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Union Bank Plc: Q1 ’22 Report Shows Signs of Decline

Okonkwo/Union Bank

May 08, (THEWILL) – Union Bank of Nigeria Plc recorded operating results that indicate signs of decline in its 2022 unaudited first quarter report – a trend that draws from the 2021 full year results of the bank. The Tier-2 lender had seen moderate improvements in some parameters in recent years before sliding into decline in the 2021 annual report which snowballed into the review period.

In the Q1 2022 interim report released to The Exchange and published on its website, the 105-year-old first generation bank recorded a drop in profit before tax (PBT) from N6.46 billion to N5.84 billion reflecting a 9.5 percent decline. Profit after tax (PAT) also declined: from N6.20 billion in Q1 2021 to N5.55 billion in the review period as seen in the bank’s unaudited financial statement for three months of the year.

Total gross earnings, on the other hand, recorded an increase of 18 percent from N36.8 billion in the corresponding period to N43.5 billion in Q1 2022; as net interest income also jumped to N12.8 billion from N10.2 billion in Q1 2021 to Q1 2022 respectively.

However, the bank’s assets base dropped slightly from N2.6 trillion in Q1 2021 to N2.58 trillion in the first quarter of 2022, representing 0.8 percent. Assets growth is important for a business organization, especially, a financial services institution in a competitive environment like Nigeria is currently facing.

“For a bank, there is no period that people will not need money. It is either for food or health. So, once they continue to invest in those areas (that are strategic), they will get returns,” said Professor of Finance and Accounts at the Nasarawa State University, Keffi, Muhammad Mainoma. According to Mainoma who is the immediate President, Association of National Accountants of Nigeria (ANAN), assets base is an indication of how efficient a business organization is in its investment strategy.

Union Bank’s assets decline reflected in the credit facilities to the customers.  The report revealed a drop in loans and advances at amortised cost from N868.9 billion to N853.2 billion, showing a 1.8 percent decline. Deposit from customers also declined during the period: it fell from N1.36 trillion to N1.32 trillion according to data from the Q1 2022 unaudited financial statement, reflecting 2.9 percent. Net interest income after impairment charges for credit losses recorded a positive outcome in Q1 2022 to N13.0 billion from N10.2 billion in Q1 2021.

Commenting on the results, Emeka Okonkwo, CEO said: “In 2022, we renewed our focus on turbocharging productivity and ensuring we fully leverage the strength of our digital channels, regional network and talent to maximise the bottom line.”

“Our efforts are gaining momentum and notwithstanding a challenging economic climate in Q1 2022, our Net Interest Income after impairment grew by 27% compared to the same quarter in 2021 from N10.1 billion to N12.9 billion. Gross Earnings are also up by 18% to N42.9  billion against N36.4 billion in Q1 2021. This was bolstered by improved asset yields, treasury trading income and revenues from our alternate channels.

“We are steadily seeing increasing customer adoption with a 36% YoY increase in active users on UnionDirect, our agency banking network, and increasing transaction volumes with a 20 per cent YoY growth across our digital channels.

“Interest Income grew by 41 per cent from N22.2 billion to N31.4 billion as our earnings asset base expanded with a more viable loan portfolio. Our NPL ratio is flat at 4.3 per cent (from December 2021), well within the regulatory limit, while cost to income ratio dropped from 79.4 per cent in December 2021 to 73.9 per cent in March 2022.

“We will continue to drive cost optimization to ensure consistent improvement in efficiencies. With a Capital Adequacy Ratio (CAR) of 15.6 per cent, our capital position remains strong.

“On the innovation side, we launched SpaceNXT – a purpose-built hub created to encourage innovation and foster collaboration within the Nigerian tech ecosystem. This remains a space where Union Bank desires to maintain a leading position.

For the rest of H1 2022, we will continue to focus on driving productivity, mining targeted opportunities across regions and optimising our digital platforms to deliver improved customer service and acquisition.”

