Effective cost control mechanism has helped Unity Bank plc revert to the path of profitability, an impressive results that mean the Nigeria lender has overcome regulatory headwinds crimping the industry’s growth prospects.
The audited 2014 financial statement of the company showed the bank posting a profit after tax (PAT) of N10.69 billion from the loss position of N22.58 billion it recorded in the same period of the corresponding year (FY) 2013.
This stellar good result was due to a reduction in cost to income ratio to 69.57 percent in FY 2014 from 284.43 percent in FY 2013, while operating expenses were down by 39.88 percent to N31.19 billion compared with N51.88 billion last year.
Credit loss expenses were also down by 30.30 percent to N15.05 billion as against N21.60 billion the preceding year.
The cost-to-income ratio shows the efficiency of a bank in minimising costs while increasing profits. The lower the cost-to-income ratio, the more efficient the bank is running.
It would be recalled that lenders in African’s largest economy Nigeria are groaning as regulatory induced costs such as the AMCON charge is swelling costs, thus crimping their bottomline.
Banks are mandated to pay 0.5 percent of their total assets annually to the sinking fund.
Despite the high interest rate environment caused by the CBN tightening policy, Unity Bank’s interest expense fell by 22.08 percent to N17.18 billion in 2014, as against N22.05 billion the preceding year.
The fall in interest expense help catapult net interest expense by 50.80 percent to N45.45 billion in the review period compared with N30.14 billion in 2013.
The CBN in November 2014 increased the CRR on private sector funds from 15 percent to 20 percent, while MPR was moved from 12 percent to 13 percent. MPR for public sector funds remained at 75 percent.
In addition to raising the interest, the CBN also devalued the naira as it sought to stem losses to its foreign reserves from defending the currency hit by weaker oil prices.
“You will reckon that beyond the increase in funding cost (which partly resulted from increased cash reserve requirement), higher contribution to the resolution cost fund (AMCON levy) and reduced COT charges, all pressured the earnings generation of Nigerian banks,” Abiola Rasaq of the Research and Strategy Unit of Associated Discount House Limited said in an email response to BusinessDay’s questions.
Unity Bank was aggressive about lending as its loans-to-deposit ratio increased to 79.52 percent in 2014 from 64.30 percent last year.
Interest income in the review period increased by 20.0 percent to N62.63 billion in 2014, as against N52.19 billion the preceding year-driven by loans and deposit growth.
The bank had raised N40 billion in right issues in order to expand its operations and also increasing the market price per share of shareholders.
The bank came into existence as a result of the re-capitalisation policy of the CBN in 2005, which saw nine banks come together to form synergy. Unity Bank’s share price closed at N0.50 on the floor of the exchange, while market capitalisation was N58.44 billion.
BALA AUGIE
