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Union Bank’s long walk to sustain profitability




20 years after it last led the pack of high-fliers in the banking industry, Union Bank, Nigeria’s acclaimed Stallion is back on the prowl again. Whereas its balance sheet may no longer glitter, however the bank’s current performance registers that, once again, it has presently left the region of Egypt for the promise of Canaan Land.

With a profit before tax of N12.1billion in the second quarter 2019, Union Bank appears most determined now to once again etch its mark in the minds of investors that it can also create wealth for its owners. The banking industry seems to be operating in one of the toughest times in Nigeria given the variegated challenges in both the macro and micro environments. Despite this, Union Bank achieved 3.4 per cent increase in profits as against N11.85billion of the corresponding period of 2018.

While investors are once again beginning to rave up their confidence in Union Bank in recent times, the lenders’ gross earnings dropped nine percent to N76.0 billion, compared to N83.3billion in H1 2018, due to decrease in average earnings assets.

its revenue showed that interest income dipped 8 per cent to ₦57.3billion (₦62.2bn in H1 2018), while non-interest income decreased 12 per cent to ₦18.7billion (₦21.1 billion in H1 2018); attributed to the volatility negatively impacting trading income, despite a 27 per cent growth in credit-related fees and 169 per cent growth in cash recoveries at N5.3 billion (N1.9 billion in H1 2018)

At the close of business in June 30, 2019, its net operating income slipped slightly down 2 per cent to ₦49.6billion (₦50.9 billion in H1 2018), but the bank was able to cut down its operating expenses by 4 per cent to ₦37.5 billion (₦39.2 billion in H1 2018) through its cost optimization programme – Project LEAP.

Poring through the bank’s books, its gross loans expanded by 8 per cent to ₦563.0bn (₦519.7 billion Dec 2018), driven by increased risk asset creation across priority economic sectors, its customer deposits also increased 4 per cent to ₦889.5 billion (₦857.6 billion December 2018).

Commenting on the results, Emeka Emuwa, CEO, Union Bank said: “Notwithstanding the realities of operating in a challenging economic environment, the Group delivered a 4 per cent growth in Profit Before Tax (PBT) to ₦12.1 billion from ₦11.7 billion in H1 2018.

To sustain growth in earnings, we remained steadfast in our commitment to delivering value and first-class customer experience to all our customers. We have developed a concerted and clear plan to increase our risk assets with our loan book growing by 8% to ₦563.0 billion compared to year-end 2018. The ability to take on more risk is hinged on our robust risk management and debt recovery processes working in sync which led to recoveries of over N5 billion in the period.

We successfully closed our Series 3, 10-year ₦30 billion bond in June, as part of our ₦100 billion debt capital programme. This series, which was once again fully subscribed, is the largest 10-year bond issued by a Nigerian corporate to date. This further reinforces the confidence of the investor community in Union Bank. With this new injection of tier 2 capital, we are well positioned to deliver on our growth strategy and priorities.

Given the inclement operating environment Union Bank has survived and believes that the future is sure to be better for the lender.

“Looking ahead, we will continue to focus on opportunities to deliver our simpler, smarter banking promise to ‘value”, Mr. Emuwa added.

While its first quarter 2019 remained unchanged with a profit before tax of N5.4billion compared to that of 2018, the bank posted a solid balance sheet with a profit growth of 33 per cent, coming to peak at N18.5 billion for the year ended 2018, and up from N13.9 billion. This was bolstered by its impairment provision which was down by -113 per cent year on year to N3.4 billion.

It was able also to trim down Non-performing loans to N7.8 percent in the first quarter while it searched to get back its groove in a challenging environment. Whereas analysts believe that the Stallion will reign again, others argue that the road is tough and littered with land mines. Some of them also go ahead to suggest that the results which have trickled in from the industry signposts a challenging future for the banking industry.

There has been a debate on Broad Street as to whether Union Bank Plc is aggressively regaining its stature in the industry before the industry crisis in 2009.

Opinions have been varied in the debate. Industry commentators believe that the year 2019 has not been favourable to businesses in Nigeria. Inflation has hovered between 11.4 per cent and 12 per cent having retraced its steps from the 18 per cent it attained in 2016. The economy has remained weak at 2.01 per cent; lending rate hovers between 28 and 32 per cent depending on the financial institution; deteriorating insecurity has become a scare point to even domestic investors let alone foreign investors who have remained on the fringes to watch the drama of our politics fraught with deceit. Equally troubling are factors like the poor implementation of the budget where over 70 per cent is deployed for recurrent expenditure with very little left for capital project; the shrinking economy that has left consumers with very little disposable income to invest; and the Central Bank of Nigeria maintaining its hold on the monetary policy rate, leaving the MPR at 13.50 per cent, and the CRR and liquidity ratio at 22.5 per cent and 30 per cent respectively. These, analysts say, have also not augured well for banks in terms of creating risk assets at competitive rates.


