Union Bank records impressive growth in 2015

Union Bank of Colombo PLC (UBC) and its subsidiaries concluded 2015 with a notable business performance; reflected by a 226% increase in post-tax profit that signals the strong growth momentum mobilised within the year. 

Core banking growth and profitability 

The principal source of income from the bank’s fund-based operations escalated to Rs.2,022 m in 2015. This is an increase of Rs. 259 m or 15% compared to Rs. 1,763 m recorded in the previous year. It is a noteworthy achievement, given the substantial reduction in interest spreads experienced by the Bank during the year.

Net interest margins dropped due to decreasing spreads and increased investments made in Unit Trusts during the year. Return on the Unit Trust investments are reflected under net trading income of the Bank.

The Bank’s Loans and Advances stood at Rs. 40,095 m as at 2015 year-end. This is a Rs. 14,151 m (55%) growth in comparison to the previous year, and is the highest absolute growth achieved by the Bank since its inception.

The composition of Loans and Advances of the Bank changed in line with its new strategic positioning, as a fully-fledged commercial bank serving a wider clientele including Corporate, SME and Retail Banking segments. Corporate Banking contributed to the highest portion of the growth, given that the Bank employed focused efforts to strengthen its corporate loan book in 2015, in an endeavour to grow fee and commission income.

UBC revamped its Retail Banking proposition in 2015, with a broader product spectrum aided by aggressive network growth; while consciously narrowing the pawning portfolio to reduce the risk appetite. The Deposits Base of UBC stood at Rs. 37,652 m as at year-end. This is a Rs. 9,844 m (35%) growth in comparison to 2014.  The growth in Fixed Deposits was recorded as Rs. 7,719 m.

The Bank focused on an aggressive CASA (Current and Savings Accounts) drive which was supported by several strategic initiatives such as; the expansion of the off-site ATM network, introduction of Debit Cards, setting up a dedicated sales force and rebranding the branch outlook. CASA recorded a growth of 33% in comparison to 2014. 

The Fee and Commission Income of the Bank was Rs. 226 m, which translates to a year-on-year growth of 15%. This was mainly attributed to the increase in fee and commission income from Loans, Cards, Trade and Remittances. The Bank made significant efforts to strengthen its fee and commission based businesses, and plans to leverage the key enablers that were established during 2015.  

UBC reported a Net Trading Income of Rs. 278 m, which is a significant growth of 189% year-on-year. This was due to an increase in investments made in the Unit Trusts. In 2015, UBC made a strategic decision to exit the equity trading portfolio and held no trading stocks as at the year-end. Other Operating Income of the Bank was Rs. 359 m, which reflects a growth of 28% year-on-year. This was mainly attributed to the 73% growth reported in Foreign Exchange gains.

The Bank was affected with one of the highest NPL ratios in the industry in mid-2014. The NPL ratio improved significantly to 2.7% as at the reporting date. NPL ratios as at the end of 2014 was 7.4%. Reflecting a noteworthy improvement in portfolio quality, the Credit Loss Expense of the Bank reduced to Rs. 176 m from Rs. 541 m in 2014.

Operating expenses of the Bank was Rs. 2,334 m, which is a 42% increase year-on-year. This was mainly due to the strategic investments which included the expansion of network and reach along with investments made in technology and human resources during the year.  

The Bank maintained a healthy Liquid Assets Ratio throughout the year. UBC continued to maintain a healthy Capital Adequacy Ratio which is well above the regulatory requirement, reporting a 24% core capital ratio as at the year-end. 

Group performance

The Group, consisting of the Bank and its two subsidiaries – UB Finance Company Ltd. and National Assets Management Ltd. – reported robust results in 2015. The Group reported pre- and post-tax profits of Rs. 292 m and Rs. 255 m respectively, compared to Rs. 161 m and Rs. 78 m reported in 2014. Annual growth rates for pre- and post-tax profits were, 82% and 226% respectively. 

The Bank was the significant contributor towards the Group Net Interest Income (NII), accounting for 83% of the total NII. The Group reported a NII of Rs. 2,440 m compared to Rs. 1,971 m reported in 2014. The annual growth rates for NII was 24%.

The Group recorded significant volume growth in terms of loans and advances growing its portfolio to Rs.45.5Bn in 2015, an increase of 56% year-on-year. This was a result of the Bank’s intention to grow the book aggressively while maintaining a profitable mix. The Bank contributed to 88% of the Group’s total loans and advances.

The Group also recorded a significant increase in customer deposits recording a portfolio of Rs.41.6Mn in 2015, a growth of 37% year-on-year. The Bank contributed 90% of the Group’s total customer deposits. Fixed Deposits accounted for 78% of the total deposits base and grew by 39% year-on-year.

The Group reported a 15% increase in fee based operations. Trading and other income also reported a strong performance, recording a growth of 35% year-on-year.

Operational performance 

This robust financial performance endorses the Bank’s renewed strategic focus as a fully- fledged commercial bank serving a diverse clientele including Retail, SME and Corporate segments.   

The impressive results further reveal the success of the rapid expansion initiatives implemented by UBC during the year, following the land mark investment from TPG – one of the largest global private investment firms.

UBC’s expansion initiatives underlined remarkable upward momentum in 2015, with the island-wide network increasing to 64 branches by the end of the year. The Bank’s rapidly growing ATM reach expanded across 37 new off-site ATM locations in 2015, sizing up the total ATM reach of the Bank to 102 ATMs, delivering enhanced convenience of easy account access island-wide. 

In line with the Bank’s mandate to deliver greater banking convenience to customers, 22 existing branches were remodelled in 2015, unveiling a  new look and offering a redefined banking experience to customers.  

Enhancing and adding value to the Bank’s product portfolio is an integral part of UBC’s growth strategy. Hence in 2015, UBC expanded its product and service offerings especially in the Retail Banking segment; fortifying its product portfolio with customer-centric solutions that deliver enhanced value.

The launch of the Union Bank VISA International Debit Card and introduction of the Salary Power savings solution that caters to the specific financial needs of the employed individuals were some of the key new products introduced within the year. 

The focused efforts towards building strong Corporate and SME portfolios were fortified with new customer relationships established within the year. Strengthening of credit under-writing processes, centralisation of operations, and setting up of a SME credit centre further augmented the Bank’s business performance in these categories.  

An integrated communications campaign launched mid-year, was continued throughout the second half of 2015, in a bid to build stronger corporate brand equity under the premise ‘Make the rest of your life the best of your life with Union Bank’. The campaign has succeeded in delivering greater brand visibility for UBC and has supported the efforts to position the Bank as a fully-fledged Commercial Bank serving unique financial needs of a diverse clientele.

Marking a milestone in Retail Banking, UBC was conferred the ‘Speed to Market Award 2015’ at the Visa Client Forum India and South Asia in recognition of the speed and success of the Debit Card launch. UBC’s Annual Report 2014 won the ‘Compliance Award for Excellence’ in the financial services sector at the grand finale of the 51st Annual Report Awards conducted by the Institute of Chartered Accountants of Sri Lanka. 

Commenting on the performance of the Bank, Union Bank Director/Chief Executive Officer Indrajit Wickramasinghe stated: “We have completed a successful year of strong financial results, and significant reforms towards laying a solid foundation for more ambitious growth in the years to come. There were many changes implemented during 2015 in terms of the business focus and strategy, with significant investments being made on people, processes and technology. Looking into 2016 and beyond, the Bank will continue on its strong growth trajectory with the intent of becoming one of the leading private sector banking institutions in Sri Lanka.”