Unity Bank 9M 2020 Results Shows a Spring in Profits


Tuesday, November 24, 2020, / 04:30 PM / By Adaeze Nwachukwu, Proshare Research / Header Image Credit: Unity bank


Unity bank improved its corporate performance for 9months 2020, despite its shareholders' fund still being in the red. The deposit money bank's latest result shows improvements in both top and bottom-line positions, with the bank diversifying its loan book and getting involved in strategic businesses that may yield improved their production output in the course of the next few quarters. Managers of the bank noted that "the bank has remained focused on its niche market, which is agribusiness, it has also continued to grow its brand franchise in many areas of the retail market by promoting and leveraging its Agriculture value businesses".



  • Gross income grew by +6.198% year-on-year (Y-o-Y) from N1.61bn in 9months 2019 to N1.71bn in 9months 2020. The bank was able to expand its top line as it deepened its business into new markets.
  • Total assets increased by +40.15% Y-o-Y, from N300.29bn to N420.87bn in 9months 2020. The rise in lending activity in the year despite the challenges of the coronavirus pandemic helped the bank increase its total assets.
  • Profit before tax (PBT) recorded an increase of +6.19% for 9months 2020, from N1.61bn recorded in the corresponding period of 2019 to N1.71bn.
  • Net interest income rose by +13.74% Y-o-Y for 9months 2020. The bank's significant increase in net interest income suggests an improvement in its core lending activities but intermediated loans can only be a short-term method of building the bank's loan book and stabilizing its net interest income. 
  • Fees and commission grew Y-o-Y by +8.26% as against N3.92bn recorded in 9months 2019, implying an improvement in credit-related non-interest earnings and income from customer trading transactions, seeing that deposit from customers increased by +30.82%.

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All About The Profit



The gross income of the bank grew by +8.48% Y-o-Y from N31.26bn in 9months 2019 to N33.91bn in 9months 2020. Growth in gross income was achieved on the back of +13.74% in interest income despite the +6.42% growth in interest expense. Also, fees and commission grew by +8.26% Y-o-Y which was driven by +155.0% growth in credit-related fees and commission (see chart 1 below).


Translating to USD terms, the gross income of the Bank declined by -14.43% from $101.84m in 9months 2019 to $88.99m in 9months 2020, while foreign currency translation cost $21.48m as a result of the devaluation of the domestic currency. The CBN official rate was used in the conversion during the different periods.


Chart 1: Unity Bank Gross Income 9M 2016 - 9M 2020 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research


The lenders Profit before tax (PBT) increased Y-o-Y by +6.19% from N1.61bn in 9months 2019 to N1.71bn in 9months 2020. This was majorly driven by +12.10% growth in foreign exchange revaluation, that is net trading income as stated in the financial statement, and a +10.38% Y-o-Y growth in operating income. This was achieved despite the +14.75% Y-o-Y increase in operating expense (see chart 2 below).


Contrary to the growth in PBT in Naira terms, in USD terms, PBT declined by -14.46% Y-o-Y from $5.25m in 9months 2019 to $4.49m in 9months 2020 while foreign currency translation cost for the period was $1.08mn as a result of the devaluation of the local currency.


Chart 2: Unity Bank Profit Before Tax 9M 2016 - 9M 2020 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research


Backing Away From Bad Loans


Credit Loss Expense

The retail lender posted an improvement in its credit loss expense for the period, credit loss expense declined by -68.86% Y-o-Y, from N684.55m in 9months 2019 to N213.17m in 9months 2020, the decline in credit loss expense could be attributed to an improvement in the asset quality which was driven by an improvement and diversification in the loan book of the bank (see chart 3 below).



Chart 3: Unity Bank Credit Loss Expense 9M 2016 - 9M 2020 (N'm)

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Source: Unity Bank Financial Statement, Proshare Research

Lending and Deposit

The bank's loan-to-deposit ratio (LDR) rose over the period although it remained below the regulatory minimum. LDR increased to 30.48% in 9months 2020 from 24.23% in 9months 2019. Loans to customers increased significantly by +48.50% while total deposits grew by +18.07% Y-o-Y (see chart 4 below).


Chart 4: Unity Bank Loan-to-Deposit Ratio 9M 2016 - 9M 2020

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Source: Unity Bank Financial Statement, Proshare Research



The cost-to-income ratio increased marginally to 89% in 9months 2020 from 86% in 9months 2019. This was driven by a +14.75% Y-o-Y increase in operating expense while operating income increased by +10.38% which could not cover the growth in operational expenses. Growth in operating expense was driven by a +13.73% increase in administrative expense and a +21.45% increase in regulatory fees which include NDIC premium and AMCON fees (see chart 5 below).


Chart 6: Unity Bank Cost-to-Income Ratio 9M 2016 - 9M 2020

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Source: Unity Bank Financial Statement, Proshare Research


Total Assets

The growth in total assets of the bank is a product of upside inferences. The lender has been  cuddled by both macroeconomic and operational factors. For a year-on-year period total assets rose by +40.15% to N420.87bn in 9months 2020. Growth in total assets was driven by a rise in cash balances with the bank which grew by +552.49%, total financial investment (both at amortized cost and the face value of other comprehensive income (FVOCI)) grew by +14.46% while property and equipment increased by +8.63% (see chart 4 below).


In USD terms, total assets grew by +12.90% from $978.41m in 9months 2019 to $1.10bn in 9months 2020 using the official CBN rate during both periods.


Chart 7: Unity Bank Total Assets 9M 2016 - 9M 2020 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research


Total Shareholders Fund

The agribusiness-focused lender still has a negative shareholders fund which has been  a point of concern for local and foreign investors that are trying to phantom how a bank with sustained negative capital over the last three years could remain in business. Year-on-year shareholders' funds declined by +14.73% from a negative value of N242.57bn in 9 months 2019 to N278.3bn in 9months 2020 (see chart 5 below).


Chart 9: Unity Bank Total Shareholders Fund 9M 2016 - 9M 2020 (N'bn)

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Source: Unity Bank Financial Statement, Proshare Research


A Profit Gun without Equity Bullets

Unity banks' steady growth in top-line numbers has been noted by analysts but concerns remain about its negative shareholder funds. As things stand the bank's return on equity (RoE) is negative putting investors in a quandary as to the banks equity valuation. Best practice denominator management would require that the bank quickly recapitalizes to stabilize its operations. A foreign bank analyst who made inquiries about the bank asked, "how does a bank have negative shareholder funds of N278.64bn and still stay in business?" The question is difficult to answer, but what is obvious is that the bank needs to move quickly to conclude a capital raise and improve operating returns even though in the short-term its equity returns will dip.


Of equal concern is the rise in the bank's deposit liabilities which are possibly tied to institutional funds used for on-lending to designated economic sectors, this is in addition to secondary deposits by loan beneficiaries. As good as this might seem at first glance, the bank may need to quickly grow its organic deposit base by increasing deposit market share as its lending activities expand.



Illustration 1 Unity Bank's Generic Competitive Strategy

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The queer structure of Unity bank's statement of financial position and its improving profit and loss account may leave analysts in a haze, but the confusion may clear if, as may be expected, a previously tolerant market regulator becomes less lenient. As noted in Proshare's H1 analysis of the bank, "Driving on fumes can be heart-pumping and exhilarating but it is not the best way to run a car, likewise making profit with negative shareholders funds might give a sense of invincibility until the cold fingers of reality grips the banks operations or the Central Bank of Nigeria (CBN) suddenly wakes up to a new regulatory impetus".  

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