Despite recording an increase in gross earnings, one of Nigeria’s longest standing and most respected financial institutions, Union Bank has finally released its financial statement for the year ended December 2017 showing an increase in Non-performing loans (NPL) ratio.
In its full year 2017 report, gross earnings increased by 26 percent to N163.8 billion from N126.6 billion in 2016 while non-performing loan ratio increased by 13.7 percent points to 20.8 percent in 2017 from 7.1 percent in 2016.
“This reflects the residual effects of devaluation and a post-recession economy on our loan book, particularly in the oil and gas sector as well as a recent high court ruling in respect of a large real estate exposure, which we have appealed,” Emeka Emuwa, CEO of Union Bank said.
Emuwa said, “While we have sufficient coverage and adequate capital buffers, we are aggressively focused on final resolution of key large exposures, which will have immediate positive impact on the NPL ratio, once resolved. In addition, we have strengthened our debt recovery teams with oversight from senior executives, and initiated necessary leg.”
Due to the impact of Naira devaluation on the foreign currency denominated loan book, Union bank’s gross loans went up 5 percent to N560.7 billion from N535.8 billion as at December 2016.
“We continue to tighten our credit risk management and loan monitoring processes while pursuing an aggressive strategy to continue to grow our low-cost deposit base,” chief financial officer of Union Bank, Oyinkan Adewale said.
Coverage Ratio which also included regulatory risk reserves dropped from 182 percent in 2016 to 103 percent in 2017. Loan to deposit ratio also knocked down to 103percent from 182 percent while Credit and other Impairment went up 43 per cent.
“Our coverage ratio was adequate at 103 percent, while our debt recovery efforts yielded good results with an increase of over 350 percent to ₦6billion in the year. We closed the year with the Regulatory Risk Reserve at N71 billion, which exceeds the expected impact of International Financial Reporting Standards (IFRS) 9 adoption in 2018,” Adewale, Union Bank’s CFO said.
During the period under review, the profit before tax marginally went down to N15.5 billion from N15.7 billion in 2016, while the profit after tax declined by 5 percent to N14.6 billion from N15.4 billion in the previous year.
However, the company’s interest income rose by 25 percent to N124.5 billion from N99.7 billion in 2016, driven by the impact of Naira devaluation on the foreign currency denominated loan book, government securities yields and loan book re-pricing.
Furthermore, the net interest income increased by 3 percent to N66.7 billion from N65 billion in 2016 with the interest expense growing by 67 percent to N57.9 billion from N34.7 billion in 2016. This was buoyed by the challenging interest rate environment, as the yield curve remains elevated.
In the results, the bank’s non-interest income went up by 31 percent to N39.3 billion from N29.9 billion in 2016, driven by a combination of improved fee and commission income, trading income and more effective debt recovery machine.
Also, non-interest income increased by 31 percent to N39.3 billion to N29.9billion in 2016 driven by a combination of improved fee and commission income, trading income and more effective debt recovery machine.
Despite a double digit inflationary environment and the impact of devaluation on IT investments, operating expenses increased by 5 percent to N65.1 billion to N62.0 billion in 2016.
Gross loans increased by 5 percent to N560.7 billion to N535.8 billion as at December 2016, almost entirely due to the impact of Naira devaluation on the foreign currency denominated loan book.
Also, customer deposits increased by 22 percent to N802.4 billion from N658.4bn as at December 2016 continuing its upward trajectory since 2016. The investments in customer-led products and our alternate channels, along with a strengthened brand, are delivering positive outcomes.
