Union Bank: The stallion reawakens
After a half century era of dominance of the local banking system up until the mid-1980’s, the bank has gradually seen its relative market disappear. Nevertheless, in the last two years, the institution has regained lost vigour and begun to sprint at an impressive pace with gross earnings and operating margins growing aggressively.
In an era of recession where it has been difficult for businesses to continue to exist as going concerns UBN has bucked common boardroom trends by showing a capacity to take on the vigours of turning in strong quarterly performances.
This has been despite a national GDP that has plunged from -2.01 per cent in the second quarter of 2016 to -2.24 per cent in the third quarter of the year.
Nevertheless, despite the persistent plunge in the economy, the bank has been able to gallop through the tide with a strong third quarter showing in profit.
Leaning against economy-wide challenges of rampant inflation and dwindling access to foreign exchange, the bank was still able to grow its profit after tax (PAT) by 27 per cent to N12.3 billion in Q3 2016 from N9.7 billion in the corresponding period last year.
The bank achieved the feat regardless of troubling headwinds posed by declining systemic liquidity and rising loan default rates which currently average about 12 per cent industry wide.
A deep look at the bank’s third quarter result for the year showed that its performance was buoyed by its non-interest revenue, which grew by 28% to ₦21.4billion compared to ₦16.7 billion posted in the third quarter of 2015.
The bank’s gross revenue in Q3 2016 also went up by 11% to ₦90.6 billion compared to the N82 billion raked up in the comparable period of 2015.
The 14 per cent improvement in the bank’s assert yields influenced its interest income to rise by 6 per cent to N69.2 billion compared to N65.3 billion it earned at this last year.
The bank was able to cut back interest expense by 14 per cent to ₦22.8bn as its primary cost of fund went down to 5.27% in Q3 2016 from 6.58% in Q3 2015, its operating expense increases slightly by 3.4 per cent to ₦42.7bn in spite current inflationary pressures.
Union Bank’s gross loans rose by 39 per cent to ₦515.4bn in nine months in 2016 against ₦370.9.0bn in Dec 2015, its customer deposits also increased by 9% to ₦618.30bn within the period under review (Dec 2015: ₦569.1bn) caused by the bank’s financial inclusion initiatives, enhanced customer experience and new/improved product offerings.
Meanwhile, the downturn in the country’s economy, propelled the lender’s impairment charges to climb up by ₦8.4bn to ₦12.8bn (₦4.4bn in 9M 2015) with NPL Ratio increasing to 9.4% (7.0% in Dec 2015).
The bank’s momentum is strongly up beat again after the setback it experienced when it almost went distressed a few years back. This is evidenced in its gross earnings of N118.4 billion for the financial year ended December 31, 2015 against N109.8 billion the bank declared in 2014, showing an increase of eight per cent.
However, the bank’s profit before tax dropped to N18.1 billion compared with N20.7 billion posted in the preceding period of 2014 including gain on sale of subsidiaries.
Net interest income grew by six per cent to N53.8 billion against N50.6 billion in 2014, while asset yield stood at 16.4 per cent compared with 14.9 per cent in the previous year.
Its expenses, according to the bank, dropped by two per cent to N56 billion as against N57.2 billion recorded in 2014 in spite of continuous investments in people, technology and infrastructure.
It explained that the downward trend in expenses was achieved since 2012 from various cost transformation initiatives.
Interestingly, customer deposits appreciated by 12 per cent from ₦507.4 billion to ₦569.1 billion in 2014, reflecting increased customer confidence, a re-energised brand and success of new products.
Commenting on the result, Emeka Emuwa, the bank’s Chief Executive Officer, said that 2015 was a challenging year across board with significant operational and economic headwinds.
Emuwa said that the bank maintained its focus on business and transformation initiatives which yielded desired results notwithstanding the difficult operating environment.
“With the launch of a re-energised brand identity and a retail model focused on customer needs, we increased our customer deposits by 12 per cent year-on-year,” he said.
