By Folakemi Emem-Akpan
In terms of size, Diamond Bank is easily the bigger of the two compared banks. It has a more substantial balance sheet than Union Bank does, with a heftier assets base, liabilities and deposits. It is also the bigger of the two when it comes to revenue generation and profit retention. For example, for the 2016 financial year, Diamond Bank grossed N212.4 billion, had a pre-tax profit of N5.0 billion, and deployed assets worth N2.05 trillion. On the other hand, Union Bank grossed N126.6 billion, had a pre-tax profit of N15.7 billion, and deployed assets worth N1.25 trillion.
To show that a bigger turnover size does not necessarily translate into better productivity, Union Bank outperformed its peer in terms of profitability for the 2016 financial year. It took the lead in six of the eight profitability ratios examined, while Diamond Bank only managed to lead in only one.
For the 2016 financial year, Diamond Bank was unable to grow revenue at all, especially in the light of Nigeria’s economic recession and the losses most other companies made. Turnover growth rate was negative 2.2 per cent and shows that the bank made less revenue in 2016 than it did in 2015. The result was much worse than that which Union Bank recorded. Union Bank’s turnover growth rate for the period under review was 8.0 per cent making it the winner in this regard.
ROA and ROE
For the 2016 year, Union Bank was the winner in terms of return on assets (ROA) and return on equity (ROE). ROA for the year was 1.3 per cent, down from 1.4 per cent in the prior year. This means that of every N100 worth of assets deployed by Union Bank, N1.30 accrued to it as pre-tax profit while Diamond Bank was able to record a lower 20 kobo pre-tax profit from every N100 worth of assets employed.
As regards ROE, Union Bank’s ROE was 5.8 per cent, slightly lower than the 5.9 per cent recorded in the erstwhile year but much better than the 1.5 per cent Diamond Bank recorded for the same period under review.
Pre-tax profit margin
For the 2016 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as is possible from turnover) for Union Bank was 12.4 per cent, higher than Diamond Bank’s own which stood at a mere 2.4 per cent. This means that for every N100 income earned by Union Bank in 2016, an extremely high N12.40 accrued to it as profit while a lower N2.40 pre-tax profit accrued to Diamond Bank for every N100 income earned.
Net interest margin
Net interest margin is one of the true measures of a bank’s effectiveness, as it measures effectiveness in its core banking operations. For the year, Diamond Bank led the two banks, recording a net interest margin of 73.5 per cent, as compared to Union Bank’s 66.3 per cent result.
Proportion of classified loans was another ratio in which Union Bank led the two banks in 2016. For the year, the portion of its entire loan stock that became classified as non-performing stood at 6.9 per cent. This result was better and lower than Diamond Bank’s result for 2016. For Diamond Bank, proportion of classified loans for 2016 was 9.5 per cent, up from 6.9 per cent in 2015.
Diamond Bank recorded a capital adequacy of 15.0 per cent, better than Union Bank’s 13.3 percent result. What this means is that Diamond Bank is better equipped than Union Bank in the banks’ primary business of giving out loans. It is also worthy of note that both banks’ results were lower than the 16 per cent rate mandated for Systemically Important Banks.
Two year averages
In terms of averages, Union Bank also generally better performed better than Diamond Bank did, coming out on top in seven of the ratios.
A final word
It is imperative to note that not only did Union Bank generally do better than Diamond Bank in most of the ratios, Diamond Bank of itself did not perform exceptionally well. It did not really improve its processes during the course of the year and did not post a substantial profit at all.