Union Bank 9 Months 2020 Results: Waking Up to New Opportunities, But Working on Challenges

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Friday, November 20, 2020, /04:50 PM / by Adaeze Nwachukwu, Proshare Research / Header Image Credit: Union Bank of Nigeria Plc


 

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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

  • Gross Earnings grew by +3.61%, from N117.15bn to N121.38bn
  • Profit before tax for The Group declined by -1.34% from N15.64bn to N15.44bn in 9months 2020
  • Profit after tax declined by -0.81% from N15.64bn in the corresponding period in 2019 to N15.44bn.
  • Total Assets grew significantly by +24.13% from N1.80trn in 9months 2019 to N2.24trn in 9months 2020.
  • ROAE for the period was 8.60% against 9.80% in the previous year.
  • NPL ratio for the Group was 3.60% a significant decline from 8.0% in the same period in 2019.
  • Gross loans for The Bank grew by +14% from N595.3bn for FY 2019 to N678bn for 9months 2020.

 

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)

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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)

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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)

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Source: Union Bank Financial Statement, Proshare Research


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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

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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)

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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)

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Source: Union Bank Financial Statement, Proshare Research


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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

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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

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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

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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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