releasing FYE 2017 Results

The delay reported by the bank as reported in May 31, 2018 “Why These Listed Companies Have Delayed Filing Results ... - Proshare was premised on the Central Bank of Nigeria (CBN)’s due diligence process on the bank’s NPL agreements. Indeed, it is widely recognised in the industry that this move by the bank played a role in the acknowledgment of asset management/ debt recovery firms’ role in loan resolutions; especially given that AMCON, owners of the first right of refusal was uninterested/unable/rejected the offer from the bank. 

The bank’s new management after a thorough diagnostics of the bank’s financial position (including and more importantly a negative capital) took the bold step and inevitable step of selling its toxic non-performing loan (NPL) portfolio to a private debt recovery firm. 

The final approval by CBN created a de-risking of its financial position, creating a balance sheet that is healthier than one met in 2015, freeing the bank of NPLs (ratio currently at 0.00% from 97% NPL ratio in FY 2016). 

The Bank represents that it has overhauled its risk framework with greater investment in risk analytics, processing, collateral coverage, amongst other measures to ensure that its healthy risk portfolio is maintained going forward. 


Write-Off of Goodwill

The legacy goodwill of N17billion in the books of the bank had been carried in the books for up to ten (10) years and this had attracted concerns from analysts and investors which would appear to have informed management’s recognition and acquiescence to the need to take action well supported by both practice and regulation, viz:


·      IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB's replacement of IAS 39 Financial Instruments: Recognition and Measurement. The IFRS deals with three main topics: classification and measurement of financial instruments, impairment of financial assets and hedge accounting. In the case of Unity Bank, it had to come to terms with the impact of carrying goodwill it knew or ought to have known, was impaired. (see footnotes)


·        BASEL II emphasizes three key concepts – (1) minimum capital requirements (addressing risk), (2) supervisory review and (3) market discipline. In the case of Unity Bank, it was apparent that eliminating the impaired goodwill was imperative giving it was used to net-off bank capital for the purposes of computing capital adequacy.


Thus, a single hit approach to clean up the books of the bank in the year 2017 would qualify as a prudent step to take. 


The FYE 2017 Loss Explained

After the delayed and long-awaited FY 2017 financials was released, the Bank grew its Gross Earnings by 7% from N84.01bn in 2016 to N89.93bn in 2017. Its Net Interest Income also grew by 3.40% from N49.47bn in 2016 to N51.18bn in 2017. 

However, loss before tax of N-14.24bn was recorded in 2017 as against N1.82bn profit in FY 2016 while loss after tax of N-14.92bn was recorded in 2017 as against N2.18bn profit in FY 2016.


FY 2017 Financial Perforamnce


FY 2017

FY 2016

% Change









Gross Earnings




Profit/(Loss) Before Tax




Profit/(Loss) After Tax




Net Interest Income




Loan Impairment Charges




Total Operating Expenses












Net Loans & Advances




Customer Deposits




Total Assets




Total Liabilities




Shareholders' Funds




Source: NSE, Proshare Research 


The CBN Loan to Unity Bank

The loan advanced by CBN to Unity bank has been consistently serviced and represents a liquidity support which any investor will take into consideration. According to information available to us at the time of this report, we believe this was priced at approx.. 15% and has been performing. 


Business Growth / New Developments

Revenue earned in the bank is primarily from interest income and the figures continue to show an increase in revenue build up which should be a positive for the bank. 

We understand that the bank continues to attract interest from investors seeking to make an entry into the Nigerian financial space. It goes without saying that the steps taking by the management in the FYE 2017 accounts and continuing action since December 2015 should encourage the market that not only is a turnaround feasible but that with a fresh injection of capital, the bank can deliver on a market-specific program. 

It is instructive to note that the Net Assets/Shareholders’ Funds was negative N-242.19bn in 2017 due to the sale of the bank’s toxic NPL portfolio which was done with a view to setting the Bank up for stable growth going forward while the sale of the toxic NPL portfolio has brought the bank’s NPL ratio to 0.00% in Q2 2018 and FY2017, respectively from the high of 97% NPL ratio in FY2016. The negative net assets figure has also started dropping as reflective in the Q2 2018 financials. Hopefully, investors can see that the actions taken here is good for new capital. 


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H1’ 2018 Performance Review

Pre-tax and post-tax profits declined by -77.0% and -76.48% YoY to N535.65m and N492.80m, respectively in Q2 2018 compared to Q2 2017 figures. Nonetheless, it is pertinent to state that the Q2 2018 performance represents an improvement over its FY 2017 figures as it took a turn on the curve to a positive PBT and PAT from losses of N-14.24bn and N-14.92bn recorded respectively at the end of FY2017.


