Union Bank of Nigeria Plc defended the bottom line in the first quarter despite a drop of 16 per cent in revenue at the end of March 2021. A strategy of resilience seems to be what the bank’s new management led by Emeka Okonkwo has brought on board in his first three months of outing in the bank as CEO.
” Despite the challenging economic climate, our bank has maintained a steady performance that we can build on for the rest of the year,” he said in his comment on the first-quarter earnings report.
The bank closed last year with a slight decline in gross earnings and profit went down as well. This year is seeing a much wider decline in revenue but management isn’t letting profit go down with revenue this time around.
The revenue drop in the first quarter means a loss of over N7 billion year-on-year to close at N36.8 billion for the first three months of the year. However, the bank was able to keep profit slightly improved at N6.2 billion for the period.
Okonkwo is pleased with his bank’s ability to respond appropriately to create stability out of a volatile operating climate. “The Bank has responded well to the challenges in the market since the onset of the pandemic,” he said.
The drop in revenue in the first quarter was accounted for exclusively by interest earnings, which went down by 25.3 per cent to N22.2 billion. This is a drop for the second year in interest income, accelerating from a decline of 3.3 per cent in 2020. The downward direction of interest income is driven by a reduced interest rate regime, according to the bank.
Okonkwo explained that significant reductions in net interest margins have been an industry-wide problem since the first quarter of 2020.
The bank put up some strength in non-interest income that helped it dilute the drop in interest earnings. Non-interest income grew by 9.5 per cent year-on-year to N14.2 billion at the end of the first quarter. This is an accelerated growth from less than 4 per cent improvement in non-interest income at the end of last year.
According to Okonkwo, the strengthening of transactions income is a validation that the bank’s digital-led strategy is delivering expected results. “By prioritising personalised solutions and enabling self-service, we are attracting transaction-backed deposits and enhancing customer knowledge to better manage risk,” he said.
Loan recoveries also regained momentum in the first quarter after dropping by 17.4 per cent in the 2020 full year. At N3.4 billion in the first quarter, loan recoveries multiplied close to seven times over the N501 million recorded in the first quarter of last year.
There was also an upturn in net income from other financial instruments – which more than doubled at 109 per cent to stand at N3 billion at the end of the first quarter. This plus the loan recoveries covered drops in other income lines and accounted for the improvement in non-interest income during the review period.
Two developments on the side of costs also enabled the bank to counter the drop in revenue and keep operating income slightly improved at N24.3 billion. One is interest expenses, which went down by 24 per cent to N11.3 billion. Interest cost is going down for the second year after dropping by 13.6 per cent in 2020.
The second cost-saving area is the loan impairment charge, which dropped by 77.5 per cent to N802 million over the review period. The bank is seeing a net reduction/write back in loan impairment expenses for the second year.
The two cost-saving areas enabled the bank to narrow down the drop in gross earnings. Net interest income after loan impairment expenses declined by 10.5 per cent to N10.2 billion compared to a drop of 25.3 per cent in interest earnings.
Additional cost saving was achieved from operating expenses and with that, the bank turned a flat operating income into a profit improvement. Total operating expenses declined by 3.7 per cent to N17.3 billion in the first quarter, claiming a reduced share of net income.
The all-around cost saving by the bank’s management saw an increase of 11 per cent in pre-tax profit to N7 billion at the end of the first quarter from a 16 per cent drop in revenue. A loss of N576 million from discontinued operations lowered after-tax profit for the period to N6.2 billion for Union Bank at the end of March 2021. This is still an improvement of 3.2 per cent year-on-year.
The bank earned 23 kobo per share at the end of the first quarter operations, an improvement from 21 kobo per share in the same period in 2020.
Going forward, the bank promises to step up effort to drive growth in non-interest earnings. “Our business and operating model are being enhanced to deliver on revenue and product penetration targets across geographies and segments where we have identified opportunities”, its CEO said.
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