202 1 final rating report

Union Bank of Nigeria Plc.

2021 Final Rating Report

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2015 Developmental Financial Institution Rating Union Bank of Nigeria Plc

Union Bank of Nigeria Plc

Rating Assigned:

A- Outlook: Stable

Issue Date: 22 June 2021

Expiry Date: 30 June 2022

Previous Ratings: A-

Industry: Banking

Analysts:

Chiamaka Ozorjiri

[email protected]

Ayokunle Olubunmi, CFA

[email protected]

Agusto & Co. Limited

UBA House, (5th Floor)

57, Marina

Lagos

Nigeria

www.agusto.com

RATING RATIONALE

Agusto & Co. affirms the “A-“ rating assigned to Union Bank of Nigeria Plc (‘UBN’ or ‘Union

Bank’ or ‘the Bank’). The rating assigned reflects adequate capitalisation levels, a good

domestic brand franchise, a good liquidity profile and refinancing capacity. The rating is

however constrained by the lower profitability metrics recorded compared to

contemporaries and Nigeria’s slowly recovering economy that adversely impacts the

Bank’s key obligors. The unpredictability of the regulatory environment also threatens

the performance of UBN and Nigeria’s banking industry in the short term.

UBN is a tier II bank, with over a hundred years of experience in the Nigerian banking

industry. The Bank’s long-term focus on Nigeria led to the strategic decision to divest of

its United Kingdom subsidiary, Union Bank UK and the process is ongoing. UBN’s total

assets and contingents grew by a marked 20.9% year-on-year to ₦2.3 trillion as at 31

December 2020, driven by a larger customer deposit base and additional borrowings

during the review period. Loans and advances, the largest asset class, increased by 23.8%

to ₦736.7 billion and accounted for 32.1% of the asset base. We note adversely the

significant concentration in the loan book with the top 20 obligors accounting for 53%

of gross loans as at the FYE 2020. Such concentration in our opinion makes the Bank

vulnerable to deterioration in the financial condition of any of these obligors.

Due to the impressive growth in the loan book in a COVID-19 distraught year, Union

Bank’s non-performing loans (NPL), based on the prudential guidelines dipped by 16%

and accounted for 4% (FYE 2019: 5.8%) of gross loans as at the FYE 2020, lower than the

regulatory guidance of 5%. UBN wrote off ₦4.2 billion (FY 2019: ₦15 billion) impaired

loans in an attempt to clean up the loan portfolio. The bulk of the write-offs were from

the agriculture, general commerce and consumer credit sectors. Without the write-offs,

the Bank’s NPL ratio would have been 4.6%, albeit lower than the 5% regulatory

threshold. As at the FYE 2020, UBN’s loan loss provision to NPL ratio improved to 149.1%

(FYE 2019: 128.6%), an adequate coverage in our opinion. In our opinion, UBN’s asset

quality metrics requires improvement despite the improving NPL ratio, given the

A financial institution of good financial condition and strong capacity to meet its

obligations as and when they fall due.

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The Bank of Industry Union Bank of Nigeria Plc

2021 Credit Rating

significant concentration and the loan book’s tilt to vulnerable sectors of a slowly

recovering economy.

In the financial year ended 31 December 2020, Union Bank’s interest income declined by

3.1% to ₦112.9 billion due to the prevailing low interest rate environment which also

resulted in a 13.6% dip in interest expense to ₦56 billion. Consequently, the Bank’s net

interest spread (NIS) improved to 50.4% in FY 2020 from 44.4% in FY 2019, albeit lower

than select peers. Nevertheless, Union Bank’s net interest margin of 9% as at the FYE

2020 compared favourably to peer – Fidelity’s 8% but was lower than Stanbic IBTC’s

11%. During the review period, UBN’s non-interest income remained at ₦44.3 billion and

was supported mainly by foreign exchange revaluation gains and profit on disposal of

fixed income securities, earnings with inconsistent patterns in our opinion. The Bank’s

cost-to-income ratio (CIR) was a higher 75.4% (FY 2019: 74.1%) in the FY 2020 and thus

Union Bank recorded a decline in pre-tax return on average assets (ROA) to 1.2% (FY

2019: 1.5%) and pre-tax return on average equity (ROE) of 11.5% (FY 2019: 12.4%). The

lower profitability metrics reflect the negative impact of the pandemic on UBN’s

performance. The Bank’s ROE was lower than the 13.2% average inflation rate recorded

in the FY 2020 and lower than select peers. We consider Union Bank’s profitability to be

subpar. In the near term, we believe that higher inflationary pressures and unfavourable

regulations may further constrain the Bank’s profit levels.

Union Bank’s Basel II capital adequacy ratio (CAR) declined to 17.5% as at the FYE 2020

from 19.7% in FYE 2019 due to a 12.6% growth in risk-weighted assets, but remained

above the minimum of 15% for commercial banks with international authorisation. We

consider Union Bank’s capital to be adequate for current business risks.

In the review period, UBN’s liquid assets grew by 24.5% to ₦703.7 billion and accounted

for 73.2% (FYE 2019: 79.9%) of total LCY deposits as at the FYE 2020, significantly higher

than the regulatory minimum of 30%. We view UBN’s liquidity profile as good with

sufficient ability to refinance which is supported by the Bank’s age and domestic brand

equity.

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2021 Credit Rating

Table 1: Financial Data

•Good domestic franchise

•Good liquidity profile

•Growing digital footprint

•Experienced and stable management team

Strengths

•Subpar profitability ratios compared to its peers

•Concentration by obligor in the loan book

•High cost-to-income ratio

Weaknesses

•Sustaining profitability amidst heightened competition

•Forestalling deterioration in credit risk

•Unfavorable regulatory policies

Challenges

31 December 2018 31 December 2019 31 December 2020

Total Assets & Contingents ₦1.5 trillion ₦1.9 trillion ₦2.3 trillion

Total Local Currency Customer Deposits ₦660.8 billion ₦707.1 billion ₦955.5 billion

Net Earnings ₦90.1 billion ₦95.5 billion ₦103.4 billion

Return on Average Assets & Contingents (ROA) 1.3% 1.5% 1.2%

Return on Average Equity (ROE) 8.0% 12.4% 11.5%

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2021 Credit Rating

PROFILE

Union Bank of Nigeria Plc (“UBN” or “Union Bank” or “the Bank”) was established as a Colonial Bank in 1917.

It became Barclays Bank DCO (Dominion, Colonial and Overseas) as a result of its acquisition by Barclays Bank

in 1925. Following Nigeria’s independence and the enactment of the Companies Act of 1968, the Bank was

incorporated as a private limited company in 1969 and renamed Barclays Bank of Nigeria Limited. In 1971,

after the listing of its shares on the Nigerian Stock Exchange (NSE) and the acquisition of shares driven by the

Nigerian Enterprises Promotion Act, Barclays Bank of Nigeria Limited became a public limited company, wholly

owned by Nigerians. Subsequently, the name was changed to Union Bank of Nigeria Plc to reflect the change

in the ownership structure.

