Union Bank made a profit of N10.7 billion in the Half Year (HY) of 2020 showing a reduced 9% from the N11.9billion posted y/y in 2019. The bank’s gross earnings upped by 10% to N79.9billion as at June 2020 from the N72.4billion in the earlier corresponding period. Interest income grew by 6.2% from N54billion to N57billion in June 2020 y/y, but when we consider interests and related expenses, we observe a 14% slump in the net interest income. These major components (profit, gross earnings and net interest income) at first glance summarily spells out the fortunes and how the bank has thrived thus far in 2020.
UNION is one of Nigeria’s oldest institutions that offers commercial banking services in Nigeria. It further offers wholesale banking services, brokerage, asset management services as well as mortgages through its subsidiaries.
As recently as January 2020, Union Bank divested shares in its London subsidiary and geographically streamlined its operations to harness its perceived abounding opportunities in the Nigerian market.
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The Regulations and the Effects
The CBN’s stance on reducing transfer fees and card maintenance fees did impact Union Bank’s income, as commission income and other fees sank. The 24% improvement noticed in Non-interest income emanates materially from Foreign exchange revaluation gain, gains from disposal of fixed income securities and the consistently growing E-business fee income segment that generated N1.2billion in March 2019, N2.1billion in March 2020 and N3.7billion in June 2020.
The increase in Cash Reserve Requirements ratio to 27.5% have further impaired the working capital available and accessible to Union Bank as it shelled out a further N118.7billion from Q2 in fulfilment of the increased cash reserve requirement.
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Banks are having to adjust to the severity of the mandates and policies from the CBN which though understandably paramount, are perceived by some to be one-sidedly focused on consumer protection at the severe discomfort of financial institutions.
A snapshot of the major components in the profit or loss statement and their variances in billions of Naira are thus:
COVID-19 effects Q2 vs Q1
Owing to the lethargic restart of the economy after lockdown was instigated in major cities across the country, earnings and profitability understandably experienced reductions in the three-month span from the end of Q1 till June 2020
- Profit in Q2 is 21.7% less than in Q1.
- Gross earnings plummeted by 16% in Q2.
- Operating income downed 8% from Q1’20.
COVID-19 by all indications is bane of world economy this year as it severely hampered earnings in Q2 when the virus peaked. However Union Bank maximized this period to devastating effect by furthering its digital banking campaign drive and on-boarding majority of its customers on multifarious transactional channels. This yielded fruits as record shows that 90% of transactions were completed digitally in 2020 vs 57% in H1’2019. The top line impact of this is bound to reflect massively in the long run.
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Commenting on the result, Emeka Emuwa, CEO said “The impact of COVID-19 and associated movement restrictions on the bank and wider economy has been broad. The total lockdown of major commercial centres and partial lockdown across the country, slowed business operations in Q2’20.” “…the slowdown limited growth in key income lines including fees and commission and cash recoveries”.
Ratios
Deposit from customers grew by 12% in 2020 while Interest expense consumed over 50.7% of interest income. The growth in deposits stems from increased customer demand for products depicting confidence in the UNION brand. The rise in interest expense reflects the banks present struggles with generating low-cost deposit.
Loan to Deposit Ratio is pegged at 65.1% in compliance with the Central Bank’s mandate. Cost to Income Ratio is at 75.5% while Return on Equity and Return on Assets are 8.5% and 1.2% respectively.
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The bank continues to match stride for stride with New Generation Banks in the aspect of digitalization evidenced by the additional N1 billion generated from its E-business fee in HY 2020. Union Bank has literally come a long way over the decades of its existence with its iconic white stallion in steady motion. Like the CEO stated, Union must navigate the realities of the pandemic for the remainder of the year, and continue to focus on increasing transaction volumes on electronic channels, managing cost and strategically targeting key customer segments to ensure it finishes subsequent quarters on a high.