union bank of nigeria plc
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Nigeria Bank Analysis | Public Credit Rating
Union Bank of Nigeria Plc
Nigeria Bank Analysis June 2019
Financial data:
(USDm comparative)*
31/12/17 31/12/18
NGN/USD (avg.) 305.3 305.6
NGN/USD (close) 305.5 306.5
Total assets 4,734.1 4,673.0
Total capital 1,124.3 736.2
Net advances 1,692.6 1,544.7
Liquid assets 1,587.3 1,625.1
Operating income 347.1 296.1
Profit after tax 42.6 59.2
Market cap.ⱡ N200.9bn/USD654.6m
Market share^ 3.8%
*Central Bank of Nigeria (“CBN”) exchange rate
ⱡ As at 20 June 2019 ^As a % of total commercial banking assets
as at 31 December 2018.
Rating history:
Initial Rating (June 2015)
Long-term rating: BBB+(NG)
Short-term rating: A2(NG)
Rating outlook: Stable
Last Rating (June 2018)
Long-term rating: BBB+(NG)
Short-term rating: A2(NG)
Rating outlook: Stable
Related methodologies/research:
Global Criteria for Rating Banks and Other
Financial Institutions, updated March 2017
UBN rating report (2015-18)
Glossary of Terms/Ratios, February 2018
GCR contacts:
Primary Analyst
Funmilayo Abdulrahman
Senior Credit Analyst
Committee Chairperson
Dave King
Analyst location: Lagos, Nigeria
Tel: +23 41 9049462-3
Website: www.globalratings.com.ng
Summary rating rationale
Union Bank of Nigeria Plc’s (“UBN” or “the Bank”) ratings take into
consideration its competitive position as a mid-sized player in the Nigerian
banking industry, the decline in market share (in terms of industry’s total
assets) to 3.8% at FY18 (FY17: 4.2%), as well as the ongoing effort by
management to reposition the Bank among the top-tier players.
Shareholders’ funds declined 34.3% to N225.6bn at FY18, following a
significant write-off totalling N132.6bn during the year (partly arising from
the reassessment of the loans and advances book under IFRS 9 and
management’s decision to write-off some of the previously fully provisioned
non-performing loans (“NPLs”)). Accordingly, the risk weighted capital
adequacy ratio (“CAR”) declined to 16.4% at FY18 (FY17: 17.8%), albeit
this was supported by CBN’s IFRS 9 transition arrangement (which allows
banks to gradually release additional provision from the process into CAR
computation over a four-year period). Going forward, management remain
confident of being able to sustain CAR above the required minimum. The
CAR ended up at 16.5% at 1Q FY19.
On the back of the loan book clean-up, gross NPL ratio declined to 8.7% at
FY18 (FY17: 19.8%) and further reduced to 7.6% at 1Q FY19. While
management plans to maintain the ratio below the FY18 position in FY19,
Global Credit Rating (“GCR”) does not expect a significant reduction in the
NPL ratio in the short term, considering the impact of the tough operating
environment.
Liquidity risk is considered low as the liquid and trading assets to short term
funding ratio ranked high (relative to peers) at 33.1% at FY18. Also,
statutory liquidity ratio closed FY18 firmer at 38% (FY17: 35%). GCR does
not envisage a major change in liquidity position in FY19.
The Bank successfully raised a total of N13.5bn through debt issuance in
FY18 (comprising fixed rate Series1 and Series 2 bonds of five and seven
years, at 15.5% and 15.75% respectively). In addition, UBN raised a sum of
N23.1bn through Series 1 and Series 2 commercial paper (“CP”) Issue in 1Q
FY19 to further augment its working capital.
UBN’s key performance metrics were under pressure in FY18, underpinned
by the slow-down in loan growth. Total operating income was down 14.6%
year-on year (‘y/y’) and operating expenses rose by 12.5%, translating to a
higher cost ratio of 82.9% in FY18 (FY17: 63.0%). Notwithstanding this, a
pre-tax profit of N18.5bn was achieved, representing 32.6% increase from
the previous year, as major write-off for the period was charged directly to
reserves. Performance at 1Q FY19 reflects that performance at the pre-tax
level was in line with budget on annualised basis, largely supported by
growth in non-interest income.
Factors that could trigger a rating action may include
Positive change: An upward movement in the ratings may follow a markedly
improved competitive positioning, a rebound to strong asset quality and
profitability metrics.