After the 2009 Nigerian banking crisis, the Central Bank of Nigeria (CBN) through AMCON (Asset Management

Corporation of Nigeria) acquired 85% of the Bank’s equity. In 2012, a recapitalisation exercise was executed

with the injection of $500 million by a consortium of local and foreign investors called the Union Global

Partners Limited (UGPL). UGPL comprises the following investors: Africa Capital Alliance, African Development

Corporation (owned by Atlas Mara), Corsair Investments, FMO, PPF Holdings II Limited and Standard Chartered

Private Equity. The consortium acquired 65% of Union Bank’s equity from AMCON and in the last quarter of

2014, Atlas Mara Limited acquired the remaining 20% equity stake. Atlas Mara Limited progressively increased

its stake in the Bank and currently holds 26% of equity directly.

Atlas Mara Limited is an Africa focused financial services company, founded in November 2013 by the former Group

Chief Executive Officer of Barclays Plc, Bob Diamond. Atlas Mara had an asset base of $2.6 billion as at December

2020.

Union Bank of Nigeria Plc is principally involved in the provision of banking and related financial services to

corporate and individual customers. In creating assets, UBN targets large corporates in key economic sectors

and seeks opportunities in the value chain. The Bank also leverages technology to extend credits to the retail

segment via its electronic banking platforms. Deposit liabilities are generated through 272 branches and cash

centres spread across the country. Union Bank’s core banking business is structured into four divisions: retail

banking, commercial banking, corporate banking and treasury.

Prior to the 2020 financial year, Union Bank of Nigeria Plc had two subsidiaries - UBN Property Company Plc

(a property development firm) and Union Bank United Kingdom (UK) Plc (a licensed UK Bank). In January 2020,

Union Bank announced its divestment from its UK subsidiary to focus solely on Nigeria and the distinct long-

term opportunities that the market presents. In December 2020, UBN obtained a “no-objection” clearance from

the Central Bank of Nigeria and the divestment is ongoing, albeit delayed due to the COVID-19 pandemic

induced lockdowns. Notwithstanding the ongoing divestment of Union Bank’s only international subsidiary,

UBN intends to maintain its international banking licence. The Bank also plans to divest its interest in UBN

Property Company Plc but this has been suspended due to pending litigation instituted by some shareholders

of the property development company. The divestment process would be concluded as soon as the litigation

is resolved. Union Bank’s head office is located at the Stallion Plaza on 36 Marina, Lagos.

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2021 Credit Rating

Figure 1: Union Bank of Nigeria Plc's Operating Model as at 31 December 2020

Information, Communication & Technology (ICT)

Union Bank uses the Flexcube Universal Banking System as its core banking application (CBA). Other

centralised software deployed by the Bank are the Calypso Treasury Management System, Misys Trade

Innovation Plus and Omni flow Business Process Management. Hardware solutions comprise Oracle

supercluster infrastructure and DELL EMC converged infrastructure. For email correspondences, UBN uses

Microsoft Office 365 while Cisco’s voice and video conferencing platforms assist for workforce collaboration

and productivity as well as for extending internal telephony extension out of the physical office.

For offsite backups, Union Bank deploys the tape backup infrastructure and has a similar set of infrastructure

at three CBN approved tier III data centre sites in the country.

Correspondent Banks

Union Bank of Nigeria Plc had correspondent banking relationships with the following banks in 2020:

ABSA/Barclays Bank Citibank Zenith Bank UK Union Bank UK

Access Bank UK Commerzbank FBN UK Byblos Bank Europe

Bank of Beirut, UK Crown Agents Bank FCMB UK UBA, UK

Oddo BHF Bank Deutsche Bank Mauritius Commercial Bank AFREXIM Bank

Byblos Bank Lebanon Standard Chartered Bank Standard Bank SA BMCE Bank International

UBA New York Rand Merchant Bank British Arab Commercial Bank (BACB)

Summary of Financial Performance

As at 31 December 2020, UBN’s total assets and contingents stood at ₦2.3 trillion, representing a 21% growth

over the prior year. As at the same date, tier 1 (core) capital stood at ₦229.1 billion and funded 10% of the

Bank’s asset base while deposits of ₦1.3 trillion funded 49.5%. UBN’s capital adequacy ratio (CAR) computed

Union Bank of Nigeria Plc

Business Segments

Retail & SME, Commercial, Corporate

and Treasury

Divested subsidiaries in progress

Union Property Company Plc and Union Bank, UK

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2021 Credit Rating

using the Basel II standards stood at 17.46%. During the year, UBN grew its loan portfolio by a marked 23.8%

to ₦736.7 billion and recorded a non-performing loan to gross loans ratio of 4% as at the FYE2020.

Net earnings in the period ended 31 December 2020 increased by 8.3% to ₦103.4 billion. Furthermore, the

Bank’s cost-to-income ratio (CIR) deteriorated to 75.4% from 74.1% in the prior year. Pre-tax return on average

assets (ROA) and pre-tax return on average equity (ROE) stood at 1.2% and 11.5% respectively in 2020.

Table 2: Directors at Union Bank of Nigeria Plc

Directors Designation

Beatrice Hamza Bassey Board Chair

Emeka Okonkwo* Chief Executive Officer

Omolola Cardoso Executive Director

Joseph Mbulu Executive Director/Executive Compliance Officer/Chief Financial Officer

Adekunle Sonola** Executive Director

Obafunke Alade-Adeyefa Independent Non-Executive Director

Furera Isma Jumare** Independent Non-Executive Director

Richard Burrett Non-Executive Director

Ian Clyne Non-Executive Director

Kenroy Dowers Non-Executive Director

Paul Kokoricha*** Non-Executive Director

Taimoor Labib Non-Executive Director

Emeka Ogbechie**** Non-Executive Director

Mark Patterson Non-Executive Director

* Appointed in April 2021

** Retired with effect from March 2021

***Resigned with effect from 15th October 2020

****Appointed with effect from 28th August 2020

*****Appointed with effect from 27th May 2020

MANAGEMENT TEAM Mr. Emeka Okonkwo is the Chief Executive Officer of Union Bank. He joined the Bank in 2013 as an Executive

Director, Corporate Banking and Treasury business and was appointed as the Chief Executive Officer in April

2021.

Mr. Okonkwo began his career at Citibank Nigeria where he rose to become the Executive Director in charge

of Commercial Banking and Global Subsidiaries in 2009. At Citibank, he worked across various business

divisions including corporate finance, credit risk management, marketing, treasury and strategic management.

Prior to joining Union Bank, he was the Head of the Corporate and Investment Banking Division in Citibank

Bangladesh. Mr. Okonkwo has a Bachelor’s degree in Civil Engineering from the University of Nigeria, Nsukka;

an MSc in Construction Management from the University of Lagos and an MBA from Warwick Business School,

UK.

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2021 Credit Rating

Other members of the senior management team are:

Omolola Cardoso (Mrs.) Head, Retail Banking/Chief Digital and Innovation Officer

Rosemary David-Etim Divisional Executive Commercial Banking

Ogochukwu Ekezie-Ekaidem Chief Brand and Marketing Officer

Ikechukwuka Emerole Head, Treasury

Tetem Feyi-Waboso Chief Operations and Technology Officer

Joseph Mbulu Chief Financial Officer (CFO)/Executive Compliance Officer

Olajumoke Sherifat Odulaja Chief Risk Officer (CRO)

Miyen Swomen Chief Talent Officer

ANALYSTS’ COMMENTS

ASSET QUALITY

Union Bank of Nigeria Plc.’s total assets and contingents grew by a marked 20.9% to ₦2.3 trillion as at 31

December 2020, driven by a larger customer deposit base and additional borrowings during the review period.