The declining trend in the bank’s assets and profitability began to manifest in its FY 2021 financial statement when its PBT dropped from N26 billion to N20.7 billion showing a decline of 25.6 percent.  Similarly, PAT dropped to N17 billion in 2021 from N18.7 in 2020, reflecting 10 percent drop. However, total gross earnings in FY 2021 showed an 8 percent growth from N164 billion in FY2020 to N177.3 billion in FY 2021. Assets base grew to N2.6 trillion in FY 2021 from N2.2 trillion in FY2020.

Union Bank recorded a 26.5 percent rise in operating expenses to N10.5 billion in Q1 2022 from N8.3 billion in Q1 2021 with cost of diesel and power increasing to N865 million from N633 million reflecting 36.6 percent increased cost. Earnings per share declined from 23 kobo in Q1 2021 to 21 kobo in Q1 2022 or 8.7 percent.

The Bank contravened some banking regulations in 2021 which attracted a total penalty of N207 million for the year, as against N10 million penalty paid in the previous year, 2020. Details of the banking regulation which the lender contravened in 2021 were N1 million for late substitution of pledged maturing securities.

The bank was also penalised N2 million for non-provision of short codes to customers to enable them block their accounts upon notice of fraud threats and N4 million for violating the CBN circular prohibiting financial institutions from giving foreign currency facility to customers that do not earn foreign currency. A whopping N200 million penalty was imposed on Union Bank for contravening the CBN regulation on Crypto Currency.

Nigeria’s youngest commercial bank, Titan Trust Bank Limited, in December 2021 acquired 89.39 per cent equity in Union Bank Nigeria Plc, in a transaction stakeholders expressed would improve the financial institution’s corporate governance.

In a notification to the Nigerian Exchange Limited (NGX) and Securities Exchange Commission (SEC), the banks said investors of Union Global Partners Limited, Atlas Mara Limited, and other shareholders had reached an agreement with Titan to divest their shareholding in the premier financial institution. It said then that the agreement, which was subject to regulatory approvals and other financial conditions, will, upon completion, transfer 89.39 per cent of Union Bank’s issued share capital to Titan.

Commenting on the deal: Chairman of Union Bank, Beatrice Hamza Bassey said: “On behalf of the Board, we congratulate all the parties involved in reaching this phase of the transaction and the Board looks forward to supporting the next steps to ensure seamless completion of the process following regulatory approvals.

“We are grateful to our current investors whose significant and consequential investments over the past nine years facilitated the transformation of Union Bank, one of Nigeria’s oldest and storied institutions. Today, the Bank is well-positioned with an innovative product offering, a growing customer base of over six million and consistent year on year profitability. This is a solid foundation for our incoming investors to build on as we move into a new era for the Bank.”

Titan Trust’s chairman and former deputy governor of the Central Bank of Nigeria (CBN), Tunde Lemo, said the board and other stakeholders “are delighted as this transaction marks a key step for Titan Trust in its strategic growth journey and propels the institution to the next level in the Nigerian banking sector.”

He added: “The deal represents a unique opportunity to combine Union Bank’s longstanding and leading banking franchise with TTB’s innovation-led model which promises to enhance the product and service offering for our combined valued customers.”

According to the Union Bank’s Managing Director, Emeka Okonkwo, this deal “marks a significant milestone in the journey of the 104-year old bank.

“While thanking our current investors for their unwavering commitment to the bank over the years, we welcome our new core investor, TTB. We recognize the strategic fit between the two institutions and expect that this deal will deliver the best outcome for our employees, customers and stakeholders. We look forward to collectively writing the next exciting chapter for Union Bank,” he said.

The Chief Executive Officer of Titan Trust, Mudassir Amray, described the deal as a significant leap in the market share of the two-year-old financial institution at the time.

After years of dividend draught, Union Bank paid 25k dividend per 50 kobo share in 2019 and same amount in 2020