Unity Bank: Improved loans & advances, deposits enhance investors’ interest
Unity Bank plc in its audited full year ended December 31, 2020 reported stronger growth in loans & advances to customers and deposit to boost investors’ confidence.
The country’s top agri-lender, pushed against the macro economy challenges of 2020 to beef up its short-dated assets and improve its liquidity despite a prickly year.
The deposit money bank’s growth in cash and cash balances with the Central Bank of Nigeria (CBN) and loans & advances to customers caused an increase in its total assets and reinforced investor optimism gaining momentum in profitability.
Unity Bank’s 2020 financial year audited result showed a rise in operating cost which caused a rise in its cost-to-income ratio (CIR), the trampoline bounce in the bank’s operating cost soared on the back of a hefty rise in administrative, legal, and professional expenses in 2020.
From the income statement, the bank reported Gross earnings of N42.7billion in 2020 from 44.59billion reported in 2019.
There was a +28.66per cent rise in gross earnings in 2019, the upward lift was unsustained in 2020 as a result of the revenue-damaging effects of the COVID-19 pandemic in that year.
In US dollar terms the bank’s gross earnings of the lender did worse by slumping a further -22.83per cent from $145million in 2019 to $112.09million in 2020. The bank’s gross earnings in Dollars were converted using the official CBN rate (I&E FX Window) for the two periods.
The bank in 2020 reported about nine per cent increase in Interest income to N39.12billion in 2020 from N35.95billion in 2019 while Interest expense gained about 10 per cent to N21.37billion in 2020 from N19.45billion reported in 2019.
The interplay between the two dragged Net interest income to N17.75billion in 2020, 7.6 per cent increase over N16.49billion reported in 2019.
Unity bank’s 2020 audited results showed a significant improvement in impairment charges, as N4.13billion was stated as recoveries against a loss of N1.02billion in 2019.
The bank reported total operating expenses of N23.24billion in 2020, about 19 per cent increase over N19.6billion reported in 2019.
The agribusiness-focused bank saw a significant rise in its cost-to-income (CIR) ratio in 2020. The bank’s CIR rose from 84.3 per cent in 2019 to 91.3 per cent in 2020 which was the highest the bank recorded over the last five years.
The major drivers of the rise in total operating expense were legal costs, which rose by +397.27 per cent, and professional fees which climbed by +88.27 per cent.
With a new investor on the books, the cost structure of the bank would have to come under critical review as the new owners of equity would want to see cost-effectiveness in the application of the fresh injection of cash and would desire a tighter corporate ship.
A CIR of over 100 per cent is unsustainable and the bank would have to scale back costs in non-critical areas of its operations. Administrative expenses would have to come down as a proportion of income as general and legal costs are wound down.
The high legal costs and professional fees in 2021 may be related to the cost of professionals that put together the capital reinjection programme and may represent a one-off charge to the bank’s books.
Notably, the bank’s reversal of its loss to a Profit Before Tax (PBT) was sustained in 2020, even though the profit before tax number declined between 2019 and 2020 it contrasted with the two previous years of losses in 2017 and 2018
The bank’s PBT fell in 2020 fell by -38.96per cent from N3.64billion in 2019 to N2.22billion in 2020. This came off the back of a 18.77per cent in operating expense while operating income fell by -15.10per cent.
Growth in loans & advances to customers, deposit drive total assets
Unity bank’s total assets grew by 67.90per cent to N492.02billion in 2020 from N293.05billion in 2019.
Key drivers to growth in total asset include 38.39 per cent growth in Total deposits to N356.62billion from N257.69billion in 2019, while total loans and advances climbed by +94.28per cent to N202.08billoion in 2020 from N104.02billion in 2019
Looking up the deposit money bank’s total assets, the data shows a steady increase over the last three years. Total assets rose by +67.90 per cent from N293.05billion in 2019 to N492.02billion in 2020.
The major source of growth of the bank’s total assets in 2020 was the rise in the bank’s cash and balance with the CBN, which grew by +598.61 per cent from N14.21billion in 2019 to N99.27billion in 2020. Also, loans and advances to customers grew by a sizeable +94.28 per cent in 2020.
The highest percentage growth in total assets was recorded in 2020 while 2017 saw the largest percentage decline of -68.23 per cent.
Growing key ratios
The bank last year reported Non-Performing Loans (NPL) ratio of 0.001 per cent (near zero), the bank had virtually no delinquent asset. This was the best loan asset portfolio quality for any bank in Nigeria in 2020.
An additional strong side of the bank’s 2020 performance was that it had a low-cost deposit ratio of 72.7per cent of its liabilities.
Unity Bank’s loan-to-deposit ratio (LDR) improved in 2020 but was still short of CBN’s statutory rate of 65 per cent.
The bank’s LDR rose to 56.67 per cent from 40.37per cent in 2019, this was on the back of a +94.28% growth in loans and advances to customers while deposits from customers rose by +38.39 per cent.
A breakdown of the Bank’s deposit by type of account showed that its demand deposit was the greatest catalyst to the growth of deposits in the year. Demand deposit grew by +50.99 per cent, time deposits grew +44.79 per cent while savings and domiciliary deposits grew by +28.73 per cent and +15.79 per cent respectively.