The Bank’s assets were predominantly in the loan book and the liquid asset portfolio. Loans and advances, the

largest asset class increased by 23.8% to ₦736.7 billion and accounted for 32.1% of the asset base. Liquid

assets (primarily government securities), the second-largest asset class also grew by 24.5% to ₦703.7 billion

and accounted for 31% of total assets and contingents as at the FYE 2020. We also note the increased pool of

restricted deposits with the CBN which spiked by 20.4% to ₦356.5 billion due to the discretionary cash reserve

policy stance by the CBN and the 500 basis points increase in the cash reserve ratio. The non-earning restricted

deposits, which represented 155.6% of shareholders’ funds as at the FYE 2020, moderated the Bank’s

performance during the year under review, as the funds were not available for lending.

Union Bank has a moderate risk appetite and its lending strategy focuses on top tier corporates, mid-sized

commercial entities and retail customers. The Bank’s goal to be a leader in retail banking has driven its

activities in the retail segment, particularly via digitisation. As a result, UBN's SME and retail loans collectively

increased to 8.8% (FYE 2019: 7.8%) of gross loans and advances as at the FYE 2020. Similarly, loans to the

commercial segment improved slightly to 16% (FYE 2019: 15.4%) of the portfolio while, the corporate segment

remained the largest source of risk assets in the year under review, accounting for 75.2% of the Bank’s loan

portfolio, slightly lower compared to the 76.7% recorded in the previous year.

As at FYE 2020, foreign currency-denominated loans (FCY loans) grew by 23% to ₦355.6 billion and accounted

for 48% (FYE 2019: 48%) of gross loans and advances. We note that 12.2% of the 23% growth recorded during

the year under review in the FCY portfolio was largely due to the devaluation of the naira. Thus, a further

devaluation of the naira will amplify the loan book in the near term.

Union Bank’s loan portfolio is significantly concentrated with the top 20 obligors accounting for 53% (FYE

2019: 58%) of gross loans as at the FYE 2020. Such concentration in our view makes UBN vulnerable to

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2021 Credit Rating

deterioration in the financial condition of any of these obligors. We also note that the Bank’s largest exposure

(an oil & gas operator) accounted for 19.3% of shareholders’ equity (FYE 2019: 16.7%), slightly below the single

obligor limit of 20% which we view negatively. The client could not source the required foreign currency to

reduce the exposure based on the prevailing illiquidity in the foreign exchange market. While the Issuer seeks

to reduce the exposure to comply with the CBN’s single obligor limit in the near term, a further naira

devaluation will increase concentration in the loan book.

Figure 2: Loan Book by Sector (FYE 2020)

Others* include Agriculture, Finance and Insurance, SME, Hospitality, Human health and Social work, Public Utilities, Real Estate, Transportation

and Storage

UBN’s loans to oil and gas operators grew by 32% to ₦226.3 billion as at the FYE 2020. The Bank’s exposure

was mainly skewed to upstream oil and gas operators which causes the loan book to remain susceptible to

deterioration in periods of adverse changes in crude oil prices. The Bank’s exposure to the oil & gas sector is

slightly higher than our estimated industry average of 30% for exposures to oil & gas which emphasises undue

concentration.

Union Bank’s loans to the manufacturing sector also grew significantly by 55% to ₦132.6 billion as at the FYE

2020. We note that the manufacturing sector is a conglomeration of different industries but, given that most

manufacturing firms depend primarily on imported inputs, we are concerned that the lingering illiquidity in

the foreign exchange market together with the declining consumer purchasing power has adversely impacted

obligors in that sector.

Loans to traders (classified under general commerce) and personal loans (categorised under general) which

grew by 14% and 52% respectively year-on-year jointly accounted for 26% of the loan book as at the FYE 2020.

We remain concerned that the dwindling customer purchasing power amidst the prevailing macroeconomic

headwinds which has extended trade cycles could adversely impact the performance of these obligors.

Manufacturing

18%

General Commerce

13%

Retail

(Consumer

Credit)

13%

Power

8%

Construction

5%

Information &

Communication

5%

Others*

7%

Oil & Gas -

Upstream

14%

Oil & Gas -

Downstream

9%

Oil & Gas

Services

8%

Oil & Gas

31%

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2021 Credit Rating

Power sector credits also rose by 12% to ₦61.5 billion as at the FYE 2020. The power sector is plagued with

cash flow issues, which has impaired performance over the years. Moreover, the sector remains a threat to

good asset quality metrics of the banking industry given that operators borrowed in FCY to purchase assets

and cashflow constraints together with Nigeria’s illiquid FX market that has impacted their ability to pay.

In line with the IFRS 9 accounting standard, 71.8% (FYE 2019: 66.6%) of the Bank’s gross loans were deemed

to have a very low risk of default as at 31 December 2020 and, were therefore classified under the stage 1

category. As at the same date, the default risk ascribed to 19.8% (FYE 2019: 23.5%) of the loan book was

estimated to have increased since the inception of the loans and were thus grouped under the stage 2 category.

Loans in stage 3 grew by 5.3% to ₦61.9 billion reflecting the macroeconomic headwinds elicited by the

pandemic and represented 8% (FYE 2019: 10%) of gross loans as at the FYE 2020. Stage 3 loans in Union Bank

as at the FYE 2020 was an even split between watch list or ‘Stage 3 unimpaired’ (4%) and impaired (4%) loans.

However, Union Bank’s non-performing loans, based on the prudential guidelines, declined by 16% to ₦29.4

billion and accounted for 4% of gross loans as at FYE 2020. The Bank’s non-performing loan (NPL) ratio in the

FY 2020 was lower than prior year’s 5.8% and lower than the regulatory threshold of 5%. UBN’s NPL ratio was

at par with selected peers; Fidelity Bank Plc (Fidelity Bank) and Stanbic IBTC Bank Plc (Stanbic IBTC) with 3.8%

and 4% respectively as at FYE 2020.

Figure 3: Breakdown of NPLs by sector (FYE 2020)

The non-performing loans during the year under review stemmed mainly from the general (personal loans or

consumer credit), oil and gas, and general commerce segments. This was due to a weaker macroeconomic

environment following the decline in crude oil prices, challenges in the foreign exchange market, the COVID-

19 pandemic and its induced lockdowns amidst raging inflationary pressures. UBN wrote off ₦4.2 billion (FY

2019: ₦15 billion) impaired loans in an attempt to clean up the loan portfolio. The bulk of the write-offs were

from the agriculture, general commerce and consumer credit sectors. Without the write-offs, the Bank’s NPL

ratio would have been 4.6%, albeit lower than the 5% regulatory threshold. As at the FYE 2020, UBN’s loan

General (Personal

Loans)

32%

Oil & Gas

25%

General Commerce

28%

Information &

Communication

3%

Manufacturing

8%

Others

4%

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2021 Credit Rating

loss provision (excluding regulatory reserves) to NPL ratio improved to 149.1% (FYE 2019: 128.6%), an

adequate coverage in our opinion.

We believe that Union Bank’s asset quality requires improvement, particularly given the threats posed by a

weak economy and a volatile oil and gas sector which significantly influences the fortunes of the operators.

