Union Bank records strong growth of 52% in Profit before all taxes in 1H19
Sponsored Content : Union Bank concluded a strong first half, recording significant growth in core banking revenue with resultant profits before all taxes of Rs. 849 Mn, amidst challenging market conditions that tested the resilience of businesses across all sectors.
Bank Performance
· Profit before all taxes grew by 52% YoY to Rs. 849 Mn
· Net Interest Income grew by 19% YoY to Rs. 2,131 Mn
· Fee and Commission Income grew by 17% YoY to Rs.524 Mn
· Total Capital Adequacy Ratio was 17.23%
Group Performance
· Profit before all taxes grew by 19% YoY to Rs. 799 Mn
· Net Interest Income grew by 15% YoY to Rs. 2,516 Mn
· Fee and Commission Income grew by 9% YoY to Rs.579 Mn
Core banking growth and financial performance
The second quarter of 2019 carried unforeseen challenges for the banking sector, which was under demanding economic conditions caused by the unfortunate events that unfolded in April 2019.
Despite a very challenging macro environment, Union Bank reported healthy core banking growth with Net Interest Income (NII) significantly increasing by 19% YoY, to report Rs.2,131 Mn. Net Interest Margin of the Bank improved to 3.4% from 3.1% in the comparative quarter. This is mainly due to the increase in average CASA balances during the reporting period. The NII growth is also attributable to the Bank’s focused efforts towards portfolio realignment during the recent times.
The fee and commission income of the Bank improved continously, and grew by 17% YoY to Rs.524 Mn during the period under review. The growth stemmed mainly from processing fees on an expanding loan book, new Credit Card issuances, commission on guarantees and Current and Savings accounts (CASA) related fees.
Income from capital gains for the period was Rs. 253 Mn which was a noteworthy increase YoY. Income from investments in units for the period was Rs.123 Mn and was a reduction of 20% YoY. This is due to the decrease in investments in unit trusts during the period.
The decline in other operating income was mainly due to the reduction in foreign exchange business income which was approximately 50% of the income reported during the corresponding period last year. This was mainly due to a significant reduction in trade business stemming from the macro economic challenges of the quarter.
During the quarter under review, the Total Operating Income of the Bank rose to Rs. 2,899 Mn, and represented a growth of 13% YoY. Total Operating Expenses were prudently managed and grew marginally by 4% YoY to Rs.1,973 Mn during the period. As a result, Pre-impairment profits of the Bank was Rs.926 Mn which was a 37% increase YoY.
The impairment charge of the Bank was Rs.139 Mn. Collective impairment charge for the period ended 30th June 2019 has been prepared in accordance with Sri Lanka Accounting Standard – SLFRS 9 (Financial Instruments), whilst prior period charge was prepared in accordance with LKAS 39 (Financial Instruments).
Profit share from subsidiaries was reported at Rs.62 Mn which was a Rs.22 Mn increase YoY.
Profit after Tax (PAT) for the period was Rs.297 Mn and was an 18% increase YoY. PAT of the Bank was significantly affected by the increase in tax rates. Effective tax rate (all taxes) for the period increased to 70% in comparison to 59% in the comparative period.
The total comprehensive income of the Bank was Rs.685 Mn and was an increase of 490% YoY. This was mainly due to the positive impact from the valuation on debt instruments at fair value through other comprehensive income.
Total assets of the Bank stood at Rs.121,747 Mn as at 30th June. The Bank’s loans and receivables stood at Rs. 74,222 Mn YTD. The deposits base was Rs.74,609 Mn as at the balance sheet date. The Bank continued to focus on asset quality with prudent risk management practices and the net NPL ratio stood at 3.9% at the end of the reporting period.
Within the period under review, total average CASA grew to Rs.3,545 Mn which reflected a growth of 23% YoY. Efforts of maintaining a healthy CASA inflow was supported through focused acquisition strategies driven by retail, corporate and SME banking segments.
The Bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 17.23% as at the balance sheet date.
The group consisting of the Bank and its two subsidiaries, UB Finance Company Limited and National Asset Management Limited reported a Profit before all taxes of Rs.799 Mn for the period which was a growth of 19% YoY. Total assets of the Group was Rs. 130,369 Mn of which 93.4% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 15.48% as at the balance sheet date.
Business Performance and Strategic Enablers
The Bank’s corporate banking business continued to focus on consolidating the portfolio while managing the yields and Non Performing Loans (NPLs). With the challenges in the economy, the corporate banking business realigned its focus and initiated market development activities for portfolio growth. The Bank’s state-of-the-art transaction banking solution Union Bank Biz Direct was offered as a value added auxilliary solution to corporates as well as SMEs which also contributed to Current and Savings (CASA) growth of the Bank.
The SME banking business continued to support the emerging enterprises in the country with a special focus on selected strategic industries. Prudent risk management and stringent credit policies helped the Bank to keep the NPLs at manageable levels at a time when the SMEs were greatly affected by the challenging economic conditions. A 10-year loan product (BML) for the sector was introduced during the period. Strategic staff competitions were continued in the three main zones of the Bank to support CASA acquisitions, whilst the on-boarding of SME clients for Cash Management services was also intensified to support the CASA growth.
The retail banking business continued to grow with focus on credit cards, mortgage backed loans as well as savings and investment solutions. Several new retail banking features and value additions were introduced during the period under review. A discount scheme for mortgage loans and the Loan-on-Card were key new initiatives. The segment approach for profitable acquisitions was implemented through the branches and sales teams during the period under review.
The Treasury continued its excellent performance in this 2nd quarter as well, with strong revenue contribution. The Foreign Exchange Income continued to be under stress due to lower volumes on trade finance business and the impact from adverse economic conditions.
In May 2019, Union Bank was awarded ‘Best Cash Management Bank – Sri Lanka’ title at the Global Business Outlook Awards in recognition of its state-of-the-art cash management solution Union Bank Biz Direct. The award affirmed the continued success of Union Bank Biz Direct which has made great strides in providing transaction banking excellence to the corporate and SME clients of the Bank.
Also in May 2019, Fitch Sri Lanka upgraded the National Long-Term Ratings of Union Bank to ‘BBB-(lka)’ from ‘BB+(lka)’ with a Stable Outlook. The upgrade of Union Bank’s rating reflected its better risk profile through a more diversified loan book, increased profitability and higher-than-average capitalisation amongst other rating drivers. The upgrade is also an affirmation of Union Bank’s growing commercial banking franchise and continuously improving profitability.
In June 2019, Union Bank announced a share repurchase, to which its major shareholder TPG responded with non-acceptance, thus further affirming TPGs long term commitment towards Union Bank’s progress and growth in the years ahead. The Bank made an offer to the shareholders to repurchase a maximum of 7,851,844 ordinary shares at the price of Rs. 15/- per share on the basis of one share for every 139 shares held by them in the Bank. The approval of the shareholders for the repurchase and the consequent distribution of a sum of Rs.117,777,660/- was obtained at the extraordinary general meeting held on 11th June 2019. The offer period commenced on 27th June and closed on 11th July 2019. Applications for an aggregate of 585,485 shares (7.46% of the offer) have been submitted by the shareholders for repurchase by way of entitlements whilst applications for an aggregate of 48,004,755 shares have been submitted for repurchase as additional shares.
Commenting on the first-half performance of the Bank in the year 2019, Director/CEO of Union Bank Mr. Indrajit Wickramasinghe said, “We have had a very positive 2019 so far, despite the many challenges of the macro environment. The results are significantly impressive and indicate our resilience and further endorses the business strategy. We will continue to grow at this pace and look forward to an even better core banking the performance in the latter part of 2019, in tandem with the recovery of the economic landscape.”