The bank is still stuck with negative shareholders’ fund, although there was a marginal improvement in 2020, from a negative position of N278.86billion in 2019 to a negative position of N275.41billion in 2020.
The bank is expected to show a major reversal of its negative shareholder fund number in 2021 as a new core investor puts cash at the disposal of the bank to improve shareholder’s funds and enhance the bank’s working capital.
The rise in share capital is expected to naturally lead to a fall in the bank’s short-term return on equity (ROE) but this is not likely to be a problem as it becomes balanced by an expansion in the bank’s loan asset portfolio with noticeable growth in its forward-facing net interest income, profit before tax, and after-tax bottom line, particularly from 2022.
The foreseeable rise in the bank’s loanable funds would increase its forecast gross earnings and net interest margin adding joy to the lender’s profit and loss statement.
Q1 2021: Unity bank sustains growth in Profits
Unity bank sustained the growth momentum demonstrated in its 2020 full year earnings as it recorded an impressive performance of 43per cent in both profit before and after tax in first quarter ended March 31, 2021 (Q1).
Bank’s unaudited Q1-2021 results showed Profit Before Tax grew by 43 per cent to N784.3million from N550.1 million recorded in the corresponding period of 2020.
The Profit After Tax for the period which also grew by 43 per cent stood at N721.5million compared to the N506.1million recorded in Q1-2020.
As an outcome of increased focus on supporting local enterprises and industry, the asset portfolio also showed a significant growth in loan book of 76 per cent as net loans and advances to customers increased to N223.2billion up from N126.6billion recorded in the corresponding period.
The total assets of the Bank for the period showed an appreciable growth of 42 per cent to close at N521.5 billion from N366.8 billion in the corresponding period of 2020. The balance sheet of the bank had been considerably de-risked with an NPL ratio of near zero per cent (0%) which it had consistently maintained over time, thus making the Bank to rank as one of the best in risk management and credit creation culture.
The Bank recorded gross earnings of N11.5billion, representing marginal decline of three per cent when compared to N11.9billion posted in the corresponding period of 2020. The remarkable positive growth in profit and other strong indicators recorded in Q1-2021 is a sign of the Bank’s growing resilience as the economy continues on a recovery path following the impacts of COVID-19 pandemics.
Other key highlights of the Q1-2021 results included the cash and balances with the Central Bank which recorded a whopping 326 per cent leap to close at N111.2billion from N26.1billion in the corresponding period of 2020.
The lender also grew its customer deposits by 13 per cent to N348.3billion up from N308.8billion recorded in the period under review, a strong indication of the growing popularity and acceptance of the Bank’s array of innovative products and services and the arrays of new technologies deployed in its operations to enhance high level of customers’ experience and service delivery.
Interest and similar income also recorded a marginal increase of 1% to N9.7billion compared to N9.6 billion posted in the corresponding quarter of 2020. However, net interest income recorded a 16 per cent increase to N4.8billion from N4.1billion in the corresponding period of 2020.
Total operating income also rose by three per cent to N6.6billion from N6.4billion, even as the net operating income rose by 12 per cent to close at N6.7billion from N5.9billion in the corresponding period of 2020.
The Managing Director/CEO, Unity Bank, Mrs. Tomi Somefun in a statement had said that the first quarter result is a promising indication of better outcome for the year, profoundly reflecting the Bank’s renewed focus on driving efficiency and productivity anchored on targeted initiatives to grow both volume and quality of assets and offer a wide range of customer-centric products supported by novel technologies to its teeming and growing customers in all the six-geopolitical zones in Nigeria.
The top-line performance was driven by improvement in net interest income margins which reported 16% growth. To this, Mrs. Somefun stated the Bank’s is replicating the same momentum in the area of liability generation and to gain traction, “We are targeting opportunities across regions and identified segments in retail and SMEs whilst optimising our technology and digital platforms such as Omni-channel UniFi, USSD *7799# to deliver bundled product bouquet, operational efficiency and improved unparalleled customer service delivery. Like the multi-language service channels, customers are to expect more innovations as the year unfolds.”
Looking ahead, the Unity Bank’s Chief further stated: “The Bank will consolidate on the gains it has made on its assets growth and further build the franchise of the brand in many areas of the business to shake off any lethargy to galvanize efficiency across its earning assets, thereby diversifying its earnings base to further grow the bottom-line.”
The Bank will thus continue to play formidably and efficiently in the area of its strength especially in the niche space of agribusiness to get more involved in the value chain banking having firmly established its strong foothold in the financing of primary crop production such as rice, maize, cotton, wheat, sorghum, etc. coupled with their rich and robust structures in value creation. In her words, “We hope to continue to expand on this as we play our part in driving the nations’s quest for self-sufficiency in food production, employment generation, foreign exchange conservation and all allied advantages that come with agribusiness.”
Analysts commend the Q1-2021 result for the strong fundamentals and for the positive outlook in the future, even as market confidence continues to reflect encouraging momentum and the steady growth of the Bank’s balance sheet.
