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Published On: Mon, Aug 15th, 2016

Unity bank profit plunges again, faces tough times 

Unity Bank, one of Nigeria’s oldest lenders, is battling for its life as it strives to remain profitable in the face of multiple challenges.

This becomes more worrisome, when a storm of financial uncertainty is blowing across the industry and the economy in general.

At a moment of these mounting challenges, Mrs Tomi Somefun, the new Managing Director of the bank is expected to navigate the affairs of a deeply ailing laggard out of trouble.

However, business experts believe that tough times define good business leaders around the world, a concept popularized by Robert Schiller, in his book When the going gets tough the tough get going.

For Mrs. Somefun, what could be more daunting than the job of turning red numbers to black and giving shareholders something to cheer in a technically recessed economy.

Like the overall economy, the bank may be swimming against the tide as profit after tax just went down by 70% in the first half of 2016. With the economy expected to end the year in negative GDP growth, prospect for the bank can only be dire.

Unity bank Plc vision is to be the retail bank of choice. But neither the bank’s operating structure nor its strategies align with this.  The bank recently got a new chief executive officer, after its erstwhile Chief resigned from taking the bank into the future. Though, the future is close enough, if not here already as technologies permeate major banking operation, the bank is in race against time.

Unity bank balance sheet size stood at N443.32 billion at the end of financial year 2015 coming from N373.93 billion in 2011. This means that the bank has been growing at 3.46% on the average of the five years. In 2015, its profit before tax went down by 83% from N13.64 billion to N2.34 billion. The profit was achieved by efforts of two MD/CEOs in a of ratio seven to five months at least.

Meanwhile, the bank total asset leaped to N467.57 billion at the end of first half in 2016. The increase in size was on the back of support garnered from 5% growth in loans and advances in the first half of 2016.

Very well, the bank is obviously trying to do some clean up as spotted in its result. There is possibility that the leadership may be doing some haircuts to its personnel cost.

Obviously, operating cost may be receiving some attention. Both cost drivers went down fairly in the first half. Personnel cost was reduced to N6.94 billion from N7.09 billion while credit losses provision stood at about N131 million as against N903.6 million it recorded in the corresponding year 2015.

Its first half result in 2016 took a beating, as net interest income lowered by 48% to N7.555 billion from N14.56 billion in the corresponding year. Also, the worse may not have been heard of the bank performance as its pretax profit bolted by 70% to N2.614 billion from N8.77 billion a year earlier.

The result in all ramifications reflects the very characteristic of the economic situation but to a greater extent the intrinsic competitive weakness of the bank itself.

On corporate governance, Unity Bank may need to do more. In its banking sector report 2015, Afrinvest, an investment banking firm, advised the bank management to gear efforts toward improvement in corporate disclosure.

There was an existing allegation, though Unity bank denied its existence but analysts still refuse to wish it away, of some distrust between the board and former CEO, Mr. Semenitari, which forced to resign after returning the bank to profitability in 2014; however, in 2015 the bank non-performing loans bloated?

To a certain extent, a deposit money bank technological infrastructure determines to a larger extent its placement in the retail market. This has not forged the bank competitive position; perhaps due to massive investment requirement. Analysts are of the opinion that the bank’s infrastructure is still at basic threshold.

Few banks are more complex, less transparent and easier to do business with than the Unity bank, a victim of amalgamation of strange bed-fellows in its ownership.

However, the recent banking regulation indicates that that is the only way to go.

For Unity bank that came to existence as a result of combined strengths and weaknesses, assets as well as liabilities of nine different banks in 2006, competitive horizon has not been in its favour. The bank is playing catch up with the industry tides, while its profit capability is lowest in the sector.

In the last few years, the banking industry has assumed a quite new dimension. Regulation and competition have become so tough and banking stock has become less tasty for investment purpose.

However, in spite of changing dynamism, banks are still rated differently.

In both retail and corporate segment, dimension of competitive rivalry has changed. Banking customers are demanding for the impossible. Regulators are watching mode of operation like a hawk to ensure no sharp practices. The Central Bank of Nigeria is hell bent on the quality of financial institutions, while energy sector is taking away profit expectation as need to increase provision against non performing loans.

In the midst of the tough operating business environment lies Unity Bank with total asset close to half a trillion Naira. At the retail end of the market, the bank is a marginal player without strong competitive edge. Most daunting part of its sector is the fact that it is competing with behemoths in the market. Over the last five years, the bank’s performance has being sliding below the industry profit line.

Unity bank is one of the few with strong capital base but without much business to do. Unlike some bank chiefs that are “indirectly” seeking potential partners, the bank’s leadership seems quite comfortably enough to maintaining status quo.

The bank total asset moved up by 7% in 2015 to N443.32 billion. In 2014, the bank assets berthed at N413.30 billion from N403.63 billion in 2013, having done about N395.7 billion in 2012. The bank had projected to increase asset to N441.02 billion but eventually achieved a total assets N443.32 billion.

However, financial year 2015 performance reflected that the bank is struggling as profit before taxation dropped by about 83%. The bank went through hard time in 2013 with massive non-performing loans. This was the situation apart from the fact that its operational cost was high.

Financial year 2014 smiled on the bank as it returned to profitability after it had declared N22.6 billion loss after tax. This came because of improve business performance in 2014, when gross earnings of the bank jerked up by 23% from N62.8 billion in 2013 to N77.3 billion.

The bank loan and advances grew N219.335 billion in 2014 from N189.04 billion in 2012. In 2013 when the bank declared a loss, it jerked up its loans portfolio to N195.229 billion and it achieved gross earnings of N62.827 billion.

Of this, it turned out a loss after tax of about N34 billion, but the shareholders funds slid to just about half of the value the bank had carried in 2012 to N28.212 billion from N51.457 billion in the corresponding year.

Deposits surged to N277.02 billion in 2014, having somersaulted from N303.27 billion in 2013. Treasury assets portfolio had moved up from N86.615 billion in 2012 to N116.046 billion in 2013.

The bank treasury assets were priced down to N106.852 billion in 2014, probably due to market volatility of portfolio divestment.

The then Managing Director/Chief Executive Officer, Mr. Henry Semenitari, performed a miracle. In 2014, the bank net interest margin soared to 13.4% from 9.5%.

The feat made the bank to lead the pack across the sector. But 2015 washed away the beauty of its numbers as major metrics went south.

The Bank posted gross earnings of N78.8 billion as against N77 billion it had achieved in the corresponding year 2014. Profit after Tax (PAT) dropped massively to N4.6 billion in 2015 as against N10.6 billion in the year 2014.

This seems to be fallout of the implementation of the single treasury account (TSA) which had a very direct impact on the bank operation due to the way its business was structured.

Unity Bank is known as one of the banks that have been in bed with government and especially Rivers State and others have substantial interest in the bank.

Also, the bank performance nosedived partially because its impairment charges rose to all time high with about 60% to N27bn in 2015 as against N17bn in 2014.

The new management of the bank could be resizing and de-risking the bank balance sheet.

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