While vaccinations have continued to gather momentum, the threat of the pandemic lingers and implies that

the oil and gas sector remains quite vulnerable. In addition, we believe that the consumer credit and general

commerce sector (particularly operators with large import dependence) will remain susceptible to the raging

inflationary pressures which have persisted even as the naira has continued to lose its value. Thus, overall, we

believe UBN’s loan book will remain susceptible to deterioration, given the exposure to vulnerable sectors

together with the negative impact of a fragile economy on growing quality risk assets.

RISK MANAGEMENT

Union Bank of Nigeria Plc operates a centralised risk management function headed by the Chief Risk Officer

(CRO), who reports to the Board of Directors and the Managing Director solely for administrative activities. The

risk management team is divided into six departments for efficiency - credit risk management, operational risk

management, market and liquidity risk management, business support and recovery, compliance and legal.

In assessing credit risk, UBN uses an obligor risk rating (ORR) model for corporate and commercial clients and

scorecards for retail risk management. The rating model has nine risk rating scales ranging from AAA to C and

can be further segregated into three categories: investment grade (AAA to BBB), standard grade (BB) and non-

investment grade (B to C). UBN prioritises retail lending and AAA to BBB rated corporate lending with low

probability of default and high returns. As at the FYE 2020, 59% (FYE 2019: 62%) of Union Bank’s obligors were

investment grade while 20% (FYE 2019: 12%) were in standard grade and 21% (FYE 2019: 26%) were non-

investment grade obligors.

Union Bank uses the Basel II standardised approach for market risk capital estimation. Internal models used

for computing market risks include Value at Risk (VAR), Economic Value of Equity (EVE), Sensitivity Analysis

and Price Value per basis point. Furthermore, the Bank’s market risk portfolio is sensitised monthly for

significant adverse movements in market risk factors. As at the FYE 2020, a 100 basis points increase in interest

rate would have resulted in a loss of ₦3.1 billion (FYE 2019: ₦8 billion) which is approximately 1.3% (FYE

2019: 3.8%) of the shareholders’ fund and vice versa. In addition, given the currency structure of the Bank’s

statement of financial position as at the FY 2020, a 10% naira depreciation would have resulted in an additional

profit of ₦6.1 billion, higher than ₦894 million profit projected from a similar naira devaluation pattern as at

the FYE 2019.

The Basic Indicator Approach (BIA) is adopted in measuring UBN’s operational risk while risk and control self-

assessment, key risk indicators, loss data collection, business continuity, disaster recovery management,

amongst other tools are used in managing operational risks. During the FY 2020, penalties of ₦10 million were

paid by the Bank for failure to ensure that customers possess requisite e-form M for the importation of goods

and for permitting customers to transfer accumulated cash deposits above US$10,000 in contravention of the

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2021 Credit Rating

revised CBN Foreign Exchange Manual. Nevertheless, penalties paid was significantly lower than the ₦124.3

million paid in the prior year for contravention of the CBN’s policies and regulations.

We consider UBN’s risk management framework to be adequate for its current business risks. However, the

slowly recovering macroeconomy and lingering pandemic necessitate a fortification and closer monitoring of

credit risk particularly to forestall losses in the near term.

EARNINGS

In the financial year ended 31 December 2020, UBN’s interest income declined by 3.1% to ₦112.9 billion due

to the prevailing low interest rate environment which also resulted in a 13.6% dip in interest expense to ₦56

billion. The 100 basis points reduction in the monetary policy rate (MPR) together with the adjustment of the

interest paid on savings deposits supported the 34% decline in interest expense on customer deposits.

Consequently, the Bank’s net interest spread (NIS) improved to 50.4% (FY 2019: 44.4%) in FY 2020, albeit lower

compared to 66.9% and 68.2% recorded by Fidelity Bank and Stanbic IBTC Bank respectively. However, Union

Bank’s net interest margin1 of 9% as at the FYE 2020 compared favourably to peer – Fidelity’s 8% but was

lower than Stanbic IBTC’s 11%.

Contrary to the typical spike in loan loss expense logged by several banks in the year under review, UBN

recorded a write-back of ₦2.3 billion (FY 2019: Impairment charge of ₦184 million), largely due to recoveries;

commendable in a year ravaged by the COVID-19 pandemic.

Union Bank’s non-interest income earned from auxiliary activities such as currency and securities trading,

electronic banking services, account maintenance, commissions on letters of credit (LCs) and invisible trades

and guarantees collectively amounted to ₦44.3 billion in FY 2020, at par with the prior period. Inconsistent

trading income - predominantly from foreign exchange revaluation gains and profit on disposal of fixed income

securities, dominated the Bank’s non-interest income in the review period. In the FY 2020, UBN’s non-interest

income to total assets ratio was lower at 1.9% (FY 2019: 2.6%), better than Fidelity Bank’s 0.9% but lower than

Stanbic IBTC Bank’s 3.1%.

Figure 4: Breakdown of Non-Interest Income (FY 2019 and FY 2020)

1 The net interest margin formula is calculated by dividing the difference of interest income and interest expenses by the average earning assets.

29%

20% 17% 20%

6% 8%

31%

18% 16% 16%11%

8%

Trading Income Other operating

income

E-business fee

income

Recoveries FX Gains Credit Related fees

and commissions

income

2019 2020

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2021 Credit Rating

In the financial year ended 31 December 2020, Union Bank’s operating expenses (OPEX) increased by 10.2%

to ₦78 billion and translated to a cost-to-income ratio (CIR) of 75.4% (FY 2019: 74.1%). The Bank’s OPEX was

at par with Fidelity Bank’s 74.9% but significantly higher than Stanbic IBTC Bank’s 55.9%. The cost-to-income

ratio was also higher than the estimated 70.7% for the banking Industry in 2020. UBN’s OPEX was fuelled

mainly by non-discretionary regulatory costs, software expenses and general administrative expenses.

Software maintenance expenses grew by 39% to ₦5.8 billion and accounted for 7.5% of total expenses, due

to the devaluation of the Naira in the review period. Restitutions based on customer complaints together with

inflationary pressures caused general administrative expenses to grow by 127% to ₦6.1 billion, constituting

7.8% of total OPEX. Non-discretionary regulatory costs (NDIC premiums and AMCON charges) also grew by

16.3% due to the growth in the asset base and customer deposits and accounted for 17.6% of operating

expenses. In our view, Union Bank’s earnings are low relative to its costs which continues to elevate its cost-

to-income ratio.

Overall, Union Bank’s pre-tax profits (PBT) remained flat at ₦25.4 billion but translated to a decline in

profitability ratios given the enlarged asset base and the increase in shareholders’ funds during the year under

review. The pre-tax return on average assets (ROA) dipped to 1.2% (FY 2019: 1.5%) and pre-tax return on

average equity (ROE) declined to 11.5% (FY 2019: 12.4%). UBN’s ROE was lower than the 13.2% average

inflation rate recorded in FY 2020, and lower than Fidelity Bank’s 12.6% and Stanbic IBTC Bank’s 26.8%. We

consider Union Bank’s profitability to be weak, even in a COVID-19 distraught year.

