Beyond M&A Frenzy, Union Bank CEO says Balance Sheet in Much Stronger Position Now

Emeka Emuwa, the Managing Director and Chief Executive Officer (MD/CEO) at Union Bank of Nigeria Plc., has said that lender’s balance sheet is in much stronger position now than it was in the past.

In its 2020 guide, Union Bank forecasted a pre-tax profit of N32 billion as the bank planned to bolster it loan book by 15% to 20%.

Emuwa stated this at the recent earnings call with analysts, as the management denied involvement in Merger and Acquisition deal with one of the Tier-1 Banks in the sector.

The Board of Director announced a dividend pay-out of N0.25, the first in more than a decade.

“We are pleased about that because continuing to return value to our shareholders has been at the core of the transformation that we’ve been working on”, Emuwa said.

Analysts observed that the latest frenzy in the banking sector is M&A, and stakeholders are enjoying every beat of the speculation.

However, beyond the M&A tantrum, Union Bank balance said it was on track on its performance metric for 2019, follow its performance review.

MarketForce gathered that for any listed comanies, M&A is the last card for listed companies because a lot of things are involved.

“There must be two parties talking deals and issues must have been settled. M&A is subject to shareholders and regulatory approval”, experts said.

Speaking at the conference call with analysts, Union Bank explained its performance and how it sets to reflate its position in 2019.

Operational efficiency.

 The review session showed that lender has improved in term of its services delivery. UBN key performance metric came much stronger despite tough operating environment.

To remain focus of banking services, Union Bank has stated the process of streamlining  its operation by selling its subsidiary in the United Kingdom.

In 2019, Union Bank non-performing loans ratio improved from 7.8% in 2018 despite the reported increase in loan book to 5.8%.

Its cost as propotion of income (cost-to-income ratio) also improved from 79.2% to 74.1%.

Emuwa said Union Bank saved N2.4 billion through its LEAP program which had focused on cost and operational efficiency.

Analysts said by its loan concetratraton, it did not look like the bank implemented reckless credit appraisal to achive 65% LDR target in the year.

Emuwa said:“Oil and gas, which used to be 36% of our portfolio in 2018, was down to 29% of our loan book.

“Retail lending however jerked up from 6% in 2018 to 8.1% in 2019 while general commerce surged from 9% to 14%”.

Channel growth and transaction metrics

 UBN’ Mobile users jerked up 62%, which sent volume up by over 100% and value also expanded by almost 90%.

In the year, the bank recorded an increase in its online users which spiked by 43%. Though volumes went down, but value increased by 14%.

The Bank observed that there has been some migration from online to mobile. It said POS count came down as lender sought to focus more on productive use.

“Our POS volumes have gone up 68% and value has gone up 80%, and that continues to grow”, the bank stated.

Emuwa said Union360 users increased 72% as volumes jerked up 42%, which then resulted to 37% increase in transactions values.

Union Bank agent network expanded 10 times in 2019, and lender launched 9 new branch locations across the country.

“So whether it’s agents, whether it’s channels, whether it’s physical branches, those have continued to see more traffic. We commit to get closer to the customer, both physically and digitally”, the management said.


 As the management continues to focus on priority areas, lender was able to generate sufficient funding to make sure that it was able to take the right level of attention.

Emuwa said: “We raised a corporate bond N30 billion, Tier 2 bond, the largest 10-year bond ever issued by a Nigerian corporate.

Also, in January 2020, Union Bank raised N24 billion in commercial paper which was well oversubscribed.

“We’ve also raised foreign currency funding at attractive rates and long tenors from OPIC, which supports business, including digitization, SME and alpher”, Emuwa said.

Strategic Execution

Emuwa said across the various metrics that  the manegement has been tracking in 2019 versus 2018, the bank has seen progress on all fronts.

Emuwa explained that gross earnings jerked up. Our net revenues were up, profit before tax increased 23%. Interest income was up. Recoveries are up.

“Our customer deposits increased, the bulk of it in CASA and NPL slowed down.