In 2011, customers left the bank in droves after the bank was adjudged terminally ill by the apex bank, thus deposit went down by 33% while loan and advances bolted by 16%. This probably led to increased cost to income ratio which berthed at 183% while equity holders lost more than 420% of their investment.
Then the bank’s assets returned negatives, which invariably meant that it was better to have realized its non-current assets in the market safe for some un-priced goodwill.
Profit before tax had slipped into negative zone, with about N103 billion loss in the hole.
But after a restructuring program, its financials have become better and its business focus redefined. The bank is now having visibility and the brand confidence is stronger compared to past years.
The bank, in addition appears to appeal more to the youthful population now, than its traditional old generation character of rendering banking services. It rebranding are also reflected in the banking halls and can favourably compare with new generation banks standards.
“I initially thought the gleeful look was randomized, aiming at giving false brand appeal. But, everywhere I go, Union Bank Plc is actually wearing a new look.
The bank rebranding program is in no doubt a feat worth celebrating”, Mr. Jide Famodun associate at LSIntelligence team had told Business Hallmark.
The bank which currently has 16.9 billion shares in issue declared no dividend in 2015. Investors are not however worried but hopeful of a bigger thing to come. Union Global Partner limited holds 65 percent of equity investment, Atlas Mara 20.9 percent while diverse shareholders have 14.1 percent.
After 2009 CBN intervention, the bank emerged from the burden of toxic assets, poor governance as well as weak leadership etc. and began to chart a new and straight path to profitability devoid of funfair. The bank’s new brand exudes energy which reflects the ability of some of the individuals’ skills sets working with Mr. Emuwa.
In every respect, the bank strategic direction has been refined, and the brand revitalized but it has to contend with harsh economic environment and the tough rivalry in the industry.
“Union Bank’s restructuring, rebranding and reconnecting to the market has started yielding result. Good result for that matter! The bank’s leadership effort to re-focus was done professionally, no noise but the statement is clear to stakeholders”; analysts told Business Hallmark. The stallion has become lighter, and it could fly as well as run.
“I will like to say congratulations to Union Bank Plc; the horse cannot only run but also fly. Survival-ability of Union Bank in a very tough banking terrain has been a combination of determination and hard work”; Mr. Ogochukwu Ndubuisi a Brand and Marketing Consultant, added.
The improved performance recorded in the first quarter of financial year 2016 was a function of cost reduction strategy. From its numbers, it is evident that UBN recorded flat gross earnings of N27.3 billion for the first quarter ended March 31, 2016. However, profit after tax (PAT) jumped by 108 per cent from N2.2 billion to N4.6 billion.
However, in 2012, Union Bank of Nigeria Plc had risked delisting following its violation of listing rules, which required quoted companies to have minimum of 25 per cent held by the investing public.
The listing rules of the Nigerian Stock Exchange stipulate that for a company to remain listed, 25 per cent of its shares must be controlled by the investing public.
Details showed that only 16 per cent of the Union Bank shares had been held by the investing public, while the remaining 84 per cent are not available for trading as they are being held by Union Global Partners (core investors) and the Asset Management Corporation of Nigeria (AMCON).
However, many stakeholders and shareholders have expressed worry that they are not getting adequate information on the banks plans for the future.
Whereas investors are happy with the third quarter results of the bank having grown its profit by 27% but they are anxious to know how much dividend is there for them after the sacrifice of going empty handed last year, can they expect something in line with the last dividend payout before the bank suspended payment in 2015?
They also want to know what plans the bank management has towards rebuffing strong economic headwinds that seem to be nudging into the New Year 2017?
A number of banks were caught with their pants hanging around their legs in 2016 as several deposit money institutions got hit by over exposure to certain sectors of the economy, does Union Bank plan a restructuring of its global loan portfolio in the New Year and which sector or sectors are likely to be favoured? These in addition to whether the bank is likely to adopt new policies to handle delinquent loans and reduce the ratio of its loan loss provisions to its average earning assets?
Business Hallmark’s efforts to get response from the bank on some of its plans did not get any answers as calls, text messages and emails made by our correspondent were not responded to.