Negative change: The ratings may be revised downward following a significant
weakening in profitability particularly from credit losses, or a further decline in
asset quality metrics.
Rating class Rating scale Rating Rating outlook Expiry date Long-term National BBB+(NG)
Stable June 2020 Short-term National A2(NG)
Nigeria Bank Analysis | Public Credit Rating Page 2
Organisational profile
Corporate summary1
UBN was established in 1917 and currently provides
retail, commercial and corporate banking services to
its numerous corporate and individual customers. As
one of the long-standing banks, UBN has gone
through various changes over the years, which
include its conversion from a privately-owned
company to become publicly quoted on The Nigerian
Stock Exchange (“NSE”) in 1971 as well as the
adoption of its current name in 1979. UBN is
currently licensed as an international commercial
bank, with two subsidiaries including; UBN Property
Company Limited (‘UPCP’) and Union Bank (UK)
Plc. Also, UBN is well advanced in the liquidation of
Atlantic Nominees Limited (a special purpose
vehicle, which holds 100% interest in a landed
property in Lagos) and as such classified it as held
for sale at FY18.
Ownership structure
As at 31 December 2018, UBN remained largely
owned by Union Global Partners Limited (“UGPL”)
and Atlas Mara Limited, both holding a combined
stake of 90.4%, and the remaining held by a wide
array of individuals and institutional investors.
Table 1: Major shareholders (%) FY17 FY18
Union Global Partners Limited2 65.3 65.3
Atlas Mara Limited3 24.0 25.1
Others (with less than 5% shareholding) 10.7 9.6
Total 100.0 100.0
Source: UBN
Strategy and operations
Following a successfully recapitalisation of UBN in
2012, which saw the Bank rank comfortably among
the mid-tier players in the industry, management is
currently intensifying effort towards repositioning the
Bank as one of the leading commercial banks in
Nigeria (in terms of retail and transaction banking,
citizenship, sustainability and innovation). As such,
key focus for the bank in recent years has been in
areas of digital banking and automation, service and
product innovation, operational efficiency, ecosystem
and value chains. Accordingly, major milestones
achieved by the Bank during FY18 include: (i) the
launch of its robotics process automation which is to
foster operational efficiencies, the effect of this is
expected to manifest in the immediate future; (ii) its
debut debt issuance programme which achieved
165% subscription; (iii) loan book clean-up to allow
the bank create more risk assets and improve
earnings; and (iv) the provision of support systems in
education (Edu360), technology (TechVentures) and
trade (Local LC).
1 Refer to previous Union Bank reports for a detailed background. 2 UGPL is a consortium of local and international investors. 3 Atlas Mara Limited is an international private equity firm.
As at 31 December 2018, the Bank operated through
300 branches and cash centers, automated teller
machines and point of sale terminals increased to
1,100 (FY17: 950) and 7,900 (FY17: 7,000)
respectively, while total staff complements stood at
2,600.
Going forward, the Bank intends to focus on
customer acquisition; diversification of the loan book
to align risk assets to priority sectors of the economy
such as agriculture, manufacturing, and SMEs; cost
optimization and digitization.
Governance structure
The Bank’s governance structure is considered
satisfactory and in line with requirements of CBN’s
code of corporate governance for banks and
Securities and Exchange Commission’s code of
corporate governance for publicly listed companies.
Table 2 provides a brief summary of UBN’s
governance structure.
Table 2: Corporate governance
Description Findings Board size 14 Number of Non-executive Directors (“NEDs”)
9, including the Chairman
Number of Executive Directors 5, including the Managing Director
Independent directors Yes, 2
Tenure of NEDs 3 years each/max. 4 cycles
Board standing committees
6, (namely: Credit, Finance and General Purpose, Establishment and Services, Audit, Risk Management, and Remuneration).
Internal control and compliance
Yes, independent reports to the board.
External auditor/rotation policy KPMG Professional Services / 10-year tenure
Source: UBN
A major change that occurred on the board in FY18
was the retirement of an executive director/CFO,
Mrs. Oyinkansade Adewale, who was replaced by
Mr. Joseph Mbulu, evidencing a good succession
plan. Overall, UBN’s board is considered satisfactory
in terms of mix and expertise.
