Unity Bank AGM; Figuring Out Survival Pre-Pandemic


Tuesday, October 06, 2020 01:45 PM /by TheAnalyst/ Header Image Credit:  @UnityBankPlc

Key Highlights

  • Received the audited financial statement for the year ended 31st Dec. 2019, Directors' report, auditors' report, and audit committee
  • To re-elect directors
  • To authorize directors to fix remuneration of the audit committee
  • To elect members of the audit committee
  • To approve the remuneration of directors
  • The bank paid N18mn in penalties and contraventions in 2019 which is +157.14% higher than N7mn paid in the previous year.
  • Earnings grew by +29% despite a difficult financial year and coming from a loss position.
  • Customer deposit increased by N10bn in 2019


Unity Bank's financial results for 2019 exceeded analysts' expectations as the bank's profit numbers turned around from a loss of N7.69bn in FYE 2018 to a profit of N3.38bn in FYE 2019 representing a +148.21 growth Y-o-Y financial year. Regardless of the bank's strong profit before tax (PBT) growth between 2018 and 2019, a few areas of the bank's operations create a looming shadow of what may appear to be a reversal of the bank's fortunes. The fact that the bank has managed to survive three consecutive years of operations with negative shareholders fund above N250bn annually between 2017 and 2019 raises concerns over the bank's operational stability, or at least it should. 

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Earnings; Running Against the Grain

Despite the myriad problems the bank faced in 2019, its gross earnings rose by +28.69, rising from N34.65bn in FYE 2018 to N44.59bn in FYE 2019. The rise in gross earnings was a result of an increase in interest income, fees, and commissions.

Chart 1: Unity Bank Gross Earnings (N'bn) 2017-2019

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Source: Unity Bank Financial Statements, Proshare Research

Understanding the Profit Bounce

Unlike the case in the previous two years where the bank recorded a decline in its profit before tax, the bank's profit soared by +148.21% in FYE 2019. Its profit increased to N3.64bn in FYE 2019 from a loss of N7.55bn in FYE 2018. The rebound in profit was against the backdrop of an increase in net interest income from N13.97bn in 2018 to N16.49bn in 2019, while its operating expense declined to N19.57bn in 2019 from N20.71bn in 2018 (see Chart 2).


Chart 2Unity Bank PBT (N'bn) 2017-2019

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Source: Unity Bank Financial Statements, Proshare Research 

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Lending and Deposits; Walking the Knife Edge

Unity bank's LDR ratio rose by +40.37% in FYE 2019 from +17.8% in FYE 2018, however, this was 25% below the Central Bank of Nigeria's (CBN's) statutory ratio of 65% advised to banks in Q4 2019. A perusal of the bank's financials for 2019 reveals that the growth in its loans to customers was not matched by a corresponding growth in deposits received from customers. The bank's loans to customers increased by +135.93% while its deposit from customers increased by +40.63%The disparity between the growth of loans to customers and deposits from customers, raises the question of how Unity Bank was able to increase lending against slow growth in deposits?


Looking at where the lender is coming from, CBN gave the bank a concession in building its loan book to meet its LDR's responsibility. The bank intends to grow its loan book logically, strategically, and in critical sectors where the bank can get maximum profitability' said Mrs. Tomi Somefun, MD/CEO of Unity Bank during the 14th AGM.



Chart 4: Unity Bank LDR (%) 2017-2019

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Source: Unity Bank Financial Statements, Proshare Research

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A Bear in The Ceramics Shop

Unity bank's negative shareholder's fund has so far been a drag on the bank's capacity to grow its business, even though liquidity has not been a problem, its weak equity position has served as a hindrance to its ability to expand its business. Negative returns on equity (ROE) in the face of strong growth in earnings and profit remains a raging bull in a mid-sized ceramics shop (see Chart 5).


Chart 5: Unity Banks Shareholders Fund (N'bn) 2017-2019

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Source: Unity Bank Financial Statements, Proshare Research  

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Strategic Repositioning of L&As

A review of the bank's profit and loss account reveals that there was a major change in strategy. There was a major increase in risk assets, as its loans to customers rose from N44.1bn in 2018 to N104.02bn in 2019 (see Chart 8).


Chart 8: Unity Bank Loans and Advances to Customers (N'bn) 2017-2019

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Source: Unity Bank Financial Statements, Proshare Research

The loan growth was largely intervention loans for the CBN's Anchors Borrowers' Program (ABP), as its deposits from customers did not record any significant increase between FYE 2018 and FYE 2019. Its deposits from customers increased slightly to N257.69bn in FYE 2019 from N247.63bn in FYE 2018 (see Chart 9).


Chart 9: Unity Bank Deposit from Customers (N'bn) 2017-2019

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Source: Unity Bank Financial Statements, Proshare Research


The bank recorded significant growth in income from E-banking, it grew Y-o-Y by +277.35%, this was as a result of increased transactions from the digital platform of the bank. During the meeting, Mrs. Somefun mentioned the bank's digital platform as one of the continuity plans it would address in the face of the COVID-19 pandemic. The bank's e-channel experienced increased activity during the lockdowns induced by the COVID-19 pandemic.


A major problem unity bank will have to resolve quickly is its lack of equity capital, an inability to raise equity within the shortest period would either result in a takeover or a liquidation, Somefun and her team have their work cut out for them and few would show any envy. 



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