202 1 final rating report
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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
chiamakaozorjiri@agusto.com
Ayokunle Olubunmi, CFA
kunleolubunmi@agusto.com
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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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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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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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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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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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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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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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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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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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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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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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
13
The Bank of Industry Union Bank of Nigeria Plc
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
14
The Bank of Industry Union Bank of Nigeria Plc
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%
15
The Bank of Industry Union Bank of Nigeria Plc
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
The Bank of Industry Union Bank of Nigeria Plc
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.
17
The Bank of Industry Union Bank of Nigeria Plc
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%
18
The Bank of Industry Union Bank of Nigeria Plc
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
The Bank of Industry Union Bank of Nigeria Plc
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
The Bank of Industry Union Bank of Nigeria Plc
2021 Credit Rating
UNION BANK OF NIGERIA PLC
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
The Bank of Industry Union Bank of Nigeria Plc
2021 Credit Rating
UNION BANK OF NIGERIA PLC
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
The Bank of Industry Union Bank of Nigeria Plc
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.
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