Financial reporting
The Bank’s financial statements were prepared in
accordance with International Financial Reporting
Standards, the requirements of the Companies and
Allied Matters Act and the Banks and Other
Financial Institutions Act. The Bank’s external
auditor, KPMG Professional Services, issued an
unqualified opinion on the 2018 financial statements.
Operating environment
Economic overview
The Nigerian economy witnessed sustained economic
growth in 2018, albeit characterised by mixed growth
trajectory. Growth in the first half of the year was
somewhat sluggish due to contractions in the oil
sector (on the back of declined domestic oil
Nigeria Bank Analysis | Public Credit Rating Page 3
production and volatility in global crude oil prices),
delayed passage and implementation of the budget
amongst other factors. However, performance was
firmer in the second half, propelled by a combination
of increased government investment on capital
projects and the improved performance of the non-oil
sector, ultimately accelerating the full year economic
growth rate. Specifically, the non-oil sector grew by
2.7% in 2018 compared to 1.5% in 2017, while the
oil sector grew moderately by 1.1% (2017: 4.7%).
Overall, real GDP expanded by 1.9% year-on-year up
from 0.8% registered in 2017.
Real GDP growth for 2019 is projected at 2.0% and
2.2% by the International Monetary Fund and World
Bank respectively. This is expected to be
underpinned by recovery in global crude oil price
amidst agreed global production cut by Organisation
of Petroleum Exporting Countries (OPEC) and its
allies, as well as sustained implementation of the
Economic Recovery and Growth Plan (2017–2020)
by the government. Anticipated drawbacks to these
projections include; perceived political risks
associated with the 2019 general elections and
persistent security challenges arising from insurgency
in the North East and herdsmen attack in some parts
of the country. Also, the upward review of the
national minimum wage and other social intervention
programs by the government could exacerbate
inflationary pressures in 2019. To curtail this effect,
CBN is expected to engage in a frequent Open
Market Operations (“OMO”) auctions and maintain
tight monetary policies.
Foreign exchange (“FX”) remained relatively stable
in 2018 at an average rate of N305.6/USD and
N364/USD at the official and parallel market
respectively on account of various CBN’s FX
interventions aimed at easing pressure on Naira.
Furthermore, CBN maintained a non-expansionary
monetary policy stance by leaving the benchmark
monetary policy rate, the liquidity ratio and cash
reserve ratio unchanged at 14%, 30% and 22.5%
respectively throughout 2018 to curtail inflationary
pressures. To this end, the headline inflation declined
progressively from 15.1% in January to close at
11.4% in December 2018, and stood at 11.3% in
March 2019, albeit measured above the targeted
single digit rate for the period.
After being adjudged the global third best performing
stock market in 2017 with a strong growth of 42.3%,
The Nigerian Stock Exchange (“NSE”) recorded
17.8% contractions in the All Share Index (ASI) to
close at 31,430.50 points in 2018. Similarly, market
capitalization dipped by 13.9% to N11.7tn. This
deterioration can be attributed to pre-election jitters
and heightened capital outflows on the back of
attractive yields in the developed economy as well as
the tensed trade war between the US and China.
Industry overview
In line with global practice, the Nigerian banking
industry commenced full implementation of IFRS 9
with effect from 1 January 2018, shifting from
incurred credit loss model to expected credit loss
(“ECL”) model, which is a more forward-looking
approach. To cushion the effect of ECL provisions on
capitalisation, CBN introduced a four-year
transitional arrangement which requires banks to hold
static the adjusted day one impact of IFRS 9
impairment charges and spread it over a four-year
period. This, combined with capital raising initiatives
employed by a number of banks and strict dividend
payment regulations resulted in the rise in the
industry’s average CAR to 15.3% in December 2018,
from 10.2% in December 2017. According to CBN, a
new capital rule is expected to be introduced in the
first half of 2019, aimed at (inter alia) aligning CAR
computation with international regulatory accord
(Basel III) as well as ensure banks maintain adequate
capital buffer to withstand any acute financial stress
scenario.
The industry’s profitability for 2018 reflects an
improvement, underpinned by declined impairment
charge and growth in digital transaction volume.
Total banking sector assets stood at N37.2tn at end-
December 2018 (December 2017: N34.6tn), while
the credit portfolio decreased by 3.2% to N19.8tn due
to the conservative lending approach adopted by most
banks. Per CBN’s statistics, the industry’s average
gross NPL ratio declined to 12.5% at 1H 2018
(December 2017: 14.8%), albeit remaining above the
regulatory threshold of 5%. The decrease can be
attributed to the favourable macroeconomic
conditions and stricter prudential regulations.
