National Wire About Nigerians, Nigerian Business and Other Stories
By Friday Ekeoba
Notwithstanding its seemingly financial statement for the year ending December 31st 2016, Union Bank Plc Cash Adequacy Ratio (CAR) considering its operations has dropped to 13.3 per cent, compared to the regulatory benchmark of 15 percent respectively.
Generally, a bank with a high CAR is considered safe and likely to meet its financial obligations.
CAR isused by financial regulators is met to ensure that banks have sufficient capital to absorb losses in order to avoid insolvency, loss of depositors’ fund and bolster confidence in the financial system.
However, to cushion the effect of the CAR on its operations, Union Bank has gotten the nod of its shareholders to approach the stock market to raise additional capital of N50 billion by way of a Rights Issue, expected to open in the second quarter of 2017.
The board of the bank is optimistic that the offer will succeed, even as the current capital shortfall is also expected to be enhanced with full retention of the projected profit for the 2017 financial year.
Specifically in the bank’s statementsent to the Nigerian Stock Market for verification, the bank directors are hoping that its current plans are adequate to address the bank’s adequacy level.
Another review of the bank’s operation for 2016, showed that the group in the ordinary course of business is currently involved in 801 litigation cases.
The total amount claimed in the cases against the Bank is estimated at N152.96billion (December 2015: N297.03 billion), while the total amount claimed incases instituted by the Bank is N37.62 billion (December 2015: N10.26 billion).
The bank said that “a total provision of N3.10 billion (December 2015: N2.23billion) has been made based on the advice of professional legal counsel. Theactions are being vigorously contested and the Directors are of the opinionthat no significant liability will arise therefrom in excess of the provisionthat has been made in the financial statements. (ii) There are four (4) caseswith total claims of N2.840 trillion of which judgment was awarded against theBank in conjunction with other parties and provisions were not recognisedS inthe financial statements. Management is of the view that a high level ofsuccess is expected at the Court of Appeal based on professional legal adviceand that the likelihood of outflow of economic resource is considered remote.The Directors are of the opinion that none of the aforementioned cases is likely to have a material adverse effect on the Bank and are not aware of anyother pending or threatened claims and litigations besides those included inthe above number.
The bank is also said to have contravened the CBN’s circulars on Large Exposure and ConnectedLending; CBN circular on disposal of property; Failure to provide footages andjournal readings in accordance with Standards and Guidelines on ATM Operationsin Nigeria; Late disbursement of funds to a customer under CACS Scheme; Non appointment of Chief Compliance Officer by July 31 2016; CBN interventionfor the release of original title document of a loan customer; Non-Filing of Q42015 unaudited accounts amongst others.
The bank is expected to pay N27.72 million for the contraventions in the year under review.
Meanwhile, the bank in its audited financial statements posted a profit before tax of 6 percent growth from N14.9 billion in 2015 to N15.7billion in the corresponding year of 2016.
The bank’s Gross Earnings and Interest Income grew by 8 percenteach to N126.6 billion and N98.0 billion in 2016 from N117.2 billion and N90.9billion in 2015 respectively. The Interest Income was driven by loan bookgrowth and improved Bank asset yields.
Interest Expense was down 6 percent to ₦33.0 billion compared to ₦35.2billion in 2015. Improved customer funding base; less reliance on expensiveinterbank funding, lead to drop in core cost of funds to 5.23 percent in 2016from 6.64 per cent in 2015.
Net revenue before impairment was up 14 per cent to ₦93.6 billion compared to ₦81.9 billion in 2015. Gross loans was up 38 percent to ₦535.8 billioncompared to ₦388.8 billion as at December 2015. 25 percent of the growth wasattributed to the impact of devaluation on foreign currency loans.
Customer deposits was up by 15 per cent to ₦658.4 billion from ₦570.6billion as at December 2015. Growth was led by new product offerings, increasedmarket penetration and improved customer offtake.
Key Operational Highlights included the expanded retail productportfolio with the launch of five new products including UnionBetta, a savingsproduct that allows customers to earn interest while also supporting acharitable cause
Speaking on the Group’s results for the year, Emeka Emuwa said: “In 2016, we focused on executing our priorities across the different business segments, especially in the retail space, with an aggressive strategy toincrease adoption of our alternate channels.
“Our success in this area, along with improved core interest earnings, contributed to pre-tax profit growth of 6 percent, compared to 2015. Our research led product development strategy, coupled with an upskilled salesforce and targeted marketing campaigns, propelled our customer deposit base by 15 percent, compared to 2015, and a 73 percent increase in new-to-bankcustomers. While the operating environment remains a challenge, we are focused on our 2017 priorities which include raising Tier 1 capital to execute ourgrowth agenda across our retail, commercial and corporate businesses, particularly transaction banking and value chain.
Commenting further on the 2016 numbers, Chief Financial Officer,Oyinkan Adewale, said: “On the back of strong customer deposits, the Bank reduced average interbank local currency borrowing by 75 percent, leading to141bps reduction in primary cost of funds and 17 percent increase in netinterest income. The Group continued to drive cost optimisation, withcost-income-ratio declining to 66.2 percent from 70.7 percent in 2015, notwithstanding a high inflation environment. We will continue to focus onoptimising cost in 2017. As we look to raise additional capital to executebusiness priorities, we will maintain our prudent approach to growing our riskassets while aggressively growing low cost deposits.”