Figure 5: Profitability Ratios (FY2020)

Subsequent to the year-end, the unaudited financial statements for the three months ended 31 March 2021

indicates slightly improved profitability metrics, bolstered by further growth in earning assets. The Bank’s

annualised ROA remained at 1.2%, albeit, annualised ROE increased to 12%. In the near term, UBN’s new

strategy dubbed “Turbo-charged for Success” may accelerate revenue via increased lending and enhanced

growth in low cost retail deposits. Nevertheless, higher inflationary pressures and unfavourable regulations

may constrain the Bank’s profit levels.

1.0%

12.6%

2.6%

26.8%

1.2%

11.5%

Pre-tax ROA Pre-tax ROE

Fidelity Stanbic IBTC Union

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2021 Credit Rating

CAPITAL ADEQUACY

In spite of weaker macroeconomic fundamentals following the outbreak of COVID-19, Union Bank recorded

acceptable capital adequacy metrics in the financial year ended 31 December 2020. The Bank’s core (tier 1)

capital grew by 8.5% to ₦229.1 billion as at FYE 2020 on the back of higher retained earnings and accretion

to reserves. At this level, Union Bank’s core capital was above the ₦50 billion minimum capital set by the

Central Bank of Nigeria for banks with international authorisation. As at the same date, the Bank’s eligible tier

I capital accounted for 75.3% of total qualifying capital, at par with the 75% regulatory minimum.

Union Bank’s tier 2 capital remained at ₦48 billion as at FYE 2020, at par with prior year. The Bank’s tier 2

capital comprised fair value reserves of ₦18.4 billion and the Series III subordinated bond with an outstanding

balance of ₦29.5 billion. The bond was issued under the 2018 Registered ₦100 billion Debt Issuance

Programme.

UBN’s Basel II capital adequacy ratio (CAR) computed using the IFRS 9 transitional arrangement prescribed by

the CBN reduced to 17.5% (FYE 2019: 19.7%) as at the FYE 2020 due to the 12.6% growth in risk-weighted

assets, but remained above the minimum of 15% for commercial banks with international authorisation. We

note that Union Bank’s CAR was also negatively impacted by the regulatory adjustment of ₦1.6 billion for the

single obligor limit breach. Without the regulatory adjustment, the Bank’s CAR would have been a slightly

higher 17.6%. As at the FYE 2020, UBN’s CAR was at par with Fidelity Bank’s 18.18%, but lower than 19.6%

recorded by Stanbic IBTC Bank.

We consider Union Bank’s capital to be adequate for current business risks.

187

211

229

16.4%

19.7%

17.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

20.0%

180

195

210

225

240

2018 2019 2020

Tier 1 Capital (in Billions of Naira) CAR (%)

Figure 6: Tier I Capital (₦'billion) and Capital Adequacy Ratio

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2021 Credit Rating

LIQUIDITY AND LIABILITY GENERATION

Union Bank of Nigeria Plc leverages its good brand equity as one of the oldest commercial banks in Nigeria,

with operations spanning over a century for liability generation. In its years of operations, the Bank has

consistently expanded its physical and digital footprints across the country. As at the FYE 2020, Union Bank

had 272 branches and cash centres, 942 Automated Teller Machines (ATMs) and 6,100 Point of Sale (PoS)

terminals deployed across the country. As at the same date, the Bank had over 6 million customers with circa

3 million enrolled on UBN’s mobile application while about 2 million clients are online services subscribers.

Through its branch network and electronic banking platforms, UBN generates deposits from retail, commercial

and corporate clients across various economic sectors.

Figure 7: Deposits by Source

During the year under review, Union Bank’s customer’s deposits grew by 28.1% and crossed the ₦1 trillion

mark to stand at ₦1.1 trillion as at 31 December 2020. The growth in deposits was supported by the increased

client adoption of digital channels during the pandemic. In particular, local currency (LCY) term deposits grew

by 24% year-on-year to ₦283.5 billion while LCY low cost (current and savings) deposits spiked by a larger

41% to ₦672 billion. Thus, the Bank’s deposit mix improved with low-cost LCY deposits accounting for a higher

70.3% (FYE 2019: 67.6%) of total LCY deposits, though still lower than Fidelity Bank’s 73% and Stanbic IBTC

Bank’s 82%.

As at the FYE 2020, foreign currency (FCY) deposits remained flat at ₦175.6 billion and was only sufficient to

fund 49.4% (FYE 2019: 62%) of the Bank’s FCY loan book. When we factor UBN's FCY borrowings, the ratio

increases to 94%, inadequate in our view. We expect a larger pool of FCY deposits by FYE 2021 via new product

offerings in UBN, given the appetite of Nigerians for FCY investments as a hedge for naira devaluation.

On account of an improved deposit mix and a lower interest rate environment during the year under review,

UBN’s weighted average cost of funds (WACF) improved to 4.2% (FY 2019: 5.6%). However, Fidelity Bank and

Stanbic IBTC bank recorded lower WACF of 3.6% and 2.2% respectively. We believe that with the marked

investments made in digital banking, there is now a need for the Bank to effectively use it to grow its low cost

deposits which we believe is achievable given its antecedents and the Nigerian populace affinity to Union. In

the near term, we expect UBN’s WACF to increase on the back of the rising interest rates.

Retail clients

53%

Commercial

clients

16%

Corporate clients

31%

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2021 Credit Rating

Figure 8: UBN Deposit by Account Type (FYE2020)

Union Bank’s operations were also funded by borrowings from multilateral financial institutions, intervention

funds (for on-lending activities) and the debt capital market (for commercial papers and bonds). As at the FYE

2020, the Bank’s medium-term borrowings (excluding debt securities that qualify as tier 2 capital) collectively

stood at ₦232.9 billion, reflecting an 88% growth over the prior year. As at the same date, UBN’s trade finance

facilities were sourced from correspondent banks and the FCY denominated borrowings were from the

Overseas Private Investment Corporation (OPIC) and African Export-Import Bank (AFREXIM). Union Bank’s

short-term bond due 2021 (‘the Series 1, 15.5%, 3-year issue’) had an outstanding balance of ₦7.5 billion in

the review period and another Series 2 unsecured bond had an outstanding balance of ₦6.5 billion. Both bonds

were issued under the ₦100 billion programme registered in 2018. The Bank also had commercial papers with

an outstanding balance of ₦34.6 billion in the review period.

Figure 9: Breakdown of Borrowings (FYE 2020)

Term

deposits

25%

Current

deposits

27%

Savings

deposits

33%

Foreign currency

deposits

15%

Commercial Papers

15%

Trade finance

facilities

25%

On-lending facilities

11%

Short-term bond

3%

FCY denominated

borrowings from

MFIs

46%

16


2021 Credit Rating

As at the FYE 2020, UBN had the Series III 10-year 16.2% subordinated unsecured fixed-rate bond due 2029

that qualified as tier 2 capital. The debt security amounted to ₦29.5 billion. Coupon payments on the bond are

made semi-annually with a bullet repayment of the principal at maturity. We view the diversity in sources of

fund positively.

In the review period, liquid assets grew by 24.5% to ₦703.7 billion and accounted for a lower 73.2% (FYE 2019:

79.9%) of total LCY deposits as at FYE 2020. Nevertheless, the Bank’s liquidity ratio was significantly higher

than the regulatory minimum of 30%. A review of the maturity profile of UBN’s loans and deposit liabilities

reveals some mismatches. As at 31 December 2020, only loans maturing within a year were adequately funded

by deposits in the corresponding maturity buckets. However, deposits, debt securities issued and other financial

liabilities maturing after 12 months were insufficient to fund the loans in the corresponding period.