The evolution of financial technology companies
(“fintech”) and other non-bank companies leveraging
technology (in provision of financial services) has
intensified competitive pressure in the Nigerian
banking sector, particularly in the retail banking
space. The competitive dynamics was further
intensified by the decision of CBN in October 2018
to licence the Payment Service Banks (“PSBs”). The
decision was premised on the apex bank’s objective
to enhance financial inclusion and stimulate
economic activities in the rural and unbanked areas
by leveraging on existing facilities of the
telecommunication companies and other companies’
predominantly in areas with limited banking presence
and ultimately achieve 80% financial inclusion target
by year-end 2020.
Statistics as at 31 December 2018 reveals Nigeria’s
financial sector comprised 21 commercial banks, five
merchant banks, one non-interest bank, and over
4,000 other financial institutions. Commercial banks
include eight international banks, eleven national
banks, and two regional banks. Polaris Bank Limited,
the only bridged bank under the control of Asset
Nigeria Bank Analysis | Public Credit Rating Page 4
Management Corporation of Nigeria (“AMCON”)
was established in September 2018 following the
assumption of the asset and liabilities of the defunct
Skye Bank Plc by CBN. More recently (March
2019), the industry witnessed a merger between two
commercial banks; Access Bank Plc and Diamond
Bank Plc. This is expected to alter the competitive
position of the players in the commercial banking
space.
Competitive position
Table 3 compares UBN’s key performance metrics to
that of selected peers at FY18. While the Bank was
able to sustain its competitive position among the
mid-sized banks, in terms of balance sheet size and
geographical spread, asset quality metrics rank
among the weakest despite clean-up of FY18.
However, management expects this to improve
gradually over the years ahead.
Financial profile
Likelihood of support
UBN shareholders have been a major provider of
financial support in the last few years, providing
additional capital and allowing management to retain
all its earnings.
Funding composition
Source: UBN AFS
Funding mix remains largely stable over the review
period, with the largest source being customers’
deposits, followed by equity. Also, note is taking of
the introduction of debt securities and commercial
papers to the mix at FY18 and 1Q FY19 respectively.
A detailed analysis of each of the funding
components is contained in paragraphs below.
Customer deposits and interbank funding
Customer deposits grew 6.9% to N857.6bn at FY18,
reflective of management’s continuous effort to grow
the liability pool through both new and existing
customers, particularly from the retail segment. As
such, low cost deposits (current and saving accounts)
increased 14.1% and accounted for a sizeable 71.4%
of the book at FY18 (FY17: 62.6%).
Table 4: Deposit book characteristics as at FY17
By sector: % By type: %
Corporates 25.7 Demand 44.9
Retail and SME customers 53.7 Savings 26.5
Commercial 20.6 Term 28.6
By concentration: % By maturity: %
Single largest 5.6 < 3 months 92.2
Five largest 14.5 3-6 months 4.7
Ten largest 18.5 6-12 months 0.7
Twenty largest 23.5 > 12 months 2.4
Source: UBN AFS
Analytical review of the deposit book reflects a fair
degree of diversification, as the single and twenty
largest depositors accounted for 5.6% and 23.5%
respectively. However, maturity profile of the book
shows a highly short-dated book (relative to the loan
book), with over 90% matures within 3months. On
the other hand, interbank funding stood at N99.5bn at
FY18 (FY17: N100.1bn) and moderated to N96.0bn
at 1Q FY19, on the back of the continuous increase in
lower cost funds.
While management had projected a 10%-12% growth
in deposit in FY19, performance at 1Q FY19
displayed a moderate 1.1% increase in deposits. GCR
considers the projected growth achievable given the
Bank’s historical trend which averages 12.3%.
