Unity Bank Plc encountered slowing incomes against rising interest and loan impairment expenses in the second quarter but scaled through to a 23 per cent profit growth to N1.7 billion at the half year. The bank’s management reined in operating expenses to compensate for the cost increases, which enabled it to stretch out margins and grow profit ahead of revenue.
The bank’s interim financial report for the half year ended June 2022 shows increases in interest and loan impairment charges far exceeding income improvements in the second quarter. Compared to a 14 per cent increase in gross earnings to under N14 billion, interest expenses rose by 26 per cent quarter-on-quarter to about N7 billion in the second quarter.
Also, loan impairment expenses grew by 18 per cent to N576 million over the same period, which minimised the improvement in net operating income to 5 per cent to N7.6 billion for the quarter.
The biggest pressures from costs during the quarter came from the cost of funds which grew twice ahead of interest earnings at 26 per cent compared to 13 per cent quarter-on-quarter. The bank earned interest income of almost N12 billion in the second quarter and interest expenses claimed 58 per cent of it, up from 52 per cent in the same quarter in 2021.
The increase in the cost of funds consumed more than the gain in interest income, which resulted in a marginal decline in net interest income to N5 billion in the quarter.
Three favourable developments in costs and income helped management to turn the decline in net interest income into a 25 per cent leap in after-tax profit quarter-on-quarter to N829 million for the second quarter.
These include an upturn in net fee and commission income that grew by 15 per cent quarter-on-quarter to N1.7 billion. The second is an advance of 34 per cent in other operating income to N329 million over the same period.
The main profit-building support for the bank in the quarter came from a seal on operating costs, which crept up by only 2 per cent quarter-on-quarter to N6.7 billion. That lowered the operating cost margin for the quarter from 53.2 per cent in the same period last year to 47.9 per cent.
The cost saving from operating expenses provided the cost saving and margin improvement that enabled management to push pre-tax profit a clear 25 per cent ahead to N901 million in the second quarter.
Unity Bank’s half-year position shows gross earnings of N27.6 billion, which is an increase of 17 per cent year-on-year. The growth was led by a 33 per cent increase in other income to N486 million and supported by an increase of 18 per cent in interest earnings. Fee and commission income improved by 4 per cent to N3.2 billion but the trading income was negative at N16 million.
Interest expenses grew well ahead of interest income at 31 per cent to N13.6 billion, which claimed an increased proportion of interest income, leading to moderate growth of 4 per cent in net interest earnings to N10 billion. Another incursion on earnings came from credit loss expenses, which grew by 56 per cent to N1.1 billion year-on-year at the end of half year. Net operating income improved by 8 per cent to N15 billion over the period.
Compensatory cost saving was achieved from a moderated growth of 7 per cent in total operating expenses to N13 billion at the end of June 2022. This was led by a slight decline in personnel expenses to N5.3 billion.
The operating cost margin went down from 52.6 per cent to less than 48 per cent over the review period. The cost saved enabled an increase in net profit margin from 5.8 per cent in the same period in 2021 to 6.2 per cent at the end of June 2022.
Unity bank closed the half-year operations with earnings per share of 14 kobo, improving from less than 12 kobo per share in the same period last year.
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