Union Bank’s Smarter Banking Mantra Continues to Pay off

The 85 per cent growth in profit after tax recorded by Union Bank of Nigeria in the first quarter of 2016 has raised the hopes of its shareholders for a bounteous harvest at the end 2016, writes Goddy Egene

Before the banking crisis of 2019, Union Bank of Nigeria (UBN) Plc was among the top financial institutions in all ramifications. However, UBN lost its top position as a result of the financial crisis that led to the intervention of the Central Bank of Nigeria. Although the bank has returned to profitability, it recorded a dip in 2015, a year that many banks witnessed dismal performance.

However, the financial results of the UBN for the first quarter ended March 31, 2016 released last week, has raised the hopes of investors for a better full year performance and resumption of dividend payment soon.

Corporate background
Union Bank was established in 1917 and is one of Nigeria’s long-standing and most respected financial institutions.  Following the banking crisis in 2009 and the intervention of the CBN via Asset Management Corporation (AMCON), the bank was recapitalised in 2012.

Union Global Partners Limited( consisting of African Capital Alliance, Standard Chartered Private Equity, African Development Corporation, Corsair Capital, FMO (Netherlands Development Finance Co.), and Chandler Corporation) holds 65 per cent of UBN shares. Atlas Mara controls   20.9 per cent, while other diverse shareholders   control 14.1 per cent. With new leadership, UBN has redefined its ambition and mapped out a strategy to be a highly respected provider of quality banking services. Execution of this strategy is underway, leveraging a robust transformation team largely focused on people, processes and technology.

UBN Cyril  Odu  as chairman while Emeka Emuwa is group managing director/CEO. Executive directors include:Ibrahim Abubakar( Public Sector);
Kandolo Kasongo  (Chief Risk Officer);Oyinkansade Adewale( Chief Financial Officer); Chukwuemeka Okonkwo ( Corporate and Investment Banking); Adekunle Sonola ( Commercial Banking). Non-executive directors are:Dick Kramer;  Nike Akande; Adeyemi Osindero; Mansur Ahmad; John  Botts; Richard Burrett; Ian Clyne; Beatrice  Hamza Bassey;  John Vitalo and Arina MacDonald.
According to the bank, having divested of almost all non-banking subsidiaries, it is  now focused on banking as its core business, with a subsidiary in the United Kingdom.

The bank launched its new identity in 2015, showing  a simpler and more energised brand.
“The new brand identity positions the Bank competitively in the industry with better opportunity to deepen existing customer relationships and attract a new base of customers,” UBN said.

Six-year journey
UBN has  passed through a journey that has  led to its  current state where it is set to deliver returns to shareholders.  Between 2009 and 2012, the bank went through stabilisation and recapitalisation. That period saw the appointment of a new management. From 2013 and 2014,  UBN deifned a strategic direction, sold non-banking subsidiaries, refocused on core banking  and position as right-sized organisation fit for purpose and growth.

In 2015 and beyond, UBN  it is repositioned as a highly respected provider of quality banking services, put in place an enhanced technology platform and operations, robust and modern distribution network and consistent delivery of high quality customer.

First quarter results
UBN sent positive signs to shareholders through its impressive Q1 results. The bank ended the Q1 with  interest income of N21 billion, up from N20 billion in the corresponding period of 2015. The bank’s  interest expenses went down by 16 per cent from N7.9 billion to N6.6 per cent driven by deliberate effort to manage funding costs.

 Net interest income rose by 19 per cent from N12.1 billion to N14.4 per cent, while impairment charges reduced by 53 per cent from N2.4 billion to N1.1 billion.  The bank’s interest expenses went down by 16 per cent from N7.9 billion to N6.6 per cent driven by deliberate effort to manage funding costs. Profit after tax soared by 85 per cent from N2.5 billion to N4.6 billion.
Customer deposits grew by nine per cent to N587 billion, up from N539 billion in 2015, on  the back of growing customer confidence in service and product offerings. The bank’s contribution to the economy in terms of loans also improved from N375.6 billion to N383.6 billion.

Management comments
Commenting on the Q1 performance, Chief Executive Officer of UBN, Emeka Emuwa,  said: “Our first quarter results reflect steady progress on the execution of our strategic priorities. The Bank’s core PBT in Q1 2016 is up significantly by 85 per cent to N4.7 billion compared to  N2.5 billion in the same quarter last year. With the sale of non-banking subsidiaries near completion, the bank is now focused on growing and delivering results through its core banking business. Customer deposits grew nine  in the year to March 2016, compared to March 2015, reflecting increased customer confidence in our service channels, new product offerings and a re-energised brand identity,” he said.

Emuwa noted that  the priorities of the bank is  to sustain growth in 2016 remain focused on growing its deposit base and new customer acquisitions, as well as driving gains in transactional income.
“We will continue leveraging the technology and operational platform we have invested in whilst proactively managing our risks and operational,” he stated.

Speaking in the same vein, Chief Financial Officer of the bank, Oyinkan Adewale said:
“The bank delivered strong results this first quarter. Our focus on customer deposit growth has led to 16 per cent interest expense reduction as we rely more on low cost deposits to fund the bank. This trend is expected to continue and should moderate funding costs and improve net interest margins for 2016. Non-interest revenue continues to grow, driven by securities trading, e-business and other transactional fees. Excluding 2015 one-off gains, we were able to grow core revenues by nine per cent.”

She stated that given the bank’s  continuing investment in technology and network infrastructure, “we have seen a slight increase of three  in operating expenses this quarter compared to Q1 2015. This short term increase is expected to normalise over the course of the year.”

Addressing  the capital market community at the Nigerian Stock Exchange (NSE) in Lagos during the bank’s “Facts Behind the Figures” presentation”,Emuwa said the bank would sustain the improved performance recorded in Q1 through cost reduction strategy.

According to him,  the bank would further reduce its cost to income ratio (CIR) by the end of 2016, noting that the bank will ensure client retention and acquisition, risk management and recoveries as well as cost management.

Emuwa added that the bank would also embark on strategic partnerships to ensure sustained growth in 2016 and beyond, just it would  improve its business process and branch network and channel optimisation to sustain growth and development.
Ambition and strategic pillars
Looking ahead, the UBN  boss said they aspire to be a highly respected provider of quality banking services.

 “We will  improve on the quality of our customer experience, quality of our client base, quality of our talent, quality of our earnings, quality of our banking platform  and  quality of our professional standards,” he said.
He said the bank would be a leading mid-tier bank by 2018 on a a trajectory to become  top tier by 2020.

According to him,  the robust transformation plan will  hinge on  portfolio enhancements,  enhance business model and drive market penetration.
“We will develop focused strategy across retail, commercial, corporate and treasury. There will also be  enhanced targeted product offerings (retail products, trade, transaction services & value chain, treasury/foreign exchange).  Grow public sector business service delivery,” he said.