Capital adequacy
Despite a capital injection of N49.7bn through rights
Issue in FY17, a sizeable write-off of N132.6bn saw
total shareholders’ fund decline by 34.3% to
Table 3: Competitive position* UBN vs. selected banks
Ecobank Nigeria UBN Fidelity FCMB Sterling
Year end 31 December 2018
Shareholders’ funds (N’bn) 247.5 225.6 194.4 210.2 140.8
Total assets (N’bn) † 1,946.3 1,432.3 1,649.9 1,350.4 1,090.8
Net loans and advances (N’bn) 842.5 473.5 849.9 616.0 621.0
Total profit for the year (N’bn) 27.2 15.4 20.7 14.3 6.0
Capital/assets (%) 19.1 15.8 22.3 15.6 12.9
Liquid & trading assets/total short-term funding (%) 12.4 33.1 35.6 19.3 19.2
Gross NPL ratio (%) 13.7 8.7 5.7 5.9 8.7
Net interest margin (%) 8.2 6.9 6.3 8.7 7.8
Cost ratio (%) 60.7 82.9 71.1 72.2 81.4
ROaE (%) 10.5 6.5 11.6 8.7 9.2
ROaA (%) 1.5 1.3 1.5 1.1 0.9
*Ranked by total assets. †Excludes balances held in respect of letters of credit Source: Audited Financial Statements
Nigeria Bank Analysis | Public Credit Rating Page 5
N225.6bn at FY18 (partly arising from the the
reassessment of loans and advances book under
IFRS 9 and management’s decision to write-off fully,
some of the previously provisioned NPLs).
Accordingly, CAR declined to 16.4% (FY17:
17.8%), albeit remained above the 15% required
minimum for international commercial banks. The
CAR’s position was largely supported by CBN’s
transitional arrangement on IFRS 9 adjustments
which allows for a gradual release of additional
provisions into the CAR computation over a four-
year period. A full implementation of the IFRS 9
provisions would have seen the ratio fall below the
required minimum at the balance sheet date. As at 1Q
FY19, CAR ended up at 16.5%.
Table 5: Capital adequacy ratio (N’bn) FY17 FY18
Eligible Tier 1 capital 106.0 117.8
Eligible Tier 2 capital 31.8 8.1
Total qualifying capital 137.8 125.9
Total risk weighted assets 774.5 767.8 CAR (%) 17.8 16.4
Borrowings
Total borrowings increased by 16.7% to N108.8bn at
FY18, and comprised both local and internationally
sourced borrowings.
Table 6: Total borrowings FY17 FY18
N'bn N’bn
CBN-Commercial Agric. Credit 11.8 12.0
BOI on-lending facilities 5.0 3.9
CBN RSSF on-lending - 20.1
Afreximbank 41.8 35.5
Mashreq Bank 10.1 7.2
African Finance Corporation 13.3 -
Access Bank UK 11.2 14.4
UBA New York - 1.8
Other borrowings 93.2 94.9
Debt securitiesⱡ - 13.9
Total 93.2 108.8 ⱡ Represent the amortised balance of the bonds at FY18. Source: UBN AFS
Debt securities: represents the outstanding balance
on the aggregated sum of N13.5bn raised under a
N100bn debt issuance programme in FY18. The
bonds in issue comprised fixed rate Series 1 and
Series 2 with maturities of five and seven years, and
interest rate of 15.5% and 15.75% respectively.
Management has also informed GCR of the bank’s
plan to commence the issuance process for the Series
3 bonds.
Other borrowings: Other borrowings comprised
foreign denominated and locally sourced funds from
other financial institutions. This includes, funds from
CBN and BOI for on-lending to customers. Some of
the facilities secured by the Bank during the year
include: (i) an on-lending facility from CBN under
the real sector support facility (‘RSSF’), with an all-
in interest rate of 9% per annum, payable quarterly,
(ii) two trade finance facilities received from Access
Bank UK (totaling USD40.24m) in November and
December 2018. Interest is payable on the facility at
an average rate of 6.96% per annum and matures in
May and December 2019 respectively.
Risk management
Strategic overview
UBN continued to focus on thorough and regular
review of all loans and advances from origination to
settlement to minimize further deterioration in asset
quality metrics.
