Union Bank reports strengthened CAR of 19% as NPLs trickle downwards

The recently completed series 3 N30 billion funding, for Union Bank Nigeria (UBN) has strengthened the lender’s Capital Adequacy Ratio (CAR) to 19.4 percent in June 2019 compared to 16.4 percent as at December 2018.

This was disclosed by Joe Mbulu, the bank’s chief financial officer, following the release of 2019 half year numbers on the Nigerian Stock Exchange (NSE).

The improved CAR is significantly higher than Central Bank of Nigeria’s required 10-15 percent CAR from financial institutions.

According to Mbulu, the bank aggressively focused on recoveries and improving asset quality. This has helped the bank’s non performing loan (NPL) ratio continue a downward trend.

The NPL for the review period, declined to 7.3 percent from 8.1 percent as at December 2018 ahead of full year 2019 guidance, Mbulu said.

He added that “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.

In the result, the bank reported increases across profit, loan book, deposits and other key financial metrics.

Profit before tax was up 4 percent to N12.1 billion as against N11.7 billion in the first six months of 2018. Net interest income after impairment increased 3 percent to N30.5bn from 29.7bn in h1 2018; supported by an aggressive drive in collections.

Reflecting the gains of its cost optimization programme, the bank’s operating expenses reduced by N2bn to N37.5bn from 39.2bn a year ago, while gross loans grew by 8 percent to N563 billion from N519.7bn as at Dec 2018. This, the bank said was driven by increased risk asset creation across priority economic sectors.

A 4 percent increase in customer deposits was also recorded as deposits grew to N889.5bn from N857.6bn reported in December 2018.

According to the bank the improved deposits demonstrates the success of an on-going acquisition of low-cost deposits driven by strengthened brand affinity.

On the other hand UBN recorded a gross earning decline of 9 percent to N76 billion from N83.3 billion in h1 2018, due to a decrease in average earning assets.

Interest income was also down 8 percent to N57.3b against N62.2bn in H1 2018).
As a result of muted volatility negatively impacting trading income, non-interest income dropped 12 percent to N18.7bn from N21.1bn in H1 2018.

This was despite a 27 percent growth in credit-related fees and 169 percent growth in cash recoveries at N5.3bn against N1.9bn in H1 2018. Net operating income was also slightly down 2 percent to N49.6bn compared with N50.9bn in H1 2018).

In his defense of the results, Emeka Emuwa, CEO UBN said:“Notwithstanding the realities of operating in a challenging economic environment, the Group delivered a 4 percent growth in Profit Before Tax (PBT) to N12.1 billion from N11.7 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 percent to N563 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.

Looking ahead, Emuwa said the bank will continue to focus on opportunities to deliver it’s simpler, smarter banking promise to customers while improving internal operational efficiencies which will translate to enhanced shareholder value.”

Share price of the lender has remained stable at N6.85 since the release of the results, indicating no immediate reaction from investors.