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Friday, November 20, 2020, /04:50 PM / by Adaeze Nwachukwu, Proshare Research / Header Image Credit: Union Bank of Nigeria Plc
The advent
of the COVID-19 pandemic created a challenging operating environment for the
banking industry, however, Union Bank of Nigeria Plc one of the
longest-standing financial institutions in the industry recorded growth in its top
and bottom-line earnings as well as witnessing a bulking up of its statement of
financial position.
Key Highlights
Profitability
Gross earnings for the Group increased Year-on-Year (Y-o-Y) by +3.61% from N117.15bn in 9months
2019 to N121.38bn in 9months 2020. The growth in gross earnings was driven by a
+0.51% rise in interest income
and a -9.82% decline in interest
expense. Also, non-interest income for the period grew significantly by +26.15% (see chart 1 below).
In USD terms, revenue for 9months 2020 was US$318.59m against US$381.71m in 9months 2019, in comparison to the growth recorded in naira terms, revenue declined by -16.53% Y-o-Y (using the CBN official rate during the respective periods) while foreign currency translation cost for the period was US$76.9m, that is, Union Bank Plc lost US$76.9m in gross earnings as a result of the devaluation of the domestic currency.
Chart 1: Union Bank's Gross
Earnings 2016 - 2020 (N'bn)
Source: Union Bank
Financial Statement, Proshare Research
Profit before tax saw an upward move over
the period, however, in 9months 2020, PBT dropped marginally on the back of a
tough macroeconomic environment caused by the COVID-19 pandemic. PBT for
9months 2020 slumped -1.34% from N15.64bn in 9months 2019 to
N15.44bn in 9months 2020. the marginal decline in PBT was driven by a +0.34% increase in operating expenses despite the +1.86% increase in operating income (see chart 2 below).
The banking group recorded a steeper fall
in PBT when converted to dollar terms, PBT declined by -20.52% in 9months 2020, from US$50.97m in 9months 2019 to US$40.51m using
the official exchange rate, while the foreign currency translation cost of the
decline in the naira to dollar exchange value was US$9.78m.
Chart 2: Union Bank's Profit
Before Tax 2016 - 2020 (N'bn)
Source: Union Bank
Financial Statement, Proshare Research
Impairment
charges of the group worsened for the period, from recoveries made in 9months
2019 to impairment losses booked in 9months 2020. The group recorded a -228.28% decline in impairment charges from a N4.75bn loan
recovery recorded in 9 months 2019 to an impairment loss of 6.09bn in 9months
2020 (see chart 3 below).
Chart 3: Union Bank's Impairment
Charges 2016 - 2020 (N'bn)
Source: Union Bank
Financial Statement, Proshare Research
Asset
Quality
Union Bank
Plc recorded significant improvement in its asset quality, non-performing loans
(NPLs) dropped to 3.60% in 9months 2020 as against
8.0% in 9months 2019. This was achieved on
the back of “ongoing efforts to diversify the loan book of the bank to
include viable businesses and households†as stated by managers of the bank. The latest result released by the banking
group shows that general commerce makes up 34%
of the total NPL ratio, then retail businesses make up 32%,
the Oil &Gas sector raked up 6% of the
total NPL ratio of the bank (see chart 4 below).
Chart 4: Union Bank's
Non-Performing Loan 2016 - 2020
Source: Union Bank
Financial Statement, Proshare Research
Total assets
of Union Bank has seen continuous growth over the period, for 9months 2020,
total assets grew by +24.13% from N1.8btrn
in 9months 2019 to N2.24trn in 9months 2020. This was majorly driven by growth
in loans and advances to customers, cash reserve requirement, and investment
securities, which increased by +18.63%, +78.87%, and +23.36%
respectively (see chart 5 below).
Translating
to US dollars, the percentage change in total assets was flat, in other words,
total assets for both periods was US$5.87bn.
Chart 5: Union Bank's Total Assets
2016 - 2020 (N'trn)
Source: Union Bank
Financial Statement, Proshare Research
Total
Equity
Shareholders'
fund for the period grew by +8.45% from
N241.99bn in 9months 2019 to N262.45bn in 9months 2020. This was majorly driven
by a +18.70% increase in other reserves
despite a -26.53% decline in share premium and
share capital (see chart 6 below).
Chart 6: Union Banks Total Equity
2016 - 2020 (N'bn)
Source: Union Bank
Financial Statement, Proshare Research
Cost-to-Income
Ratio
The
cost-to-income ratio declined to 77.10% in 9months 2020 against 78.3% in
9months 2019, this was on the back of the Bank's focus on cost management as
stated in its financial statement. Operating cost increased marginally by +0.34% while operating income also increased slightly
by +1.89% for the period (see chart 7
below).
Chart 7: Union Bank's
Cost-to-Income Ratio 2016 - 2020
Source: Union Bank
Financial Statement, Proshare Research
Investor Ratio
Return on equity declined marginally to 8.60% in 9months 2020 from 9.80%
in 9months 2019 (see chart 8 below).
Chart 8: Union Bank's Return on
Equity 2016 - 2020
Source: Union Bank
Financial Statement, Proshare Research
Return on assets declined in 9months 2020 to 1.1% from 1.4% in 9months
2019, the lowest it has been in the same period over the last 5 years (see chart 9 below).
Chart 9: Union Bank's Return on
Assets 2016 - 2020
Source: Union Bank
Financial Statement, Proshare Research
Union Bank may not be back at the peak performance levels and corporate
strength of two decades ago but the banking group is gradually easing back to
prime corporate healthiness as it cuts back its troubled loan assets and
gradually grows its loan book as it slashes down its cost-to-income ratio.
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