Asset mix
Table 7: Asset Mix FY17 FY18
N'bn % N'bn %
Cash and liquid assets* 484.9 33.5 498.1 34.8
Cash 67.0 4.6 97.7 6.8
Liquidity reserve deposits 251.5 17.4 281.9 19.7
Trading assets 20.1 1.4 14.3 1.0
Balances with other banks 146.4 10.1 104.2 7.3
Pledged assets 54.1 3.7 48.8 3.4
Customer advances 517.1 35.8 473.5 33.1
Investment securities 185.7 12.8 199.3 13.9
Trading and inv. properties 6.1 0.4 5.2 0.4
Property, Plant & equipment 56.0 3.9 60.0 4.2
Other assets 142.4 9.8 147.4 10.3
Total 1,446.3 100.0 1,432.3 100.0
*Total assets exclude customers’ deposits for foreign trade Source: UBN AFS
Total assets remained relatively stable at N1.4tn at
FY18, with customer advances constituting a sizeable
33.1% of the book. Although, cash and liquid assets
also accounted for a significant 34.8% of the balance
sheet, about 57% of it were in liquidity reserve
deposits with CBN.
Investment securities grew by 7.3% to N199.3bn,
comprising; Treasury bills and FGN bonds (72.2%),
State and Corporate bonds (7.6%) and equity
(20.2%). Overall, credit risk is considered moderate
and in line with industry norm.
Contingencies
Off-balance sheet assets grew 34.6% to N161.7bn at
FY18, and accounted for 71.7% (FY17: 35.0%) of
capital. UBN’s contingencies at FY18 comprised:
performance bonds and guarantees (53.5%) and letter
of credit (46.5%).
Loan portfolio
Gross loans and advances declined by 7.3% to
N519.7bn at FY18, underpinned by its focus on loan
book optimisation as opposed to creation of new risk
assets. More specifically, UBN’s took steps to reduce
its exposure to the highly risky oil and gas sector and
diversify into the real sectors of the economy like
agriculture, manufacturing and general commerce.
Similarly, the maturity profile of the loan book was
revised, as loans maturing after 12 months accounted
for a moderate 33.2% (FY17: 32.4%, FY16: 40.7%).
The single and twenty largest obligors accounted for
Nigeria Bank Analysis | Public Credit Rating Page 6
7.0% and 55.4% respectively of total loans. This is
considered high and elevates credit risk.
According to management, focus in the immediate
term will continue to be on diversification of the loan
book, to achieve more balanced mix of high-yielding
exposures. However, the Bank plans to grow the loan
book by about 10% to 12% in FY19 and performance
as at 1Q FY19 displays a growth of 4.5% from the
December FY18’s position.
Table 8: Loan book characteristics in %
By Sector: FY17 FY18
Agriculture 3.8 4.3 Oil and gas 40.6 38.2
Real estate & Construction 12.4 6.8
General commerce 6.7 9.2
Public sector 0.9 2.7
Manufacturing 9.9 16.3
IT & Telecom 3.3 2.8
Power 9.7 5.5
Retail 3.5 6.3
Others 9.2 7.9
Maturity:
Concentration < 3 months 47.4 Single largest 7.0
3-6 months 7.3 Five largest 26.1
6-12 months 12.1 Ten largest 39.6
> 12 months 33.2 Twenty largest 55 .4
Source: UBN
Asset quality
On the back of the loan book clean-up, gross
impaired loans reduced by 59.1% to N45.4bn,
translating to a gross NPL ratio of 8.7% at FY18.
Total provisions coverage of the impaired loans stood
at 101.8% (FY17: 39.2%). Sector distribution of the
impaired credit reflects power and energy as well as
oil and gas sectors accounted for a combined 78.8%
of the NPLs at FY18. The NPL ratio improved to
7.6% at 1Q FY19.
Table 5: Asset Quality FY17 FY18
N'bn N'bn
Gross Advances 560.7 519.7
Performing 449.8 474.2
Impaired 110.9 45.5
Provision on impairment (43.5) (46.2)
Individually impaired (36.4) (46.2)
Collectively impaired (7.1) -
Net NPLs 67.4 (0.8)
Gross NPLs ratio (%) 19.8 8.7
Net NPLs ratio (%) 13.0 Neg.
Net NPLs/Capital (%) 19.6 Neg.
Source: UBN AFS
Liquidity positioning
Liquidity risk is considered low as the liquid and
trading assets to short term funding ratio ranked high
(relative to peers) at 33.1% at FY18. Also, regulatory
liquidity ratio ended firmer at 38% at FY18 (FY17:
35%), against the required minimum of 30%.
However, contractual matching of the Bank’s assets
and liabilities reflect a liquidity gap of N110.2bn in
the ‘less than 90 days’ maturity profile (FY17:
N54.2bn), albeit the fact that most deposits are
usually rolled over at maturity provide some comfort.
