Union Bank June profit up 7% on higher loans

Union Bank of Ceylon PLC, a licensed commercial bank with an asset base of Rs.103.2 billion, reported earnings of 12 cents a share or Rs.125.8 million for its June quarter, recording an increase of 7.0 percent year-on-year (YoY), the interim financial accounts showed. 

The performance was supported by relatively strong growth in loans and better margins but the higher impairment provisions made against possible bad loans and the higher tax expense dampened the performance.

 
The bank’s 1H17 consolidated net profit was Rs.233.4 million or 21 cents a share, a 1.0 percent decline YoY.  

The bank, on a standalone basis, grew its loan book by Rs.8.7 billion or 15.5 percent during the six months, while the group, which includes its licensed finance company, UB Finance, grew its loans by Rs.9.3 billion.  

The bank had a total loan book of Rs.64.8 billion as of June 30, 2017. 

The bank in an earnings release said this growth in loans reflected a significant increase in personal loans, home loans and loans against property. The foreign currency loans grew by Rs.2.5 billion. 

The net interest margin also improved to 3.18 percent from 3.06 percent in December 2016. This may have been possible due to asset repricing decisions made during the period and the releasing of the funds invested in unit trusts to be invested in higher yielding loans. 

As a result, the bank’s net interest income grew by 44 percent YoY to Rs.945.3 million but the net trading income fell by 46 percent YoY to Rs.71.7 million.  

Union Bank has long held its excess capital in unit trusts earning a nominal yield and now it appears that the bank is channelling the funds to loans earning a higher yield. 

In 2014 Culture Financial Holdings Limited (CFHL), an affiliate of TPG, a USA-based private investment firm, invested US $ 117 million or Rs.15.44 billion in return for a 70 percent stake in the bank. 

The bank has a further Rs.26 billion in available-for-financial assets and loans to banks and another Rs.2.4 billion trading assets. 

Both Tier I and Tier II capital adequacy ratios of the bank stood at 21.41 percent and 20.82 percent, respectively, much higher than the BASEL III required minimum capital levels. 

The gross non-performing loan ratio, a measure of asset quality weakened to 2.62 percent from 2.40 percent in December 2016. 

The impairments made against individual clients rose to Rs.24.5 million from Rs.9.5 million a year ago, while the general provisions rose to Rs.34.8 million from Rs.20.6 million a year ago. 

The value-added tax (VAT) and nation building tax on financial services rose by 38 percent YoY to Rs.273 million as the VAT rate rose from 11 percent to 15 percent. 

The income tax expense for the quarter was Rs.44.9 million against a tax reversal of Rs.3.1 million YoY.

Meanwhile, the deposits of the bank on a standalone basis grew by Rs.10.9 billion or 21 percent to Rs.62.7 billion, out of which the low-cost deposits – the current and savings accounts (CASA) – consisted of 23.2 percent, up from 22.7 percent three-months ago.