Despite the volatile macro environment, the bank performed exceptionally well in 2017 resulting in a 35.6% increase in profits from operating activities to Rs. 782 million in comparison to the Rs. 577 million recorded in 2016, while recording a Profit Before Tax (PBT) of Rs. 534 million, a 23% growth YoY.
Gross income of the bank improved by 39.7% to Rs. 11,938 million in comparison to Rs. 8,546 million recorded in 2016. Income growth of the bank in 2017 was mainly driven by the core banking operations. This highlights the bank’s continuing progress in its swift transition to a full-fledged commercial bank with a wider focus on the Retail, Corporate and SME sectors. The impressive results reflect the success of the rapid expansion initiatives implemented by the bank following the capital infusion made in the latter part of 2014.
Core banking growth
The net interest income of the bank recorded Rs. 3,046 million during the year, significantly improving by Rs. 539 million which translates to an increase of 21.5%. The rise in net interest income was mainly driven by the balance sheet growth of the bank.
The bank’s loans and receivables stood at Rs. 70,578 million as at end of 2017. This was a growth of Rs. 15,140 million, which translated to a healthy increase of 27.3%. The composition of the loans and receivables of the bank changed in line with the bank’s strategy for the year.
The bank’s deposit mobilisation strategies yielded good results with the deposit base of the bank standing at Rs. 70,326 million, along with a growth of Rs. 18,484 million which is an impressive 35.7% increase in 2017. Much of this growth was steered by retail fixed deposit growth of Rs. 13,284 million, 58.7% growth over the previous year.
The bank continued to focus on CASA supported by several strategic initiatives such as the offsite ATM network, debit cards, sales force and enhanced brand awareness. CASA recorded Rs. 3,952 million growth which translated to 32.0% in comparison to 2016. The CASA mix was at 23% in 2017.
The bank has made significant efforts to improve its fee and commission income using the key enablers established during the current and previous years.
The fee and commission income, which mainly comprised deposit-related fees, trade and remittances, loans, cards and other fees, increased to Rs. 783 million, an increase of 17.4%.
The bank reported a net trading and other income of Rs. 656 million. This reflected a strong 35.0% growth in income to Rs. 335 million in comparison to Rs. 248 million in 2016. The increase was mainly attributable to an increase in capital gains from trading securities.
The bank has no trading equities and has not invested in equity funds as of the balance sheet date. Reflecting the effectiveness of the strategies adopted, in a backdrop of testing market conditions, the bank recorded Rs. 4,376 million total operating income for the year. This increase of Rs. 638 million was a 17.1% growth YoY.
The bank has achieved a significant improvement in asset quality through the adoption of a robust risk management framework and by implementing rigorous risk management practices including stringent appraisal processes, strong collections efforts and risk-based pricing. The gross NPL Ratio was at 2.7% at year-end.
Operating expenses of the bank was well managed and increased to Rs. 3,345 million during the year, as opposed to Rs. 3,008 million in 2016, which is only an increase of 11.2%. This is in comparison to the total operating income increase of 17.1% during the same period.
Total taxes for 2017 was Rs. 377 million, an 86.6% increase in comparison to 2016. The increase in VAT and NBT on financial services was due to the increase in VAT rate to 15% from 11%. The increase in corporate tax was due to the increase in the taxable income as a proportion in comparison to 2016. Profit after taxes of the bank for the year was Rs. 461 million.
The YoY PAT growth at the bank level was affected due to significant one-off income made in 2016 through its subsidiary UB Finance. Net assets value per share of the bank improved to Rs. 16.36 from Rs. 15.65 in 2016. Total assets of the bank grew by 28.0% to Rs. 119,007 million in comparison to Rs. 93,009 million in 2016.
The bank maintained a robust Capital Adequacy Ratio throughout the year, reporting 18.9% core capital ratio as at the year-end.
The Group, consisting of the bank and its two subsidiaries, UB Finance Company Ltd. and National Asset Management Ltd. reported a PAT of Rs. 551 million in 2017 supported by total operating income growth of 14.9% YoY.
Net asset value per share of the Group improved to Rs. 15.98 from Rs. 15.22 in 2016. Total assets of the Group grew by 26.9% YTD to Rs. 127,601 million and the Group maintained a healthy Core Capital Ratio of 18.6% during the year under review.
The year 2017 saw Union Bank further building on the strong fundamentals that were laid during the previous two years, to maintain its robust growth momentum despite the challenging macroeconomic conditions that dominated the year.
