Core Banking Growth and Profitability
Union Bank ended the first three months of 2021 with a strong performance, reflecting a steady growth momentum and fueling favourable expectations.
Union Bank’s core banking performance was propelled by focused efforts on strategically significant product and service propositions. Despite challenges that continued to prevail during the review period, the Bank’s re-strategised product and service prioritisation and swift action to capitalise on the positive sentiments in the macro-economic dynamics since the roll-out of the vaccination campaign, paved the way for this growth in the first quarter of 2021.
Union Bank’s overall revenue for the quarter was Rs.1,521 Mn and despite the tough operating environment the overall revenue grew by 1% over the comparative quarter.
The Bank’s Net Interest Income (NII) was Rs. 985 Mn and declined marginally by 4% over the comparative period ended 31st March 2020, due to the lower AWPLR that prevailed during the review period in comparison to the previous year. Interest rate rebates and rate caps imposed on certain products under CBSL directives along with concessionary lending programmes which continued in support of Covid-19 affected customers further contributed to this decline. While the credit demand had not picked up at the expected pace despite conducive market interest rates and concessions granted to customers, an uptick in economic activity contributed to the overall credit growth. Effective portfolio management strategies contributed towards managing the NII amidst these challenges.
Profitability was strengthened by improved net fee and commission income and other operating income. The Bank’s net fee and commission income stood at Rs. 216 Mn at the end of Q1 2021, recording an increase of 7% over the comparative period with fee income from business lending, credit cards and trade related transactions being the primary contributors.
The Treasury which consists of Interbank, Fixed Income and Corporate Sales desks performed well in the first quarter, making significant contributions to the Bank’s bottom line especially in terms of capital and exchange gains. Other Operating Income of the Bank increased significantly by 73% and was backed by exchange rate fluctuations.
As a result of continued efforts for enhanced operational efficiency and cost management initiatives, the Operating Expenses of the Bank decreased by 9% YoY to Rs. 907 Mn during the review period.
Pre-impairment profits of the Bank were Rs. 614 Mn for the period and indicated a significant growth of 23% YoY.
In line with prevalent macro-economic stresses and the additional lockdowns the Bank conservatively provided impairment charges and accordingly, the impairment charges for the quarter increased by 111% YoY to Rs. 196 Mn. Due to focused recovery efforts along with an overall improvement of repayments and loan growth, the Gross Non-Performing Loans (NPL) ratio of the Bank improved from 6.05% in December 2020 to 5.85% in the quarter under review.
Results from operating activities for the quarter was Rs.418 Mn and it was increased by 3% YoY.
The Bank’s post tax profit including its ownership share of subsidiaries for the quarter was Rs. 282 Mn and recorded a 57% increase YoY. This represents the positive impact from the Bank and the negative impact that came through the deferred tax asset recorded in UB Finance Co. Limited’s books as a result of the change in corporate tax rate.
The total comprehensive income of the Bank was Rs. 137 Mn.
The Bank’s Total Assets increased to Rs. 124,796 Mn by 31st March 2021. Loans and advances grew by 6% to Rs. 71,609 Mn while the customer deposits reflected a growth of 2% to Rs. 83,829 Mn within the review period. Efforts of sustaining a healthy CASA inflow was further continued through focused acquisition strategies driven by retail, corporate and SME banking segments. As a result, the overall CASA balances increased by 4.2% during the period under review and the CASA ratio stood at 30.5%
Maintaining strong capital ratios continues to be a management priority. Union Bank’s Total Capital
Adequacy Ratio as at 31st March 2021 was 15.88% and is well above the regulatory requirements.
The Group comprising the Bank and its two subsidiaries, National Asset Management Limited and UB Finance Company Limited, reported a Profit after Tax of Rs. 301 Mn for the period and was increased by 54% YoY.
Total assets of the Group were Rs. 131,305 Mn of which 95% was represented by the Bank. The Group maintained a healthy Total Capital Ratio of 15.97% as at quarter-end.
Ringing an optimistic start to the year, Union Bank was announced the winner of the prestigious ‘Best Cash Management Bank in Sri Lanka’ title at the Asian Banker Transaction Finance Awards 2020, reaffirming the success of the Bank’s state-of-the-art cash management solution Union Bank BizDirect. With increased take up on the digital cash management service by Corporate and SME banking customers of the Bank, Union Bank BizDirect contributed to the CASA and fee income growth of the Bank in the first quarter of 2021.
The Bank’s Corporate Banking portfolio recorded an upward movement in the quarter under review. The corporate loans portfolio expanded by 13% Year to Date (YTD) and the deposits base of the corporate banking segment increased by 6% YTD. The SME Banking portfolio set off on a positive note in the 1st quarter of 2021 recording a loan growth of 3% supported by a strategic lending approach. The SME business also created a strong pipeline for asset growth while increasing its geographical focus at branch level for the growth of the SME business including the SME CASA base.
Despite the challenging market dynamics that prevailed, the Retail Banking segment of the Bank recorded a YTD deposits growth with a strong CASA portfolio expansion of 10% YTD. Despite the low interest environment, the Bank’s prioritised approach to new acquisitions propelled this growth. Retail assets portfolio continued to expand aided by the Bank’s focused efforts to grow its credit cards portfolio.
The Credit Card offers included flexible 0% instalment plans for easy repayments, balance transfer options and special avurudu discounts at over 100 merchant partner outlets with the aim of acquiring new customers while gaining wallet-share of existing customers. Joining the national drive towards attracting foreign worker remittances, the Bank introduced a promotional gift offer for Western Union money transfers during the period under review to further encourage remittances by rewarding customers on a tiered gift plan.
Human Resources and operations functions of the Bank continued to support the business growth with the reorganisation of resources and processes to match market dynamics while ensuring prime performance with optimal cost management. As part of its continued staff engagement efforts, the Bank introduced an all-new digital engagement and collaboration portal to enhance interactions between employees irrespective of their geographic location and despite the social distancing limitations. Union Bank which completed its milestone 25th year of operations during 2020 celebrated its long serving employees at a special ceremony held during the 1st quarter of 2021, in a bid to value the lasting commitment of employees who have contributed to the Bank’s evolution over the years.
Union Bank’s Annual Report 2020 was presented in February 2021, on the theme ‘Refocus, Readjust, Reinforce’-which signifies the Bank’s commitment to forge ahead amidst challenges with renewed strength, while building on the profound stakeholder relationships and leveraging on its unique strengths. The Bank’s AGM was successfully concluded during the review period and was conducted as a virtual meeting to ensure adherence with the health and safety guidelines set by authorities.
Commenting on the performance of the Bank, Director/Chief Executive Officer of Union Bank Mr. Indrajit Wickramasinghe stated “We are off to a positive start in 2021, and the 1st quarter performance signifies the Bank’s capacity to reach the growth targets set for the year. We are continuing to support our customers who have been impacted by the COVID-19 pandemic and will be focused to achieve the desired strategic growth across Retail, SME, and Corporate banking segments. With the backing of a strong capital base and a focused strategic business plan, Union Bank is geared to take on the unfolding challenges and opportunities of the market.”