Chairman Atul Malik
CEO Indrajit Wickramasinghe
Continuing its growth momentum powered by a three-year growth strategy set forth in January last year, Union Bank posted significant growth in its core banking operations, reflecting a 62% Year on Year (YoY) growth in profits from operating activities to report Rs. 362 million during the 1st quarter of 2019. This was despite the continuously challenging macroeconomic backdrop which had been affecting the industry over the past few quarters.
Union Bank recorded an impressive profit before all taxes of Rs. 366 million, a 49% growth YoY for the period ended March 2019, highlighting the Bank’s continued performance and progress towards achieving its strategic growth objectives for the year.
Continuous focus on revenue optimisation through portfolio re-alignment within and across business units resulted in a 19% YoY growth in Net Interest Income (NII) which was Rs. 1,013 million during the period ended 31 March despite the increase in cost of deposits.
Fee and commission income grew by 19% YoY to Rs. 266 million during the period under review. The growth in fee income has been from across a number of products including fees collected on Credit Cards -the newest addition to the product portfolio which made its debut in late 2018. Trade and remittances related fees indicated a slight decline YoY, owing to the unconducive market dynamics for these products.
Capital gains from government securities for the period were Rs. 71 million which was a 23% increase YoY. Income from investment in units for the period was Rs. 70 million and was a reduction of 33% YoY. This negative growth stemmed from reduced investments in units as a result of the changes to tax regulations which came into effect mid last year. Meanwhile, foreign exchange income for the period showed a 71% decline YoY, as a result of revaluation due to the appreciation of the value of the Sri Lankan Rupee.
During the quarter under review, the Total Operating Income of the Bank rose to Rs. 1,368 million, and represented a growth of 8%YoY. Total Operating Expenses were prudently managed and grew only by 2% YoY to Rs. 955 million during the period. As a result, the operating margin improved by 24% YoY to Rs. 413 million.
Impairment charge for the period reduced by 53% YoY and was reported at Rs. 51 million, as a result of a reduction of the individual impairment.
Profit share from subsidiaries was reported at Rs. 4 million which was Rs. 19 million reduction YoY as both subsidiaries of the Bank were affected by adverse market conditions that prevailed during the period.
Profit after Tax (PAT) for the period was affected by the significant increase in the effective tax rate. The Effective tax rate for the quarter was 72% compared to 52% in the comparative period. The Increase in the effective tax rate was due to the withdrawal of tax exemptions on profits earned on investments in Sri Lanka Development bonds, investments in units, investments in debentures and also due to introduction of Debt Repayment Levy. In addition, the withdrawal of notional tax credit further impacted the effective tax rate. As a result, PAT for the period was reported at Rs. 105 million, which was a 19% decline YoY.
The total comprehensive income of the Bank was Rs. 295 million and was an increase of Rs. 246 million YoY. This was mainly due to the positive impact from the valuation on Debt instruments at fair value through the other comprehensive income.
Total assets of the Bank stood at Rs. 124,624 million as at 31 March. The Bank’s loans and receivables stood at Rs. 76,279 million and was a 3% growth YTD. The deposits base was Rs. 77,897 million as at the balance sheet date. Loan to Deposit ratio improved to 99% from 105% reported in the comparative period last year. The Bank continued to focus on asset quality with prudent risk management practices and the net NPL ratio of the Bank stood at 3.1% at the end of the reporting period.
Also within the period under review, total CASA grew to Rs. 20,077 million which translated to a growth of 22% YoY. Maintaining a healthy CASA inflow was supported through focused acquisition strategies driven by Retail, Corporate and SME banking segments.
The Bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 16.9% as at the balance sheet date.
The Group consisting of the Bank and its two subsidiaries, UB Finance Company Limited and National Asset Management Limited reported a Profit before all taxes of Rs. 401 million for the period which was a growth of 31% YoY. Total assets of the Group was Rs. 134,065 million of which 93% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 16% as at the balance sheet date.
