Union Bank Shapes Up Performance With Final Quarter Gains
Union Bank of Nigeria Plc gained reasonable operating speed in the final quarter that shaped up its full-year performance in line with forecast. We had expected that further improvement in the final quarter would turn the revenue decline in the third quarter into a reasonable growth at full year. The bank did deliver as projected, turning around a decline of 4 percent in gross earnings at the end of the third quarter, to a 14.4 percent rise to achieve N166.5 billion at full year.
It was also expected of Union Bank that a further improvement in profit from the 3.6 percent increase at the end of the third quarter would be seen at full year. This was also realized with after-tax profit stretching out to almost 10 percent growth to about N20 billion at the end of the year as per the bank’s audited accounts for 2019.
The development in the final quarter that made the difference is the redressing of the cost-income mismatch at the end of the third quarter where interest income declined but interest expenses rose close to 18 percent. From a marginal decline in interest income at the end of the third quarter, the bank closed the year at 11 percent growth in interest earnings to N117 billion.
Interest expenses still grew ahead of interest income but management closed the gap that had rendered a volatile effect on the income statement at the end of the third quarter. In effect, net interest income reversed from an 18 percent drop at the end of the third quarter to a slight improvement at N52.5 billion at the end of the year.
A big cost saving from loan impairment expenses at the end of the third quarter, however, fizzled out at full year. The bank shifted from a net write-back of N3.8 billion in loan impairment expenses at the end of the third quarter to a marginal net charge at full year. This is against a net write-back of close to N4 billion that provided the strength for the bank’s profit improvement in 2018.
Cost-saving from operating expenses was however retained to a full year. The total operating cost ended slightly down against the improvement in gross earnings. This slashed operating cost margin from a six-year high of 51.8 percent in 2018 to 42.6 percent in 2019. That, however, did not prevent profit margin from declining further from 13 percent at the end of the third quarter to 12 percent at the end of the year, which is unchanged from the 2018 position.
Union Bank ended the 2019 operations with gross earnings of N166.5 billion, an increase of 14.4 percent and a turnaround from a decline of 4 percent at the end of the third quarter. It is also an upturn from a drop of 11 percent in the prior fiscal year. The actual figure is 4.7 percent ahead of the full-year revenue forecast of N159 billion for Union Bank in 2019.
Non-interest income turned around from leading revenue drop at the end of the third quarter to leading revenue growth at full year. Against a drop of 12 percent in non-interest income at the end of the third quarter, non-interest earnings advanced by 25 percent to almost N43 billion at the close of the year. The biggest forward push came from cash recoveries that more than doubled at 122 percent to N8.8 billion.
The improvement in interest income moderated the impact of rising interest expenses on the bank’s performance but the cost of funds still claimed an increased share of earnings in the year. That prevented the increase in interest income from flowing down the line, as net interest income closed flat at N52.5 billion.
The boost in profit that came from a net loan loss write back of N3.8 billion in September, faded at the full year, as the position shifted to a marginal net loan impairment expense of N184 million. The bank had closed the 2018 trading with a net loan impairment write-back of N3.9 billion that enabled a profit leap of 44 percent in the year. The development seems to reflect an increase of 16 percent in customer loans and advances to over N550 billion in 2019 against a drop of 8.4 percent in 2018.
The only cost saving in the year came from operating expenses, which changed direction from a 12.5 percent growth in 2018 to a slight decline to N71 billion at the end 2019. This reduced the cost margin significantly in the year but the dry up of loan impairment write back claimed much of the cost-saving. The bank, therefore, could not improve the net profit margin from the 12 percent record of the preceding year.
After-tax profit grew by 9.8 to N19.9 billion at the end of 2019 operations, a sharp slowdown from a leap of 44 percent in 2018. The closing figure is slightly below the full-year forecast of N21 billion for Union Bank in 2019. The bank’s peak profit figure of about N27 billion registered in 2014 remains unmatched.
Union Bank closed the 2019 full year operations with earnings per share of 83 kobo against 59 kobo in 2018. The bank has written off retained deficits that stood at close to N34 billion at the end of the third quarter from the share premium account and built up retained earnings of N21.4 billion at the end of the year. That has empowered it to end the long dividend holiday with a proposed cash dividend of 25 kobo per share.
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