NDB eyeing Union Bank?

Wednesday, 21 August 2013 00:12 - - {{hitsCtrl.values.hits}}

Cash-rich National Development Bank (NDB) is scouting for an acquisition as part of strategic expansion with small time player Union Bank of Colombo being under its radar. The Daily FT learns that there have been several rounds of talks between the two leading to few options being laid on the table. However both banks, which are listed, haven’t made talks public on the basis that they are either preliminary or inconclusive. Financial services industry sources nevertheless said talks have progressed to a stage where preferred price per share or a share swap have been indicated. Union Bank’s net asset per share was Rs. 15.84 as at June 2013 and was trading at Rs. 16.80 levels on Monday. Banking industry analysts speculated the strike price per share in the event of a deal could be in the range of Rs. 22 and Rs. 24. Ever since its acquisition of ABN AMRO Bank’s Colombo operations in 2001, NDB has been on the lookout for fresh acquisition to grow big but has been unsuccessful. It had also looked at a possible merger as well in the past. If acquired, Union Bank will give NDB an additional footprint of near 40 branches on top of its own 73 branches and Rs. 35 billion in assets. Union has been focusing more on SMEs, an area which NDB has pioneering expertise. Promoters of Union Bank have privately maintained they will exit if there is a good win-win opportunity for themselves as well as its customers. Foreign investors hold 47% stake in Union Bank. Vista Knowledge Ltd., holds an 18.5% stake in Union Bank whilst Sampath Bank holds 7.5%, the same as Associated Electrical Corporation Ltd. Select Gain Ltd. hold a further 6.7% stake. Chairman Alex Lovell holds 6.5% stake and is the single largest individual shareholder. The public float of Union Bank is 58.75% Established in 1995, as the 8th indigenous bank, Union Bank has endeavoured to position itself to be the preferred bank for small and medium enterprises and retail sectors in Sri Lanka. It has 39 branches with 586 employees, up from 36 and 502 respectively as at June last year and has plans to expand its network to 50 branches by end 2013 which is specially focused and geared to grow the bank’s SME portfolio. Union’s assets amounted to Rs. 34.6 billion by end June 2013, up from Rs. 30.8 billion at the end of 2012. Loans and receivables were Rs. 24 billion, up from Rs. 20 billion. Liabilities were Rs. 29 billion, up by 15% from end 2012. The customer deposit base was Rs. 27 billion, reflecting a 14% growth from end 2012. Total shareholder funds were Rs. 5.5 billion as at 30 June, 2013 comprising Rs. 4.97 billion in stated capital and Rs. 294 million in retained earnings. Its total capital adequacy is 16%, as opposed to minimum requirement of 10% whilst core capital adequacy ratio was 17%, as against 5% minimum. Union also owns a 51% stake in National Asset Management Ltd., (NAMAL), the premier Asset Management Company and 98% in The Finance and Guarantee Company Ltd., one of the oldest finance companies established in 1961 and now goes as UB Finance. The bank’s Profit After Tax for the second quarter improved by 119% to Rs. 126.4 million, when compared with the same period in 2012 despite challenging market conditions during the first half of 2013. The bank also recorded an increase in profits in the first half of 2013 as compared with 2012 to show Rs. 189.3mn, an 18% growth. Group profits for the period also showed an increase to Rs. 54 million, recording a 142% growth, and cumulative profits recorded Rs. 107.2 million, showing a decrease of 26% in comparison to the comparative period; mainly due to the weak performance of the Q1. The group’s profits also dipped in comparison to the bank, due to the slow performance of UB Finance during the period. Net Fee and Commission Income increased by 44% during the quarter versus last year and other income recorded a 201% growth. The significant increase in other income was mainly due to a disposal of UB Finance shares that was held by the bank. On the other hand, NDB as at June 2013 had 73 branches with 1,536 employees, up from 69 and 1,447 respectively as at end 2012. NDB had Rs. 16.1 billion revenue reserves as at June 2013 whilst total shareholders’ equity was Rs. 19.4 billion, up by 30% from end 2012. Total assets of the bank were Rs. 180.2 billion, up by 10% from end 2012 whilst liabilities were Rs. 161 billion up by 8%. NDB’s total capital adequacy was 15% and Tier 1 capital adequacy was 13.89%.

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