Union Bank records strong 61% PBT growth in 1H 2017

Core banking growth and profitability

The first half of 2017 saw Union Bank attaining strong core banking and profitability growth,laying a solid platform for the remaining period of 2017. 

Advances of Union Bank grew by 16% while the bank showed a very strong 94% growth on results from operating activities, recording Rs.364 m in comparison to Rs.188 m in the prior period, reflecting the successful implementation of the bank’s strategic initiatives. 

This was mainly attributable to the healthy 60% increase in Net Interest Income (NII)which rose to Rs.1,561 m for the period, despite the continuously challenging macro-economic environment that prevailed, especially with regard to market interest rates. During the period under review, the bank continued to focus on improving NII through prudent management of the Net Interest Margin (NIM) coupled with total asset growth. 

Reflecting the results of the bank’s long-term strategic initiatives to improve fee related income, Net Fee and Commission Income grew to Rs. 319 m, recording a strong 27%increase over the period. 

A change in the asset mix of the bank brought about a decline in the net trading income as funds were shifted to interest earning assets from investments in units. As a result, net trading income was reduced by 57% YoY to Rs.120 m.  Other operating income remained flat during the period YoY to report Rs.114 m.

Total operating income showed a sharp growth of 30% YoY to Rs.2,115 m, which was a direct outcome of the increase in core banking income.

The impairment charge for the period increased by Rs. 113 m owing to one particular asset being reported under non-performing assets in the first quarter of the year. 

In order to support the strong growth in the balance sheet, operating expenses of the bank increased to Rs. 1,619 m, reporting a 14% growth YoY, in line with the bank’s strategic growth and expansion focus along with its investment in human capital development.

The bank’s profit before tax and VAT grew by a robust 55% to Rs.393 m even though its share of profits from subsidiary companies were lower by Rs.36 m YoY. An increase in taxes was experienced as a result of an increase in profits, a shift in the asset mix and an increase in VAT rates. Profit After Tax (PAT) for the period was Rs. 207 m.

Total assets of the bank grew to Rs. 103 b, 11% growth YTD. Contributing to the same, the loans and receivables of the bank grew to Rs. 64 b,16% growth YTD. Customer Deposits grew by 21% to Rs.62 bYTD. 

The maintenance of strong capital ratios continues to be a management priority. The bank’s total capital adequacy ratio as at 30 June 2017 was 20.8%, well above regulatory requirements.

The Group, comprising Union Bank, NationalAsset Management Ltd. and UB Finance Company Ltd., recorded a healthy 52% increase in Net Interest Income to Rs. 1,868 m. Net Fee and Commission Income grew by 17% to Rs. 392 m. Profit After Tax for the period was Rs. 253 m.

Operational performance 

Within the second quarter of 2017, Union Bank continued to advance its strategic growth plans in a bid to expand market presence with a deep focus on business development and continuous investment in technological enhancements that enable better service delivery. 

As a bank that strives to continuously add value to its clients, Union Bank introduced Union Bank Biz Direct to its SME clientele in the Western Province in May 2017. The full-fledged transaction banking management tool is a more affordable solution in comparison to alternative solutions available in the market, thus offering a distinct advantage to SMEs by opening up an avenue to reap advantages of the latest and most cost-effective banking technology to develop their businesses.The bank intends to extend this knowledge building initiative across the country, in order to help SMEs benefit from this value proposition.

Adding further traction to its existing corporate banking relationships, Union Bank continued to extend Union Bank Biz Direct to leading corporates in the country. The bank hopes to further capitalise on this unique solution, in order to deliver a differentiated banking experience to its existing and potential corporate clients.  

The Union Bank’s Retail Loans portfolio reflected a significant increase with the Bank’s Personal Loans, Home Loansand Loans against Property leading the way.

Thebank grew its deposit and CASA portfolios significantly through focused channel development and key market development initiatives, amidst intense competition and laggard market conditions.

Adding further value to the banking experience ofits account holders, the bank offered attractive discounts of up to 25% at popular shopping and retail outlets on the Union Bank Visa International Debit Shopping Cards during the Ramadan festival.  

Ratifying the bank’s healthy capital profile, superior asset quality and prudent operational growth, ICRA Lanka reaffirmed the issuer rating of [SL]BBB of Union Bank, with a stable outlook in July 2017.  

Commenting on the bank’s performance for the second quarter of 2017, Union Bank Director/Chief Executive Officer Indrajit Wickramasinghe stated: “The bank has continued to achieve consolidated growth amidst market volatility, by maintaining a robust balance sheet and a healthy increase in the core banking income. We will continue to build on this core banking performance and balance sheet growth while ensuring that we continuously enhance the banking experience of our wider Corporate, SME and Retail Banking clientele within the remainder of the year.”