Financial performance and prospects
A five-year financial summary, together with the
three-month unaudited accounts to 31 March 2019, is
reflected on page 7 of this report, supported by brief
commentary below.
Key performance metrics came under pressure in
FY18, as gross earnings declined by 11.2% to
N145.5bn, underpinned by the slow-down in loan
growth. The bank had in the last few years focused
on loan book clean-up rather than growth. As such,
interest income was down by 11.4% in FY18, while
interest expenses declined marginally by 4.9%,
resulting in a 17.0% decline in net interest income to
N55.4bn for the year. Similarly, non-interest income
was down by 10.5% to N35.2bn, due to absence of
the one-off income that was available in the previous
year. Consequently, total operating income closed at
14.6% below that of FY17.
Given that provisions for the year were charged
directly against reserves, the Bank closed the year
with a net write-back of N3.0bn in FY18, supporting
profitability position. Operating expenses was up
12.5% to N75.0bn on the back of increase in staff and
other overhead costs (including investment in
technology), translating to a higher cost ratio of
82.9% in FY18 (FY17: 63.0%). Profit before interest
and taxes closed at N18.5bn in FY18 (FY17:
N13.9bn). The notable reduction in capital, saw
ROaE end stronger at 6.5% (FY17: 4.3%), while
ROaA stood at 1.3% (FY16: 1.0%) in FY18.
Unaudited results at 1Q FY19 indicated a 4.5% y/y
decline in net interest income. Non-interest income
amounted to N10.8bn, representing a notable 38.5%
increase relative to the same period in FY17. Overall,
pre-tax profit ended flat at the 1Q FY18 level of
N5.4bn (in line with budget on annualised basis).
Management remains confident of achieving the set
budget for FY19.
Nigeria Bank Analysis | Public Credit Rating Page 7
Year end: 31 December Restated Restated
Statement of Comprehensive Income Analysis 2014 2015 2016 2017 2018 1Q 2019
Interest income 76,373 90,902 99,721 124,549 110,366 26,859 Interest expense (24,317) (35,219) (34,682) (57,880) (55,016) (14,810) Net interest income 52,056 55,683 65,039 66,669 55,350 12,049 Other income 44,139 26,167 29,885 39,295 35,151 10,816 Total operating income 96,195 81,850 94,924 105,964 90,501 22,866 Net impairment charge (9,651) (9,244) (17,186) (25,317) 2,992 1,068 Operating expenditure (59,419) (57,850) (62,000) (66,728) (75,040) (18,496) Share of profit of equity accounted investee (6) - - - - - Net profit before tax 27,119 14,756 15,738 13,919 18,453 5,438 Tax (434) (552) (347) (911) (360) (164) Profit from continuing operations 26,685 14,204 15,391 13,008 18,093 5,274 Profit/(loss) from discontinued operations 142 97 - - - - Other comprehensive income for the year (618) 8,382 9,990 10,006 (2,731) 2,295
Total Comprehensive Income 26,209 22,683 25,381 23,014 15,362 7,569
Statement of Financial Position Analysis
Subscribed capital 400,109 400,109 400,109 201,652 201,652 226,965 Reserves (incl. net income for the year) (183,919) (158,686) (133,550) 135,989 17,704 - Minority interest 5,338 5,337 5,111 5,831 6,276 6,337 Total capital and reserves 221,528 246,760 271,670 343,472 225,632 233,302
Bank borrowings (incl. deposits, placements & REPOs) 61,890 44,091 90,266 100,131 99,477 95,978 Deposits 527,548 570,566 658,258 802,359 836,679 867,154 Other borrowings 36,398 50,819 62,420 72,569 55,524 93,606 Short-term funding (< 1 year) 625,836 665,476 810,944 975,059 991,680 1,056,738
Deposits 69 73 186 25 20,914 -
Other borrowings 41,737 25,240 27,094 20,642 53,227 48,805
