Union Bank records steady performance in December quarter

Union Bank of Colombo PLC delivered strong financial results for the three months ending December 2024, driven by robust core banking operations and a modest reversal of loan provisions.

The bank reported a net interest income of Rs.1.49 billion for the October-December quarter, down 9.2 percent from the same period in 2023.

This could be attributed to the declining interest rates where both the loans and deposits get repriced at lower rates at an early stage of the current interest rate cycle.  

This was reflected in the net interest margin in the bank, which narrowed down to 3.40 percent, from 4.70 percent at the start of the year.

However, this could change going forward, with the interest rates stabilising at the lower levels at present, where the banks are better poised to report higher net interest incomes.

Meanwhile, the bank reported earnings of 17 cents per share for the quarter or Rs.187.12 million, compared to the earnings of just Rs.3.92 million in the year earlier period.

The higher earnings were predominantly supported by Rs.534.93 million of net gains from financial investments reported in the quarter, compared to Rs.26.38 million gains in the year earlier period and also the impairment provision reversals. But this was partly offset by Rs.325.66 million of net fair losses from remeasuring financial instruments.

The bank has reversed Rs.52.22 million provisions in the quarter from a large provision of Rs.455.94 million set aside in the same period in 2023.

This may be due to the perceived lower risks associated with their borrowers, who are regaining their debt serviceability with the declining interest rates, amid a recovering economy.

The bank’s stage three loans ratio, which is equivalent to the nonperforming loans ratio, was at 12.30 percent at the end of the year, ticked down from 12.50 percent at the start of the year.

Union Bank’s stage three loan ratio remains an outlier in the industry among its competitors, reflecting its persistent asset quality troubles.

The net fee and commission incomes rose by 11.0 percent to Rs.364.06 million for the quarter, reflecting the growth in the loans.

Affirming this, the loans grew by Rs.19.12 billion or at a robust 27.7 percent to Rs.88.26 billion.

The deposits meanwhile grew by Rs.15.76 billion or 17.9 percent to Rs.103.74 billion.

The low-cost current and savings account ratio slightly edged down to 25.19 percent, from 26.7 percent at the start of the year, reflecting the faster growth in term deposits.

For the full year, the bank reported earnings of 27 cents a share or Rs.297.67 million, down 35 percent.

The bank under the new management appears to be turning a bit more aggressive from its conservative style, which for a long time had been a hallmark of Union Bank.