Union Bank is rebuilding profit after losing one-half of its net profit in 2015. Revenue growth accelerated in the second quarter from the first quarter level, which helped profit performance despite a decline in profit margin. Non-interest income is the revenue driver so far this year and costs are under control except loan loss charges that came close to tripling at the end of the second quarter. The bank’s second quarter report shows one of the strongest profit growth records in the banking sector so far.
At N60.07 billion, Union Bank grew gross earnings by 8.4% year-on-year at the end of the second quarter. This is an accelerated growth from N27.27 billion in the first quarter. Gross income is projected at N122.4 billion for Union Bank at full year – a recovery in view from N117.21 billion in 2015. Last year, its gross earnings dropped from N135.80 billion posted in 2014 – the first revenue drop in many years.
Non-interest income is driving revenue growth at an increase of 25.2% year-on-year at the end of June with fees and commissions advancing by 66.2% to N6.26 billion. Interest income was only marginally up at 3.9% to N44.34 billion, which fails to reflect a rise of nearly 30% in net credit volume within the first six months of the year. This appears to reflect the credit quality challenges that warranted a near tripling of impairment charges.
The bank closed second quarter operations with an after tax profit of N8.76 billion, which is a leap of 37.7% year-on-year – about the strongest profit growth seen so far in the banking sector this year. Full year forecast puts after tax profit at N18.2 billion for Union Bank in 2016. This will be a recovery by 30% from the after tax profit of N13.99 billion the bank reported in 2015.
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The bank’s profit had dropped by 48% last year from N26.83 billion in 2014. Union Bank has been consistently profitable since 2012 but preceding huge losses had built up a large retained deficit to which all the profits in the past four years have made only a scratch.
Loan losses are growing rapidly for the second year after a rise of 106% at the end of 2015. At N8.78 billion in six months, impairment charges are already close to the N9.95 billion the bank made in all of 2015. Apart from a high rise of 195.3% in impairment charges for loan losses, the other main cost lines of the bank are under control.
Interest expenses dropped by 18.4% year-on-year to N13.40 billion at the end of the second quarter. This is against an increase of 7.2% in customer deposits to N611.19 billion at the end of June. This indicates a significant reduction in the bank’s average cost of funds. The drop in interest expenses permitted an increase of 17.8% in net interest income to N30.95 billion.
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Total operating cost declined slightly at N29.13 billion during the review period and with that the bank reduced operating cost margin from 53% in the same period last year to 48.5% at the end of the second quarter. This remains well above the industry average cost margin of about 44%, meaning that the bank is still devoting a lot of revenues to operating cost that should have gone into profit.
The bank earned 52 kobo per share at the end of the second quarter, improving from 38 kobo in the same period last year. Earnings per share is expected to be in the region of N1.07 for Union Bank at full year against 83 kobo at the end of 2015. No cash dividend is expected until the bank is able to wipe off the accumulated losses that still tower at N241.73 billion.
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