Figure 2: Profit Before Tax & Profit After Tax


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Source: NSE, Proshare Research   


Fixed assets went down by -4.73 YoY from N21.19bn in Q2’17 from N22.23bn in Q2 2017 while total Assets also fell significantly by -59.77% YoY in Q2 2018 and -68.2% in 2017 to N196.75bn. However, the Q2 2018 total assets figure represents 25.71% growth over FY 2017 figure. This uptrend is in tandem with PAT trajectory which turned positive. 

Loans and advances to customers increased to N12.78bn in Q2’18 from N8.96 in Q4’17 representing 43% growth. However, the Q2 2018 loan and advances figure shrank by -95.78% from N302.62bn in Q2’17  to N12.78bn in Q2 2018 which therefore exacted a toll on the total assets and net assets as indicated by plummeted ratio of loans to customers to total assets from a high of 64.0% in Q3’17 to 5.7% in Q4’17 and 6.5%  Q2’18 respectively and the net assets which ended in the negative of N-242.19bn in 2017 and N-240.08bn in Q2 2018. 


Figure 3: Fixed Assets, Total Assets and Loans to Customers (& Ratio to assets)

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Source: NSE, Proshare Research


Figure 4: Net Assets

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Source: NSE, Proshare Research


Loan to deposits ratio increased between Q1’17 and Q3’17 by an average of 118%, and dipped sharply thereafter to 3.6% in Q4 2017 as a result of the drastic drop in loan and advances to customers by -96.8% in Q4 2017. Moreover, Q2 2018 results show slight improvement in loans to deposit to 4.9%. 

On the other hand, customer deposits increased marginally by 3.09% in Q2 2018 compared to Q2 2017 figure and by 3.63% compared to Q4 2017 figure. Apparently, the bank became aggressively prudent in granting loans to customers as reflected in FY 2017 financials. Consequently, total assets fell by -68.2% in Q4 2017 and -59.77% in Q2 2018 while total liabilities declined marginally by -2.7% in FY2017 and increased by 10% in Q2 2018.


Figure 5: Total Liabilities, Deposits and Loan to Deposits

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Source: NSE, Proshare Research


On the back of the decline in after-tax loss recorded in Q4 2017, return on asset declined from 0.51 % in Q3’17 to -9.5% in Q4’17 but quickly turned upward on the V curve in Q2 2018 to 0.25%. The improvement in the bank’s performance in Q2 2018 compared to FY 2017 is at some cost as reflected in the sharp increase in its cost-income ratio from 44.90% in FY 2017 to 93.19% in Q2 2018.


Figure 6: Return on Assets and Cost to Income Ratio

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Source: NSE, Proshare Research 


While the bank’s cost to income ratio dropped consistently QoQ in 2017 before spiking in Q2 2018, it cost to asset ratio, however, continued to increase consistently all through 2017. The 5.28% cost to asset ratio recorded in Q2 2018 is quite higher than the ratio recorded in the first three quarters of 2017 which was 3.85% as at Q3 2017 before hitting 15.63% in FY2017.


Figure 7: Cost to Assets Ratio

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Source: Proshare Research 


Technical Analysis 

Unity Bank Plc’s share price has declined consistently from its 2018 peak of N1.92k attained on February 12th, 2018 to halt the bullish run. However, its YTD performance with 70% growth recorded at N0.90K attained on Tuesday 24th July, 2018 reflects that the stock currently trades at its 26-week low. Additionally, the stock’s current price is also trading below its 20-Day Moving Average and 50-Day Moving Average as shown in figure 6.


Figure 6: Share Price and Cumulative Simple Moving Averages (CSMA)

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Source: NSE, Proshare Research 


Peer Comparison: Tier 2 Banks YTD Price Performance 

A cursory review of the tier 2 bank YTD price performance as at 24th July, 2018 reflected that Unity Bank Plc topped with 70% YTD return. This is closely followed by Wema Bank  and Skye Bank Plc with 44% and 34% YTD returns respectively while Fidelity Bank Plc recorded the least with -30% negative YTD return.


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Source: NSE, Proshare Research 














































Source: NSE, Proshare Research 


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Prospects for the Bank 

With the bold steps taken by the bank, it would appear that the bank is setting itself up for a viability and an investor interest status that would enable it significantly enhance its liquidity and working capital for competitive value. 

With about 35% liquidity ratio attained in FY 2017 and with the injection of fund based on its recapitalization plan, the bank has placed itself in a position that makes it investor friendly. 

Off a 0% NPL ratio, the bank is poised to achieve growth in revenue and profitability, enhanced by a revamped credit management process which taken together, should help it achieve a capital adequacy ratio that is well above the regulatory minimum requirements with the anticipated capital injection it has been working on to deliver for the bank a positive shareholders’ funds.


The steps taken in 2017 is thus a positive step in the right direction. 



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Source: NSE, Proshare Research




1.       IFRS 9, Financial instruments: Understanding the basics - PwC

2.      IFRS 9 Financial Instruments - IFRS Foundation

3.      Basel II - Investopedia

4.      Capital Adequacy Ratio (CAR) & Basel III - Requirements | Investopedia 

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