By FELIX OLOYEDE
Union Bank would have to do more to grow its revenue in 2019 financial year to make investors indeed happy and compete favourably among its peers.
Although the bank grew its profit-before-tax by 33 per cent to ₦18.5billion in 2018 from ₦13.9bn as at December 2017, bolstered by impairment provision which was down by -113 per cent year-on-year to N3.4 billion, many see this feat as a flash in a pan as it is not sustainable if this trend continues.
It was hit by the slow pace of economic growth in the country, causing its gross earnings declined by -11 per cent to ₦145.5 billion compared to ₦163.8 billion in the previous year, drag down by lower income from interest from loans and advances, which dropped -14.72 per cent to N77.99 billion in 2018.
In all, interest income dipped -17 per cent to N55.4 billion, while non-interest income contracted by -11 per cent to N35.2 billion, due to lower gain from foreign exchange trading.
But despite the decline in revenue, Union Bank operating expenses was up from ₦66.7 billion in 2017 to ₦75.0 billion in December 2018.
Gross earnings declined which was due to a dismal performance in both the interest income and the non-interest income, explained Moses Ojo, Head, Research and Business Development, PanAfrican Capital to Business Hallmark.
“The pre-tax profit was a result of lower credit impairment, which is not sustainable. Also, the cost/income ratio increased compared to the previous year, this lend credence to the increased activities of that are operating driving cost such as recruitment and rebranding.
“The weak performance of the bank impacted the net asset value and earnings per share as well,” he noted.
The bank’s Net Asset Value per share declined by -34.27 per cent to ₦7.75, instead to ₦11.79 in 2017, while Earnings Per Share was lower by -15.28 per cent 61k in 2018 against 72k in the previous year.
However, Union Bank profit-after-tax rose by 39 per cent to ₦18.1 billion instead of ₦13 billion, helped by the credit impairment provision it made last year.
The lender’s impairment charges were down -11 per cent to N35.2 billion, compared to N39.3 billion in the corresponding period in 2017.
Meanwhile, the performance of Union Bank is sustainable, posited Ayodele Akinwunmi, Head, Research, FSDH Merchant in a text message to Business Hallmark.
“The quality of its loans and other earning assets have been improving in the last few years. So it positioned to earn more interest income very soon,” he argued.
The bank was able to grow its total assets marginally by 1 per cent to ₦1.46 trillion despite gross loans and advances dropping -7 per cent to N519.7 billion in 2018.
Customer Deposits rose 7 per cent to N857.6 billion, while Shareholders’ Funds declined -34 per cent to ₦225.6 billion from ₦337.7 billion in 2017.
It lowered it risk appetite during this period as it cut gross loans and advances by -7 per cent to ₦519.75 billion.
And expectedly, loan to deposit ratio reduced by -9 per cent to 60.6 per cent, compared to 69.9 per cent.
The bank made significant progress in cutting its non-performing loans -11 per cent to 8.7 per cent in 2018 against 19.8 per cent in the preceding year.
“Through an aggressive focus on recoveries and recognising fully provisioned loans on our books, we successfully reduced the Bank’s NPL ratio, which is now down to 8.1% in 2018 from 20.8% at the end of 2017, in line with guidance provided at the start of the year. In 2019, we will continue to maintain focus on recoveries while prudently rebuilding our loan book and maintaining a conservative risk profile,” said Emeka Emuwa, Managing Director.
He noted that the bank we successfully initiated the first tranche of its local currency bond programme to raise ₦13.5 billion.
“In 2019, we will double-down on our productivity efforts to deliver our financial targets. We are harnessing synergies across our business segments to ensure we maximize opportunities across entire value chains, while centralising key business and operational functions for better efficiency, and prioritizing customer experience across all our touchpoints,” he added.
The lender’s Return on Tangible Equity (ROTE) improved to 9.6 per cent from 6.2 per cent in 2017 demonstrating long-term shareholder value enhancement, explained Joe Mbulu, Chief Financial Officer, Union Bank.
“We will further support future growth and creation of high-quality risk assets in 2019 through a Tier II capital raise. This will boost our Capital Adequacy Ratio, which is currently at 16.4 per cent and remains above the regulatory limit.”
Union Bank spent 20 per cent to earn its revenue in 2018 as its cost-to-income climbed to 82.90 per cent during this period, compared to 63 per cent.
However, Return on Assets improved marginally by 0.3 per cent to 1.30 per cent and Return on Tangible Equity was also up 3.4 per cent to 9.6 per cent last year.
Union Bank stocks has made 5.26 per cent return in the last year and in the last four months, it has appreciated 25 per cent to ₦7.
The bank had enough cash and near cash to do business last year, although its liquidity ratio rose just marginally by 1 per cent to 39 per cent, above the 30 per cent benchmark set by the regulator.
Meanwhile, its cash adequacy ratio lower -0.3 per cent to 16.4 per cent during the period under review.