The Corporate Banking portfolio of the bank recorded a notable performance in 2017, while delivering enhanced customer value by offering a comprehensive product package supplemented by Union Bank Biz Direct - a state-of-the-art transaction banking and cash management solutions platform launched in 2016.
The SME banking portfolio of Union Bank recorded a steady growth in 2017, recording an expansion of 14%, on the back of a strategic lending approach focused on pre-identified industries and geographic regions. Although extreme climate conditions took a toll on a number of industries, timely intervention and preventive action ensured that the bank was secured of possible portfolio losses.
The retail deposit base of the bank grew notably in 2017 on the back of a focused strategy driven through identified key segments. A YoY deposits growth of 54% was recorded under the retail segment with a heathy CASA mix of 20%.
Amidst intense competition and increasing rate trends, retail banking operations accounted for 39% of the overall CASA growth of the bank. Localised consumer promotions played a pivotal role in driving the acquisition of low-cost funds while the ‘Kalin Avurudu’ strategic savings campaign and five-year fixed deposits campaign conducted in 2017 made significant contributions towards the retail deposit growth.
Debit card issuance was made simpler in 2017 which resulted in an improved cross-sell ratio and a steady growth of the bank’s debit card base. The bank continued to offer value-added merchant offers to the debit cardholders, resulting in better engagement, particularly during festive seasons.
Marking a significant turning point in data security protection, in 2017 Union Bank became the first bank in Sri Lanka to receive the international Payment Card Industry Data Security Standard (PCI DSS) by the Security Standards Council.
A healthy growth was recorded in the Union Bank Personal Loans portfolio, while Home Loans further expanded in 2017 to accommodate condominium financing for pre-approved developers. To further strengthen the bank’s asset product suite, Loan against Property (LAP) was introduced in 2017 to fulfill personal financial requirements of individuals by extending funds against the mortgage of an immovable property held as collateral.
The Treasury, which consists of the Interbank, Fixed Income and Corporate Sales desks, continued to make significant contributions to the bank’s bottom line. The Treasury Department of the bank continued to act as the intermediary in facilitating funding and investing for the bank’s Corporate, Retail and SME business units. Supported by market volatilities that prevailed throughout the year, trading on fixed income securities recorded a profit of Rs. 107.1 million and foreign exchange income of Rs. 79.1 million for 2017.
The results also reflect the success of Union Bank’s expansion initiatives that gained further momentum in 2017, with its island-wide network increasing to 67 branches by the end of 2017. Continuing to deliver easy account access island-wide, the bank’s ATM reach further expanded with the addition of new off-site ATM locations, sizing up the network of bank-owned ATMs to 124. In line with the bank’s mandate of delivering greater banking convenience, 14 existing branches were remodelled and relocated, unveiling a new look and offering a redefined banking experience.
In its efforts to offer a seamless banking experience to the bank’s clients, Union Bank introduced an all new Mobile Banking app in the third quarter of 2017. Earlier in 2017, the bank introduced an ultra-modern online banking platform, and taking a step further the bank enriched this online presence by extending it to mobile banking with more adoptability and flexibility to deliver ultimate convenience to its customers and non-customers alike.
The Union Bank brand made further progresson its position amongst LMD’s leading 100 brands in Sri Lanka, climbing six notches in its ranking in 2017. In recognition of its strong brand presence on social and digital media, Union Bank was conferred the title for ‘Best Facebook Campaign’ at the CMO Asia Social Media and Digital Marketing Awards 2017, while at the Asia Banking, Financial Services and Insurance Awards, Union Bank clinched two awards for its customer orientation and technology orientation.
Union Bank gained significant recognition at the inaugural LankaPay Technnovation awards held in 2017 and collected four awards in recognition of its profound growth and performance in the technological innovation space within the banking industry. Union Bank’s Annual Report 2016 won the ‘Compliance Award for Excellence’ in the financial services sector at the grand finale of the 53rd 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: “The year 2017 ended a period of transformation and the implementation of a three-year strategic plan that resulted in significant enhancements to the business model resulting in transformational growth in the bank’s performance during these three years. Our strategic aim is to be amongst the preferred Retail/SME and Transactional Banks by 2020 with greater focus on building relationships. Beginning 2018, we will achieve this by embarking on an enhanced growth trajectory in our preferred segments and strengthening our franchise value.”