Nevertheless, given its brand, the Bank can easily access the financial market for commercial papers at a

reasonable cost to meet any funding shortfall. We view UBN’s liquidity profile as good with sufficient ability

to refinance which is supported by the Bank’s age and domestic brand equity.

OWNERSHIP, MANAGEMENT & STAFF

Union Bank of Nigeria Plc is listed on the Nigerian Stock Exchange (NSE) with 29,264,484,854 shares owned

by 452,911 individuals and institutions as at 31 December 2020. As at the same date, approximately 90.52%

of the Bank’s equity was held by foreign investors. According to the register of members, no shareholder, other

than the under-listed held more than 5% of the Bank’s issued share capital as at 31 December 2020.

Table 3: Significant Shareholders as at 31 December 2020

Shareholders Shareholding (‘000) % Holding

Atlas Mara Limited 7,471,752,753 25.53%*

Union Global Partners Limited 19,017,923,071 64.98%

Total 26,489,675,826 90.51%

* Direct holdings

Union Bank is governed by a 14-member Board of Directors comprising eight Non-Executive Directors (one of

whom is an Independent Non-Executive Director) and six Executive Directors. Mrs Beatrice Hamza Bassey

chairs the Board. During the review period, Mr Emeka Ogbechie and Mr Paul Kokoricha were appointed as Non-

Executive Directors in May and August 2020 respectively after the retirement of Mr Nath Ude and Mr Kasongo

Kandolo during the year under review. In addition, Mrs Furera Isma Jumare, an Independent Non-Executive

Director, resigned from the Board in October 2020 following her appointment as Director-General of the Jigawa

State Investment Promotion Agency. Subsequent to the year end, Mr Emeka Emuwa retired as the Managing

Director and Chief Executive Officer on March 30, 2021 and Mr Emeka Okonkwo who hitherto served as an

Executive Director was appointed in his stead. Mr Adekunle Sonuola also resigned from the Board on March

30, 2021.

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2021 Credit Rating

Mr Emeka Ogbechie is the Chief Finance Officer of Capital Alliance Nigeria, a position he has held since 2019.

Before joining Capital Alliance Nigeria, He had held positions in several local and international organisations

including Equity Bank Kenya Limited; UBA Capital Plc. Lagos; Credit Suisse London; Deloitte London; and Ernst

& Young, London. Mr Ogbechie holds a Bachelor of Arts degree in Business Administration from American

Intercontinental University, and a Master of Science Degree in Management from the London School of

Economics. He is also a member of the Institute of Chartered Accountants in England and Wales (ICAEW) and

holds an MBA (Strategy and Finance) from INSEAD.

Mr Paul Kokoricha is a Partner at African Capital Alliance, a private equity investment management firm. He

joined African Capital Alliance in 2002 as the Chief Financial Officer, before serving as a Fund Manager in

2004. Before joining African Capital Alliance, Mr Kokoricha worked with Liberty Bank Plc and Arthur Andersen

& Co. He is a Director at several companies, including Continental Reinsurance, Bankers Warehouse Limited,

Fin Insurance Limited and Swift Networks Limited. He is the Chairman of the Board of Private Equity and

Venture Capital Association of Nigeria. Mr Kokoricha holds a B.Sc in Economics from the University of Nigeria,

Nsukka and is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN).

Mr Emeka Okonkwo, the erstwhile Executive Director, Corporate Banking and Treasury now oversees the

management of the Bank as the Group Managing Director (GMD) and Chief Executive Officer (CEO), following

his appointment on 30 March 2021. Mr Okonkwo is supported by a management team comprising 8 key staff.

We do not anticipate any change in the Bank’s strategic focus as a result of the recent change in leadership as

the new GMD was an Executive Director of the Bank.

During the year under review, UBN employed an average of 2,342 persons, down from 2,362 employees in the

prior year. Management staff accounted for 1.4% of staff strength while non-management staff made up the

balance of 98.6%. In line with the marginal decline in staff numbers, staff costs dipped by 2.4% to ₦32.5 billion.

Staff productivity, depicted by net earnings per staff thus increased by 9.2% to ₦44.2 million and covered staff

cost per employee 3.2 times (FY 2019: 2.9 times), lower than our estimated banking industry average of 4.5

times. During FY 2020, the net earnings per staff covered staff cost per employee of Fidelity Bank and Stanbic

IBTC Bank by 4.4 times and 4.4 times respectively. In our view, UBN’s staff productivity metrics is low compared

to peers and reflective of the lower earnings of the Bank. We also note that the Bank currently has only one

Independent Non-Executive Director (INEDs) contrary to the minimum of two INEDs prescribed by CBN’s code

of corporate governance. Nonetheless, we note positively the improving productivity ratios and consider UBN’s

management team to be stable and experienced with a good succession plan, particularly at the senior

management level.

Table 4: Staff Productivity Ratios

UBN UBN Fidelity Bank Stanbic IBTC Bank

2019 2020 2020 2020

Staff cost per employee (₦'000) 14,079 13,857 8,614 14,482

Net earnings per staff (₦'000) 40,443 44,159 37,924 64,336

Net Earnings per staff/Average Staff cost (in times) 2.87 3.19 4.40 4.44

Staff cost/Net earnings 35% 31% 23% 23%

Staff costs/Operating expenses 47% 42% 30% 40%

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2021 Credit Rating

MARKET SHARE Union Bank of Nigeria Plc is one of Nigeria’s oldest commercial banks with over a century of experience in the

Nigerian market and has survived several economic cycles. With an asset base of ₦2.1 trillion, UBN ranks

amongst the top ten banks operating in Nigeria as at 31 December 2020. Table 5 shows that the Bank’s share

of industry metrics is satisfactory and improving, accounting for a higher 4.5% (FYE 2019: 4.1%) of the banking

industry’s total assets and contingents as at the FYE 2020. UBN’s contribution to the Industry’s pre-tax profit

also improved to 3.3% (FY 2019: 2.7%) in FY 2020. While we expected a greater share of the industry’s resources

given Union Bank’s years of existence, we are optimistic that the Bank’s good domestic brand in the Nigerian

market and disciplined implementation of the “Turbo-charged for Success” strategy will spur an improved

market positioning in the Nigerian banking industry.

Table 5: Market Share Indicators (Estimates for the FY 2020)

UBN UBN Fidelity Bank Stanbic IBTC Bank

2019 2020 2020 2020

LCY deposits 3.6% 4.4% 6.5% 2.7%

Total assets & contingents 4.1% 4.5% 6.1% 5.0%

Total loans & leases - net 3.5% 4.0% 7.7% 3.6%

Net earnings 3.6% 3.9% 4.2% 5.0%

Profit before tax 2.7% 3.3% 3.6% 7.5%

OUTLOOK

UBN intends to be Nigeria’s most reliable and trusted partner. To achieve this aim, the Bank wants to ensure

efficient delivery of simple and smart solutions buoyed by improved digitalisation. Union Bank in 2021 plans

to also focus on improving customer experience which will ultimately drive its pursuit of increased customer

loyalty. There are also plans to grow the loan book by 36% to ₦1 trillion in the near term via increased

disbursements to key sectors especially manufacturing and education (learning and development). The Bank

believes that the efficient implementation of these plans will translate to a growth in profit before tax by 17%

to ₦30 billion in FY 2020.

