Union Bank of Nigeria Plc (www.unionbankng.com) has not declared loss in the last seven years. Its earnings have been steep and steady over the years since it returns to profitability in 2012.

When Emeka Emuwa, the Managing Director and Chief Executive Officer of the bank was appointed to lead in November, 2012 not many would have thought that the financial services supermarket would survive the onslaught of the new generation banks.

Emuwa’s job description was clearly spelt out to him the day he got his employment letter from Union Bank.

His core duty is three-fold: transform the bank, consolidate the bank and return it to profitability.

This has been his key focus till date, and the achievement of these key performance indicators is at his credit. UBN today has been transformed, consolidated and profitable.

Many analysts who spoke with MarketForces think Emuwa has delivered on this holy trinity, say earnings don’t have to be lip-smacking, market prefers consistency.

What the numbers say

In the last seven years, UBN ‘profit for the year’ grew by 43.93% on the average per annum. In 2012, profit for the year was N1.187 billion, grew to N3.836 billion in 2013.

By the end of 2016, the bank profit for the year surged to N15.391 billion from N14.204 billion in 2015. It had hit N26.825 billion in 2014.

Its tagline strong, trusted and reliable but now has to be simpler and smarter, the history behind the future of Union Bank Plc was reset in 2011.

At that time, Union Bank declared N83.239 billion loss. The year marked the last loss made in seven years after transition of the board leadership when total assets of the group were valued at N1.068 trillion.

From N1.238 trillion March 2008, Union Bank Plc total assets declined to N1.16 trillion in December 2009, and then to N1 trillion in 2010.

Then, Union Global Partners Limited held 26.05% in the group. It has however increase its stake to more than 65%.

UBN commenced operation in 1917 as colonial overseas which was acquired in 1925 by Barclays bank. It was incorporated as private company limited by shares in Nigeria in 1969 and became a public limited a year after.

It had moved away from the CBN intensive care in 2009, from a stress test that exposed the dirt in the banking sector.

At that point in time in the bank’s corporate existence, its shareholders funds were depleted, and N378 billion negative.

Exactly 7-years after, shareholders’ funds pitched at N242 billion, after it grew 7% year on year from N225 billion at the beginning of the year 2012, total equity had pitched below N172 billion.

Ahead of retain earnings capitalisation for the third quarter, Union Bank stands strong as its books show. Its capital adequacy ratio settled at 17.8% in the third quarter of financial year 2019.

Emuwa grew UBN’s total assets by 8.54% on the average per annum in the last 7 years.  The group total asset has expanded to N1.8 trillion at the end of the period from N1.463 trillion in 2018. It had closed at N1.455 trillion a year earlier.

In 2012, total assets had pitched at N1.014 trillion, from where it grew to N1.256 in 2016. In 2013, it had declined to N1.02 trillion, landed at N1.010 trillion in 2014 where it moved to N1.049 trillion in 2015.

Cost: the Holy Grail

Competition for cheap deposits is at its peak. Union Bank has to do some ‘knife fight’ against onslaught of bulge balance sheet taking as much as 70-80% of the retail deposits.

High cost to income, and steep funding cost means its deposits base is not cheap. However, the management continues to work to find an equilibrium.

Cost pressure that characterised mid-size banks’ operations refused to give way. UBN group cost to income ratio perched at 78.8%, having dropped 100 basis points away from the previous position.

What this means for the bank is that for every N100 generated as income, it burned exactly N78.80 down the line.

This high cost resulted to thin margin. This was evidenced in net interest margin which dropped off to 5.6% from 7.8% at the beginning of the year.

But analysts said that it year-end results may likely bolster this, as the need to reprice deposits base has become necessary.

UBN creates value for investors at 26.79% return

Not many banks have been able to increase investors’ wealth in the stock market recently.

In the 9 months scorecard, the bank’s net asset per share increased to N8.31 from N7.75 at the beginning of the year.

Though share price actually traded at N7.10 on Friday which means there is an intrinsic value that market has not priced, yet.

At loans to deposit ratio at about 64% in the period, UBN is quite covered from the CBN 65% target. Couple with its strong capital position, and capitalisation of retain earnings down the year; the bank seems not to be under any pressure to create risk assets.

Year to date, the bank’s share price has appreciated strongly at 26.79% despite bearish trend in the market.

On Friday, the stock price closed at N7.10, having peaked at N7.50 in the year. It had hit the block at N5.60 which happened to be the opening price and the lowest so far.

On shares outstanding of 29,120,752,788 units, Union Bank market cap pitched at N206.757 billion, though analysts said that the bank share is trading at discount.