Business performance and strategic enablers
Pursuing growth in its 2nd year of the 3-year growth strategy, Union Bank’s Corporate Banking portfolio recorded a notable performance in the quarter under review. Steered by impressive growth in assets and liabilities, the corporate loans portfolio expanded by 18% YoY and the deposits base of the corporate banking segment increased by 45% YoY, while the Cash Management proposition Union Bank Biz Direct continued to make significant contributions to the overall CASA growth of the Bank.
The SME Banking portfolio set off on a continued growth phase in the 1st quarter of 2019 on the back of a strategic lending approach that places focus on large disbursements to selected industries. The SME business of the Bank reflected a positive start to the year creating a strong pipeline for asset growth while increasing geographical focus at branch level for the growth of SME business including the SME CASA base.
The Retail Banking segment of the Bank continued to make significant strides recording a YoY deposits growth of 4% with a CASA portfolio expansion of 16%YoY. Launch of Union Bank Gold Circle was a key highlight of the quarter under review. Union Bank Gold Circle is a specially designed financial proposition aimed at empowering the dreams of dynamic and ambitious individuals. The banking proposition is bundled with benefits on saving and borrowing options, allowing more flexible, convenient terms of banking to suit the evolving needs of young professionals and business owners. Designed to provide a personalised service through dedicated relationship managers, Union Bank Gold Circle is an affirmation of the Bank’s commitment to continuously enhance its retail banking propositions to suit the evolving banking needs in the market.
Retail assets portfolio continued to expand aided by the Bank’s focused efforts during the review period, growing its mortgage backed loans by 196% YoY. Having launched its Credit Cards proposition in October last year, the Bank’s retail banking operation continued to place significant emphasis and efforts on the expansion of the Credit Cards base with the introduction of unmatched offers including Cash Back offers for fuel and supermarket purchases, special Avurudu discount offers, 0% interest instalment schemes, Loan on Card facility as well as other targeted campaigns conducted with the aim of acquiring new customers and gaining the wallet-share of existing customers.
The Treasury which consists of Interbank, Fixed Income and Corporate Sales desks performed well above expectations in the first quarter of the year, making significant contributions to the Bank’s bottom line, especially in terms of capital and exchange gains.
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 amidst optimal cost management that contributed towards the sound management of the cost to income ratio.
The outstanding achievers of the Retail and SME business segments of Union Bank were felicitated at the Union Bank Retail and SME Banking Awards ceremony held at the Marino Beach Hotel on 30th March under the theme ‘Race to Win’. The Bank’s top performing branch and sales staff were felicitated and awarded at the event, for their outstanding contributions and commitment towards the noteworthy core banking growth of the Bank in the year 2018.
Union Bank’s Annual Report 2018 was presented in February 2019, under the theme ‘Building Strong Bonds’- which signifies the Bank’s commitment to forge ahead as one of Sri Lanka’s fastest growing commercial banks, while building on the profound stakeholder relationships fostered over the years and leveraging on its strengths of a solid capital base, comprehensive product portfolio, an empowered team, technological finesse and operational efficiency to create sustainable growth opportunities for all stakeholders.
Further, on March 27, the Bank announced that the Board had resolved to repurchase up to a maximum of 7,875,798 ordinary shares of the Bank at a price of Rs.15/- per share from the shareholders of the Bank, subject to all necessary approvals and consents under applicable laws, including the approval of the shareholders.
Commenting on the 1st quarter performance of the Bank, Union Bank’s Director/CEO Indrajit Wickramasinghe said, “We have got a very positive start to the year 2019 with significant growth in the core banking operations. However the macro environmental conditions are very challenging which will have an impact going forward. We will continue to build on this solid foundation, with focused efforts in expanding our business growth in the identified key strategic business pillars. We also plan to add scale to the Bank through inorganic growth strategies, including portfolio acquisitions with the objective of optimising capital utilisation and thereby enhancing shareholder returns.”