We view these plans as achievable particularly as the economy recovers from the adverse impact of the

pandemic. Thus, we anticipate that the Bank’s profitability will improve moderately, capitalisation metrics

should remain adequate and liquidity will remain good. However, despite a lower NPL ratio, we believe that

UBN’s asset quality requires improvement to forestall losses particularly given the slowly recovering economy

and its focus on some high risk sectors such as Oil & gas and Power. In addition, the Bank’s 2021 performance

will be significantly supported by its ability to source more low-cost deposits. Nevertheless, we expect Union

Bank’s domestic franchise value and enhanced digitalisation to facilitate the growth of low-cost retail deposits

in the near term. We hereby attach a stable outlook to the rating of Union Bank of Nigeria Plc.

19


2021 Credit Rating

FINANCIAL SUMMARY

UNION BANK OF NIGERIA PLC

BALANCE SHEET AS AT 31-Dec-20 31-Dec-19 31-Dec-18

N'000 N'000 N'000

ASSETS

1 Cash & equivalents 116,398,000 5.1% 136,806,000 7.2% 108,913,000 7.3%

2 Government securities 438,181,000 19.1% 242,218,000 12.8% 196,290,000 13.2%

3 Stabilisation securities 146,636,000 6.4% 184,178,000 9.7% 50,115,000 3.4%

4 Quoted investments 2,493,000 0.1% 1,976,000 0.1% 2,195,000 0.1%

5 Placements with discount houses

6 LIQUID ASSETS 703,708,000 30.7% 565,178,000 29.8% 357,513,000 24.1%

7 BALANCES WITH NIGERIAN BANKS

8 BALANCES WITH BANKS OUTSIDE NIGERIA

9 Direct loans and advances - Gross 736,712,000 32.1% 595,298,000 31.4% 496,630,000 33.4%

10 Less: Cumulative loan loss provision (43,909,000) -1.9% (44,685,000) -2.4% (68,593,000) -4.6%

11 Direct loans & advances - net 692,803,000 30.2% 550,613,000 29.0% 428,037,000 28.8%

12 Advances under finance leases - net

13 TOTAL LOANS & LEASES - NET 692,803,000 30.2% 550,613,000 29.0% 428,037,000 28.8%

14 INTEREST RECEIVABLE

15 OTHER ASSETS 85,250,000 3.7% 74,450,000 3.9% 44,774,000 3.0%

16 DEFERRED LOSSES 95,875,000 4.2% 95,875,000 5.1% 95,875,000 6.5%

17 RESTRICTED FUNDS 356,452,000 15.5% 296,043,000 15.6% 281,868,000 19.0%

18 UNCONSOLIDATED SUBSIDIARIES & ASSOCIATES 2,195,000 0.1% 2,195,000 0.1% 10,567,000 0.7%

19 OTHER LONG-TERM INVESTMENTS 72,182,000 3.1% 64,070,000 3.4% 40,205,000 2.7%

20 FIXED ASSETS & INTANGIBLES 65,293,000 2.8% 63,315,000 3.3% 65,458,000 4.4%

21 TOTAL ASSETS 2,073,758,000 90.4% 1,711,739,000 90.2% 1,324,297,000 89.1%

22 TOTAL CONTINGENT ASSETS 220,285,000 9.6% 185,327,000 9.8% 161,936,000 10.9%

23 TOTAL ASSETS & CONTINGENTS 2,294,043,000 100.0% 1,897,066,000 100% 1,486,233,000 100%

CAPITAL & LIABILITIES

24 TIER 1 CAPITAL (CORE CAPITAL) 229,107,000 10.0% 211,232,000 11.1% 186,752,000 12.6%

25 TIER 2 CAPITAL 47,960,000 2.1% 49,064,000 2.6% 13,335,000 0.9%

26 Medium to Long Term Borrowings 232,854,000 10.2% 123,871,000 6.5% 108,835,000 7.3%

27 Demand deposits 303,482,000 13.2% 213,269,000 11.2% 199,284,000 13.4%

28 Savings deposits 368,565,000 16.1% 264,638,000 13.9% 227,124,000 15.3%

29 Time deposits 283,484,000 12.4% 229,161,000 12.1% 234,384,000 15.8%

30 Inter-bank takings 4,018,000 0.2%

31 TOTAL DEPOSIT LIABILITIES - LCY 959,549,000 41.8% 707,068,000 37.3% 660,792,000 44.5%

32 Customers' foreign currency balances 175,585,000 7.7% 179,260,000 9.4% 183,621,000 12.4%

33 TOTAL DEPOSIT LIABILITIES 1,367,988,000 59.6% 1,010,199,000 53.3% 953,248,000 64.1%

34 INTEREST PAYABLE

35 OTHER LIABILITIES 428,703,000 18.7% 441,244,000 23.3% 170,962,000 11.5%

36 TOTAL CAPITAL & LIABILITIES 2,073,758,000 90.4% 1,711,739,000 90.2% 1,324,297,000 89.1%

37 TOTAL CONTINGENT LIABILITIES 220,285,000 9.6% 185,327,000 9.8% 161,936,000 10.9%

38 TOTAL CAPITAL, LIABILITIES & CONTINGENTS 2,294,043,000 100.0% 1,897,066,000 100% 1,486,233,000 100%

Proof

BREAKDOWN OF CONTINGENTS

39 Acceptances & direct credit substitutes 134,612,000 5.9% 109,710,000 5.8% 89,515,000 6.0%

40 Guarantees, bonds etc.. 85,673,000 3.7% 75,617,000 4.0% 72,421,000 4.9%

41 Short-term self liquidating contingencies

20


2021 Credit Rating


INCOME STATEMENT FOR THE YEAR ENDED 31-Dec-20 31-Dec-19 31-Dec-18

N'000 N'000 N'000

42 Interest income 112,920,000 71.8% 116,524,000 72.6% 104,792,000 74.8%

43 Interest expense (56,024,000) -35.6% (64,839,000) -40.4% (53,867,000) -38.5%

44 Loan loss expense 2,253,000 1.4% (184,000) -0.1% 3,897,000 2.8%

45 NET REVENUE FROM FUNDS 59,149,000 37.6% 51,501,000 32.1% 54,822,000 39.1%

46 ALL OTHER INCOME 44,271,000 28.2% 44,025,000 27.4% 35,274,000 25.2%

47 NET EARNINGS 103,420,000 65.8% 95,526,000 59.5% 90,096,000 64.3%

48 Staff costs (32,454,000) -20.6% (33,255,000) -20.7% (32,324,000) -23.1%

49 Depreciation expense (7,698,000) -4.9% (7,698,000) -4.8% (6,699,000) -4.8%

50 Other operating expenses (37,843,000) -24.1% (29,807,000) -18.6% (32,413,000) -23.1%

51 TOTAL OPERATING EXPENSES (77,995,000) -49.6% (70,760,000) -44.1% (71,436,000) -51.0%

52 PROFIT (LOSS) BEFORE TAXATION 25,425,000 16.2% 24,766,000 15.4% 18,660,000 13.3%

53 TAX (EXPENSE) BENEFIT (772,000) -0.5% (371,000) -0.2% (222,000) -0.2%

54 PROFIT (LOSS) AFTER TAXATION 24,653,000 15.7% 24,395,000 15.2% 18,438,000 13.2%

55 NON-OPERATING INCOME (EXPENSE) - NET

56 PROPOSED DIVIDEND (7,313,000) -4.7%

57 GROSS EARNINGS 157,191,000 100.0% 160,549,000 100% 140,066,000 100%

58 AUDITORS EY KPMG KPMG

59 OPINION CLEAN CLEAN CLEAN

KEY RATIOS 31-Dec-20 31-Dec-19 31-Dec-18

EARNINGS

60 Net interest margin 50.4% 44.4% 48.6%

61 Loan loss expense/Interest income 0.2%

62 Return on average assets (Pre - tax) 1.2% 1.5% 1.3%

63 Return on average equity (Pre - tax) 11.5% 12.4% 8.0%

64 Operating Expenses/Net earnings 75.4% 74.1% 79.3%

65 Gross earnings/Total assets & contingents 7.5% 9.5% 9.5%

EARNINGS MIX

66 Net revenue from funds 57.2% 53.9% 60.8%