The stock has beat analysts’ consensus average target price of N6.93 as at Friday.

Asset quality

Assets quality is a bit of an issue, at the end of 9 months result, non-performing loan stood at 8%, which was 300 basis points above apex bank target.

However, this was as result of 70 basis points decline from 8.7% at the beginning of the year.

NPL ratio was 14.42% in 2011, from 40.42% in 2010. AMCON had provided bridged capital injection of N46.93 billion, with percentage of shareholdings of 58.97%.

In 2019, UBN has raised gross loans and advances by 9% from N519.7 billion at the beginning of the year to N566.5 billion in 9 months. This weakened assets quality at that point.

The bullish run on risk assets resulted to taking significant impairment on credit losses against income.

The management booked N4.3 billion as impairment charge on credit losses in the period, compare to N7.3 billion write back in the comparable year.

From deposits side, customers has N892.9 billion stacked in UBN as at third quarter of the year, from N857.6 billion at the end of 2018.

The history behind the future

In 2011, UBN had declared N107.7 billion pre-tax loss, two years after the Central Bank of Nigeria intervention.

This among other issues forced the need for some sorts of transformation on the Board of Directors.

Also, there was need to recapitalised the bank as it capital base was heavily depleted. Then, as a loss making bank, it had no earnings to capitalise to upturn its negative position.

Following the successful recapitalisation of the bank, transformation efforts began in earnest with the strengthening and consolidation of the Board as well as the recruitment of key executives.

Has Emuwa delivered on this holy trinity?

Transformation initiatives kicked-off under Emuwa include modernising of the Bank’s branches, strengthening of the workforce and skills, upgrading of technology and systems, as well as the review of processes to make them more efficient for the Bank’s customers.

MarketForces reached out to customers in the banking halls to get their feedback about the bank’s cleanliness and service delivery.

Many of the customers that spoke with us said UBN is doing just well in terms of service delivery.

Some aged people that have been with the bank are of the few that the bank has served them well over the years. However, in the last five years, they say Union Bank service has improved greatly.

“I started banking with UBN for about 40 years now. There were time I wish I could move my account away from them. But now, I have been recommending the bank to people”, Mrs. Kemi Alade, a retired civil servant said.

Others said that Union Bank has come out of its shell to do real banking. Customers agreed that service delivery has improved greatly and members of staff have been largely supportive.

“This is a dawn for UBN, it can compete in terms of service delivery comfortably”, Mr. Timothy Fisayo, a customer of the bank said.

In the third quarter of 2019

At the end of its 9 months in financial year 2019, the group has N1.8 trillion in total assets. UBN raked N15.6 billion as pre-tax profit, which was 5% above N14.9 billion made in the comparable period in 2018.

Gross earnings pitched N117.2 billion from N122.2 billion which represents a 4% decline year on year.

The management believes that the decline was necessitated by reduction in average earnings assets. On size of earnings assets, UBN bolstered its loan portfolio with 9% increase in gross loans and advances.

Year to date, gross loans and advances increased by 9% to N566.5 billion from N519.7 billion, driven by increased appetite for risk assets creation across priority sector.

While interest earnings assets surged, interest income nosedived 2% year on year, from N91.5 billion to N90 billion at the end of 9 months in 2019.

Trading income faced market pressure, thus pushed non-interest income sourced down 12% to N27.1 billion as against N30.7 billion mark achieved in the comparable period in 2018.

Customers’ accounts with UBN expanded 4% to N892.9 billion from N857.6 billion at the beginning of the year.

Emuwa expertise bears on the scorecard. Seven years after, Union Bank has come out stronger, and more reliable though the race to the future continues as the bank chief strategises to stay ahead the curve.

For Emuwa rebuilding and consolidating is work in progress.

This month marks his 7th years with the bank and it appears Union Bank is up against the tide having been pulled together with combination of rebranding and restructuring efforts.

Transformation agenda

In 2012, the management stated that Union Bank has redefined its ambition and mapped out a strategy to be Nigeria’s most reliable and trusted banking partner. UBN leveraged a robust transformation team largely focused on people, processes and technology.

“Industry rivalry was at the peak. New generation banks were dazzling and the fierce rivalry set that there are minimum acceptable things that the bank must do – aesthetic, elegance and cleanliness were needed if you want customers visits to your banking halls”, Consultant at LSintelligence said.

The Bank service quality increase as the horse became lighter, which signifies agility and strength to run competitively. It did happen that unlike in the past, Union Bank was able to increase market share when it is obvious that the Emuwa really mean business.

By Julius Alagbe

VIAJulius Alagbe
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