The above scenario cannot be favourable for businesses to thrive, analysts have consistently maintained.

A Lagos based analyst, Mr. Johnson Chukwu who is the Group CEO, Cowry Asset Management Company Limited told Business Hallmark that in a dynamic industry as that which operates in the banking sector, no industry leader maintains a permanent position. He explained that banks like Orient Bank, African Continental Bank, FSB, Habib and Diamond Bank have been leading banks at different periods.

“It is difficult for anybody to say with certainty that any industry leader that has lost its leading position to get it back in a short time,’’ said Mr. Chukwu.

He added that banks cannot perform magic in an economy that has been in a very slow recovery phase.

According to him, “we also have seen heightened level of insecurity which is negatively affecting the level of economic activities in the country. Again the banks are being buffeted by some of the regulatory directives that impinge on their performance.’’

Also sharing Mr. Chukwu’s views, Managing Director, HIGH CAP Securities limited , Mr. David Adonri who noted that Union Bank should be praised for its performance in an economy that gives no hope to business owners, added that a number of things in the operating environment have not been able to materially improve earnings.

According to him, Union Bank is recovering and keen observers of the industry are aware of that.

“We expect that the bank will do better when the conditions in the economy improves” he said

After the 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’s 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 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, even after the institution has regained lost vigour and begun to sprint at an impressive pace with gross earnings and operating margins growing aggressively, it has still not been able to rank among the seven biggest financial institutions in Nigeria.

Not also known to be among the 7 systematically important banks which rankings are occupied by First Bank Of Nigeria, Zenith Bank Plc, GTBank Plc, Access Bank Plc, UBA, Ecobank Plc among others, more so with Diamond Bank now being out of the way.

However, in an era where it has been difficult for businesses to continue to exist as going concerns and when profit margins have shrunk to the bones, UBN has bucked common boardroom trends by showing a capacity to take on the rigors of turning in strong quarterly performances.

This has been despite a national GDP that has remained weak at 2.01 per cent in the first quarter of the year.

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.

Union bank lost vigour in 2011, when 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 programme, 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.

Chief Financial Officer of the Bank, Joe Mbulu on the other hand stated, “In the first half of 2019, the bank continued with our expansion strategy to grow our agency banking footprint which in turn boosted customer confidence in our brand. Customer deposits have followed the same trajectory with a 4% growth, to ₦889.5 billion as at June 2019 from ₦857.6 billion in December 2018. Net Interest Income after Impairments is also up 3% to ₦30.5 billion compared to ₦29.7 billion in the same period in 2018.

With our aggressive focus on recoveries and improving asset quality, the Bank’s NPL ratio has continued its downward trend, declining to 7.3 per cent from 8.1 per cent as at December 2018 ahead of full year 2019 guidance. Improvement in asset quality has enabled us to grow our loan book optimally in the first half of 2019, positioning us with the ability to take on emerging opportunities in key sectors of the economy.

Having completed our Series 3 ₦30 billion funding, our Capital Adequacy Ratio (CAR) further strengthened, closing at 19.4% in June 2019 compared to 16.4% as at December 2018.

Our comprehensive cost optimisation programme, the Long-Term Efficiency Acceleration Programme (LEAP), has begun to yield dividends across board with operating expenses declining by 4% to ₦37.5 billion compared to ₦39.2 billion in H1 2018. We believe LEAP will continue to deliver material cost savings through 2019 and beyond, supporting our Cost-to-Income Ratio (CIR) ambition.”

However, the bank which is creatively reducing its N54.4billion shares premium account which is aimed at restructuring its balance sheet for optimal performance. While shareholders have given their nod to the restructuring of its shares, the federal government has begun criminal investigation into alleged misappropriation of $2billion worth of Atlas Mara’s Union Bank Plc shares owned by 65,000 shareholders.

In fact, given the new swings being recorded in the revamped Union Bank this far, some industry analysts are already beginning to agree that Union Bank still has all it takes to transmit once again to an era when it would truly be ‘Big, Strong, and Reliable.’ And for those who are yet to agree, the word from the current drivers at the bank is, give us time, watch our trajectory and you would soon come to agree. We wait.




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