67 All other income 42.8% 46.1% 39.2%

LIQUIDITY

68 Total loans & leases - net/Total lcy deposits 28.6% 34.9% 33.6%

69 Liquid assets/Total lcy deposits 73.2% 79.9% 54.1%

70 Demand deposits/Total lcy deposits 31.6% 30.2% 30.2%

71 Savings deposits/Total lcy deposits 38.4% 37.4% 34.4%

72 Time deposits/Total lcy deposits 29.5% 32.4% 35.5%

73 Inter-bank borrowings/Total lcy deposits 0.4%

74 Interest expense - banks/Interest expense 9.8% 8.5% 19.1%

75 NET FOREIGN CURRENCY ASSETS (LIABILITIES) (175,585,000) (179,260,000) (183,621,000)

21


2021 Credit Rating


KEY RATIOS CONT'D 31-Dec-20 31-Dec-19 31-Dec-18

ASSET QUALITY

76 Performing loans (N'000) 707,267,000 560,538,000 458,134,000

77 Non-Performing loans (N'000) 29,445,000 34,760,000 38,496,000

78 Non-Performing loans/Total loans - Gross 4.00% 5.8% 7.8%

79 Loan loss provision/Total loans - Gross 5.96% 7.5% 13.8%

80 Loan loss provision/Non-performing loans 149.12% 128.6% 178.2%

81 Risk-weighted assets/Total assets & contingents 43.20% 42.6% 42.9%

CAPITAL ADEQUACY

82 Adjusted capital/risk weighted assets 17.5% 19.7% 16.4%

83 Tier 1 capital/Adjusted capital 75% 75% 96.9%

84 Adjusted capital/Total loans - net 25% 28% 21%

85 Capital unimpaired by losses (N'000) 133,232,000 115,357,000 90,877,000

CAPITAL ADEQUACY STRESS TEST

86 Total shareholders' funds (N'000) 211,628,000 194,687,000 125,859,000

87 Cumulative loan loss provision (actual reserves) 43,909,000 44,685,000 68,593,000

88 Equity before all provision (line 293 + line 294) 255,537,000 239,372,000 194,452,000

89 Required reserves* 119,188,870 107,401,560 97,077,000

90 Equity after required reserves (line 295 - line 296) 136,348,130 131,970,440 97,375,000

STAFF INFORMATION

92 Net earnings per staff (N'000) 44,159 40,443 34,746

93 Staff cost per employee (N'000) 13857 14,079 12,466

94 Staff costs/Operating expenses 41.6% 47.0% 45.2%

95 Average number of employees 2,342 2,362 2,593

96 Average staff per branch 9 10 8

OTHER KEY INFORMATION

97 Legal lending limit(N'000) 26,646,400 23,071,400 18,175,400

98 Other unamortised losses(N'000) NONE NONE NONE

99 Unreconciled inter-branch items (N'000) DR/(CR)

100 Number of branches 272 240 309

101 Age (in years) 104 103 102

102 Government stake in equity (Indirect)

MARKET SHARE OF INDUSTRY TOTAL Estimates Actual Actual

2020 2019 2018

103 Lcy deposits (excluding interbank takings) 4.4% 3.6% 4.1%

104 Total assets & contingents 4.5% 4.1% 3.7%

105 Total loans & leases - net 4.0% 3.5% 3.0%

106 Net earnings 3.9% 3.6% 3.3%

107 Profit before tax 3.3% 2.7% 1.7%

108 Core capital 5.3% 5.1% 3.9%

22


2021 Credit Rating

RATING DEFINITIONS

Rating Category Modifiers

A "+" (plus) or "-" (minus) sign may be assigned to ratings from ‘Aa’ to ‘C’ to reflect comparative position within the rating category. Therefore, a

rating with + (plus) attached to it is a notch higher than a rating without the + (plus) sign and two notches higher than a rating with the - (minus)

sign.

Aaa A financial institution of impeccable financial condition and overwhelming capacity to meet obligations as and

when they fall due. Adverse changes in the environment (macro-economic, political and regulatory) are unlikely

to lead to deterioration in financial condition or an impairment of the ability to meet its obligations as and when

they fall due. In our opinion, regulatory and/or shareholder support will be obtained, if required.

Aa A financial institution of very good financial condition and strong capacity to meet its obligations as and when

they fall due. Adverse changes in the environment (macro-economic, political and regulatory) will result in a

slight increase the risk attributable to an exposure to this financial institution. However, financial condition and

ability to meet obligations as and when they fall due should remain strong. Although regulatory support is not

assured, shareholder support will be obtained, if required.

A A financial institution of good financial condition and strong capacity to meet its obligations. Adverse changes

in the environment (macro-economic, political and regulatory) will result in a medium increase in the risk

attributable to an exposure to this financial institution. However, financial condition and ability to meet

obligations as and when they fall due should remain largely unchanged. In our opinion, shareholder support

should be obtainable, if required.

Bbb A financial institution of satisfactory financial condition and adequate capacity to meet its obligations as and

when they fall due. It may have one major weakness which, if addressed, should not impair its ability to meet

obligations as and when due. Adverse changes in the environment (macro-economic, political and regulatory)

will result in a medium increase in the risk attributable to an exposure to this financial institution.

Bb Financial condition is satisfactory and ability to meet obligations as and when they fall due exists. May have

one or more major weaknesses. Adverse changes in the environment (macro-economic, political and regulatory)

will increase risk significantly.

B Financial condition is weak but obligations are still being met as and when they fall due. Has more than one

major weakness and may require external support, which, in our opinion, is not assured. Adverse changes in the

environment (macro-economic, political and regulatory) will increase risk significantly.

C Financial condition is very weak. Net worth is likely to be negative and obligations may already be in default.

D In default.

www.agusto.com

© Agusto&Co.

UBA House (5th Floor)

57 Marina Lagos

Nigeria.

P.O Box 56136 Ikoyi

+234 (1) 2707222-4

+234 (1) 2713808

Fax: 234 (1) 2643576

Email: [email protected]

202 1 final rating report

Documents