“This is the lowest the bank had in NPLs in the last 7 years, basically focusing very actively on recoveries”, Emuwa held.

Emuwa said lender’s balance sheet is in a much stronger position than it has been in the past, and we continue to focus on booking quality risk assets

“You can see our return on average equity is up from 7% to 11%, return on assets up. Our capital adequacy ratio almost 20%, up from 16.4% in 2018.

“Cost-to-income ratio sloped down, NPL down.So, basically all the metrics are trending positively from 2018 into 2019”, the CEO said.

Union Bank resumes dividend payment after a decade of draught in free cash flow to equity.

Explaining further, Joseph Mbulu, the Chief Financial Officer said Union Bank coverage ratio improved when compared to 2018 of 138.1%.

“We saw return on equity move from 7.1% to 11.3%, return on assets from 1.4% to 1.6%”, Mbulu said.

Mbulu held that lender grew recoveries by over 120% from N3.9 billion to N8.8 billion in 2019.

Cost Optimization Effort

Mbulu said there’s a program at Union Bank call LEAP. It’s focused on building a new cost culture.

The CFO said in spite of double-digit inflation, lender were able to have concrete savings on the discretionary line.

He said repairs and maintenance came down about 10%; fleet management down close to 16%; accommodation and travels, down 48%; and then power costs down 2.3%.

Reduction in power costs was attributed to transitioning to solar.

“We expect to see much more savings as we fully transition to solar power in most of our branches”, Mbulu added.

Funding Mix

Union Bank saw overall growth in deposits of 5%. Mbulu said: “this was at a time when we have to basically give up the more expensive deposits towards the end of 2019.

“The good thing is we continue to grow our local deposits, to 8% from N610 billion to N650 billion in 2019 which has given us a low cost ratio”.

He said customer deposits remain dominant part of Union Bank deposit base.

Loans growth

In 2019, Union Bank loan portfolio grew by 20% year-on-year. The growth in retail is from 6% to 8%, and the commercial business also continues to grow.

“These reflect our focus on the emerging segment and these are good segments.

“Obviously, our corporate bank continues to be important to us, but we’re making sure that it’s diversified going forward.

Speaking further on the financials, Mbulu said the loan portfolio shows a reduction in concentration of oil and gas, power sectors and a growth in other sectors of focus.

He said lender saw growth in general commerce, communications, retail business did 8.1% plus other areas where it spent effort in terms of the risk level.

UBN outpaced loan as proportion of deposits target set by the Central Bank of Nigeria in 2019.

The CFO hinted that loan-to-deposit ratio was above 65% threshold and lender plans to continue to be above that.

For 2019, UBN capital adequacy ratio of 19.7% is above requirement and this gives flexibility to be able to grow our loan portfolio.

What Union Bank plans to achieve in 2020

 Emuwa said in January of 2020, consistent with our vision and strategy, where we’re optimizing our business model and focusing fully on Nigeria, we announced our planned divestment from our UBUK Union Bank subsidiary.

He said this is subject to regulatory approvals in Nigeria and the U.K., and we expect that to conclude by third quarter of 2020.

“What we’re doing is focusing on where there’s great opportunity,greater returns and  access to a much larger base of customers.

“Our business will continue to focus on our retail segment, our SME, commercial, treasury and our corporate.

“That’s where we’ll continue to be focused on. We believe that the opportunities there remain significant”, Emuwa said.

He stated that there are 6 priority areas that we continue to focus on to drive our growth.

These include regional and value chain with the one bank approach, a tailored regional strategy with data analytics support.

Emerging segments, TechVentures, SME, where we have compelling products and service offerings.

It also include education, transaction banking, payment, collections, product and service innovation, channel and digital”.

Emuwa said UBN is now tuning up any of its priorities, just focusing on those particular areas.

Read Also: Union Bank reflates earnings, to pay first dividend since 2008

Beyond M&A Frenzy, Union Bank CEO says Balance Sheet in Much Stronger Position Now