Long-term funding (> 1 year) 41,806 25,313 27,280 20,667 74,141 48,805
Payables/Deferred liabilities 119,281 90,282 117,636 107,084 140,811 170,349 Other liabilities 119,281 90,282 117,636 107,084 140,811 170,349
Total capital and liabilities 1,008,451 1,027,831 1,227,530 1,446,282 1,432,264 1,509,194
Balances with central bank 113,376 127,613 129,431 251,523 281,868 280,385 Property, Plant and Equipments 48,575 52,611 52,800 55,986 59,954 59,886 Derivative financial assets 7 1,820 2,747 1,297 1,029 986 Receivables/Deferred assets (incl. zero rate loans) 211,837 195,830 227,621 195,216 195,175 205,502 Non-earnings assets 373,795 377,874 412,599 504,022 538,026 546,759
Short-term deposits & cash 52,661 34,189 24,139 66,961 97,741 54,102 Loans & advances (net of provisions) 312,797 366,721 507,190 517,103 473,462 494,899 Bank placements 69,299 26,163 86,903 146,358 104,231 198,302 Marketable/Trading securities 62,065 98,737 71,765 132,813 150,483 136,606
Other investment securities 135,880 116,400 118,278 72,921 63,105 73,237
Trading and Investments properties 1,930 7,723 6,656 6,104 5,216 5,289
Investments in subsidiaries/associates 24 24 - - - -
Total earning assets 634,656 649,957 814,931 942,260 894,238 962,435
Total assets† 1,008,451 1,027,831 1,227,530 1,446,282 1,432,264 1,509,194
Contingencies 130,535 133,901 120,542 120,119 161,729 175,090
Ratio Analysis (%)
Capitalisation
Internal capital generation 12.1 9.4 9.5 6.8 7.0 3.3
Total capital / Net advances + net equity invest. + guarantees 38.2 40.0 36.4 48.7 32.5 31.8
Total capital / Total assets 22.0 24.0 22.1 23.7 15.8 15.5
Liquidity ‡
Net advances / Deposits + other short-term funding 50.0 55.1 62.5 53.0 46.8 46.8
Net advances / Total funding (excl. equity portion) 46.9 53.1 60.5 51.9 44.4 44.8
Liquid & trading assets / Total assets 18.2 15.5 14.9 23.9 24.6 25.8
Liquid & trading assets / Total short-term funding 29.4 23.9 22.5 35.5 35.5 36.8
Liquid & trading assets / Total funding (excl. equity portion) 27.6 23.0 21.8 34.8 33.1 35.2
Asset quality
Impaired loans / Gross advances 5.0 6.7 6.9 19.8 8.7 7.6
Total loan loss reserves / Gross advances 7.0 5.7 5.3 7.8 5.5 8.1
Bad debt charge (income statement) / Gross advances (avg.) 3.4 2.6 3.8 4.7 (0.6) (0.2)
Bad debt charge (income statement) / Total operating income 10.0 11.3 18.1 23.9 (3.3) (4.7)
Profitability
Net income / Total capital (avg.) 12.5 9.7 9.8 7.5 5.4 3.3
Net income / Total assets (avg.) 2.6 2.2 2.3 1.7 1.1 0.5
Net interest margin 12.1 11.3 10.8 8.7 6.9 5.8
Interest income + com. fees / Earning assets + guarantees (a/avg.) 8.1 7.3 7.5 6.0 4.3 0.9
Non-interest income / Total operating income 45.9 32.0 31.5 37.1 38.8 47.3
Non-interest income / Total operating expenses (or burden ratio) 74.3 45.2 48.2 58.9 46.8 58.5
Cost ratio 61.8 70.7 65.3 63.0 82.9 80.9
OEaA (or overhead ratio) 5.9 5.7 5.5 5.0 5.2 1.3
ROaE 13.1 6.2 6.1 4.3 6.5 9.5
ROaA 2.7 1.4 1.4 1.0 1.3 1.4
Nominal growth indicators
Total assets 0.6 1.9 19.4 17.8 (1.0) 5.4
Net advances 36.3 17.2 38.3 2.0 (8.4) 4.5
Total capital and reserves 11.1 11.4 10.1 26.4 (34.3) 3.4
Deposits (wholesale) 9.3 8.2 15.4 21.9 6.9 1.1
Total funding (excl. equity portion) 16.2 3.5 21.3 18.8 7.0 3.7
Net income 326.1 (46.8) 8.4 (15.5) 39.1 16.6
† Excludes client's balances in held in respect of letters of credit.
‡ Please note that for these ratios, liquid assets exclude the statutory reserve balance.
Union Bank of Nigeria Plc(Naira in millions except as noted)
Nigeria Bank Analysis | Public Credit Rating Page 8
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