Unity Bank Plc – Profitability Improves; LDR Still Low At 29.15% in H1 2019

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Wednesday, July 31,  2019 1:30PM / Proshare Research 

 

Highlights

  • Gross earnings grew by +17.5%
  • Operational expenses (OPEX) fell by -11.95%
  • Shareholders fund remained negative
  • Profit before tax grew by over +90%
  • Loans and advances have grown steadily
  • Customer deposit has fluctuated over time, perhaps reflecting anxiety
  • LDR has a low base of  29% for Q2 2019 (24% for Q1 2019) as against the statutory minimum of 60% by September 2019 


Bank Pumps Earning Machine in Q2 2019, as OPEX Falls

Unity Bank Plc has released its Q2 2019 unaudited results to the Nigerian Stock Exchange, NSE. The bank sustained consistency in growing gross earnings as it recorded +17.5% growth in H1 2019 to close the half year period with a gross earning of N20.55bn as against N17.49bn in H1 2018. 

The bank’s operational expenses fell by -11.95% to N9.15bn in H1 2019 from N10.39bn in H1 2018. The drop in OPEX reflected cost reduction measures put in place by the bank’s management, the efforts at smothering cost has yielded positive results and supported effort at a bank turnaround. 

Net Interest Income, however, dropped by -4.25%. The 55.35% growth recorded in Interest Expense contributed to this drop. Also, the +85% increase in debt and borrowed funds contributed to the decline recorded in Net Interest Income.


Chart 1 Gross Earnings, Net Interest Income and OPEX Q2 2018-Q2 2019

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Source: Unity Bank unaudited Q2 Accounts 2019

 

Profitability 

The bank’s pre-tax profit grew significantly by +96.3% in H1 2019 while its Q-o-Q growth was relatively low with +4.1% growth recorded. The bank’s PBT rose to N1.05bn in H1 2019 from N536m in H1 2018.

 

Chart 2 Profit Before Tax Q2 2018-Q2 2019

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Source: Unity Bank unaudited Q2 Accounts 2019

 

Similarly, profit after tax (PAT) grew by +96.3% which is reflective of the growth in its pre-tax profit as it recorded N968m PAT in H1 2019 compared to N493m in H1 2018.

 

Chart 3 Profit After Tax Q2 2018-Q2 2019

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Source: Unity Bank unaudited Q2 Accounts 2019

 

Balance Sheet Blues

 

Total Assets and Shareholders’ Fund

The bank’s total asset grew by +36% in H1 2019 as it glided up from N196.75bn in H1 2018 to N267.79bn in H1 2019. However, negative shareholder fund recorded by the bank as a result of poor legacy loans written-off continue to plague its fortunes. Its shareholders fund was -N243.15bn in H1 2019 as against - N240.53bn in H1 2018; reflecting, a negative rise of +1.09%.

 

Chart 4  Total Assets/Shareholders Fund Q2 2018-Q2 2019

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Source: Unity Bank unaudited Q2 Accounts 2019, Proshare Research

 

Unity Bank’s loans and advances have been grown steadily on a quarterly basis while customer deposits have fluctuated. Despite the Q-0-Q drop in the bank’s deposits in Q2 2019, it loans and advances grew over the period.

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The bank’s Loan to deposit ratio (LDR) also continued to grow Q-0-Q and in tandem with the growth in the bank’s loans and advances. The bank’s LDR stood at 29.15% in H1 2019 compared to 4.89% in H1 2018. 

However, the current LDR recorded is remains extremely low relative to the minimum statutory LDR of 60% set by the industry regulator and which is set to take effect from September 30, 2019.

 

Chart 5  Customer Loans and Deposits Q2 2018-Q2 2019

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Source: Unity Bank unaudited Q2 Accounts 2019, Proshare Research

 

Chart 6 Loan-to-Deposit Ratio (LDR) Q2 2018-Q2 2019

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Source: Unity Bank unaudited Q2 Accounts 2019


Peer Comparison: Tier 2 Banks H1 2019 Price Performance

A review of the tier 2 banks H1 2019 price performance mirrored that Union Bank of Nigeria Plc topped with 22% return. This is closely followed by Sterling Bank  and Wema Bank Plc with 16% and 5% returns respectively while Unity Bank Plc recorded the least with -39% negative return. 

 

Chart 7 Share Price Performance of Tier2 Banks Listed on The NSE H1 2019

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Source: NSE, Proshare Research

 

Table 1 Share price Performance of Listed Tier 2 Banks on The NSE

Bank

31-Dec-18

28-Jun-19

H1 (%) Chg

UBN

5.60

6.85

22%

STERLNBANK

1.90

2.20

16%

WEMABANK

0.63

0.66

5%

FCMB

1.89

1.63

-14%

STANBIC

47.95

40.25

-16%

FIDELITYBK

2.03

1.70

-16%

ETI

14.00

11.00

-21%

UNITYBNK

1.07

0.65

-39%


Source: NSE, Proshare Research 

 

Appendix

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Unity Bank Statement of Financial Position Highlight (N'm)

 

Q2' 2019 (N'm)

Q2' 2018 (N'm)

% change

Loans & advances

70,617

12,782

452.47%

Total Asset

267,790

196,751

36.11%

Customer Deposits

242,220

261,459

-7.36%

Total Liabilities

510,939

436,831

16.96%

Shareholders' Fund

                      (243,149)

                 (240,526)

-1.09%

 

Unity Bank Key Metrics Highlight (N'm)

 

Q2' 2019

Q2' 2018

Net Interest Margin

14.22%

8.06%

Yield

25.87%

18.78%

Cost of Fund

3.57%

4.76%

Return on Asset

0.59%

0.82%

Cost of Risk

4.27%

1.66%

Cost to Income

95.10%

89.69%

Liquidity

33.85%

36.84%

Earnings Assets/Total Assets

61.89%

73.99%

Loan to Deposit

4.95%

29.15%

Low Cost Deposit

70.52%

71.25%

Interest Income/Gross Earnings

80.54%

84.06%

Non Interest Income/Gross Earnings

19.46%

15.94%

 

Unity Bank Fundamental Analysis (N'm)

 

Q2' 2019

Q2' 2018

% change

Earnings Per Share (EPS) (kobo)

17.99

9.16

96.33%

P.E (x)

3.61

10.58

-65.87%

PBT Margin (%)

0.05

0.03

67.14%

PAT Margin (%)

0.05

0.03

67.14%

Net Asset Per Share (N)

                               (21)

                          (21)

-1.09%

ROA%

0.79%

0.55%

43.85%

ROE %

-0.87%

-0.45%

-93.68%

 

 

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For further enquiries concerning this report you may contact either of the following individuals:

 

Saheed Kiaribe                                                                              Teslim Shitta-Bey

research@proshareng.com                                                        content@proshareng.com 

 

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