Unity Bank Advances, Rebuilds Revenue, Cuts Loan Losses

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Unity Bank Plc is charting its course forward from two broad channels of rebuilding revenue and cutting credit loss expenses. These initiatives provided the strength with which the bank grew profit by 18 per cent to N2.5 billion in 2021.

The bank’s operating result for the year shows substantial progress made in rebuilding revenue from a drop of close to 62 per cent in 2018 and another 4 per cent decline in 2020.

Gross earnings rose by 18 per cent to close at N50.4 billion at the end of the year, still looking up to the peak gross earnings figure of about N90 billion the bank registered in 2017.

The bank’s records show that revenue growth in 2021 was driven by a major drop of 78 per cent in a net trading loss to N855 million. This was followed by a 17 per cent increase in net fee and commission income to over N6 billion. Interest income, the main revenue line of the bank, grew by 10 per cent to N43 billion.

Revenue improvement was reinforced by substantial cost savings from loan loss expenses, which dropped to less than N152 million in 2021. This marks the lowest net credit loss expenses figure for the bank in more than a decade.

The reduction in credit losses reflects an improving loan performance quality for Unity Bank in recent years, which reflects strongly in huge loan recoveries. Remarkable progress in the recovery of bad loans has been recorded by the bank since 2020 when a net credit loss write back of over N4 billion was achieved.

Loan recoveries were sustained in 2021 when the bank recovered over N1 billion at the end of the third quarter. However, net loan loss expenses of about N1.2 billion were recorded in the final quarter but the effect was significantly tempered by the huge loan recoveries earlier made.

The prospects for sustaining the cut down in loan impairment expenses in the 2022 financial year appear promising given a quarter-on-quarter drop of 70 per cent in credit loss expenses in the fourth quarter.

Unity Bank has strengthened its overall risk asset quality standard since 2018 to address the effect of a huge loan loss expense of over N44 billion that occurred in 2017. Remarkable progress in raising credit quality standards has impacted the bank’s operating results positively since 2018.

Net operating income has continued to improve since 2018, rising about four times to over N27 billion in the four years to 2021.

The bank’s management achieved further cost savings from interest expenses, which grew at a moderated rate of 8 per cent to N23 billion. This is slightly below the 10 per cent improvement in interest income, which enabled an increase of 13 per cent in net interest income to N20 billion at the end of the 2021 operations.

Unity Bank also saved some cost from operating expenses, which was under firm control during the year. At N24.4 billion, total operating expenses increased by 5 per cent compared to the 18 per cent growth in revenue. That lowered the operating cost margin from 54.4 per cent in the 2020 financial year to 48.5 per cent in 2021.

The summary of the bank’s earnings story in 2021 is that management successfully combined revenue improvement with substantial cost savings. This enabled it to keep costs and incomes at a balance in the year and therefore preserved its profit margin. The bank was therefore able to grow after-tax profit at par with revenue at 18 per cent to N2.5 billion at the close of 2021 operations.

The profit figure is an upswing from a drop of 38 per cent in net profit to N2 billion at the end of the 2020 financial year.

Sustained effort on the part of the bank’s management in rebuilding earning assets in the balance sheet appears to present a key strategy in charting the course for the future. The bank grew its asset base for the fourth year running in 2021, closing the year with a balance sheet size of N534 billion.

That represents an increase of about three and half times in the size of the balance sheet in four years from the N156.5 billion closing figure in 2017. Asset growth is led by loans and advances to customers which grew by 33 per cent to over N268 billion in 2021, representing one-half of the balance sheet.

The bank also held investment securities of N121 billion at the end of the year. Its management has rebuilt the assets from scratch after net loans and advances volume dropped by 97 per cent to less than N9 billion after a loan book cleanup exercise in 2017.

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