Union Bank December quarter stung by hefty loss provisions

Union Bank of Colombo PLC yesterday reported some tepid performance in the three months to December bringing the banking sector earnings reports to a close, which showed some mixed results. 
The relatively small lender with assets of little under Rs.130 billion reported a net interest income of Rs.1.97 billion in the final quarter ended in December last year, recording 33 percent increase as the bank took the benefit of the elevated interest rates.

The bank’s net interest margin, the difference between what the bank charges for its loans and other financial assets and what it pays for deposits and other financial liabilities, expanded to 4.69 percent from 3.53 percent last year. 

As was the case with the rest of the industry, Union Bank wasn’t immune to the aftershocks of the economic crisis, which resulted in soaring interest rates and a deteriorated economy. 
The bank set aside Rs.1.06 billion in provisions against possible loan defaults and other losses in the quarter, up 165 percent from the same period in 2021. 

Banks in Sri Lanka had to provide their highest ever provisions last year amid higher borrowers’ inability to service their debts and their investments in sovereign bonds following the debt standstill announced by the government last April.
As a result and also due to higher operating costs, Union Bank reported tepid earnings of Rs.118.7 million or 11 cents for the October – December quarter, compared to earnings of Rs.170.9 million or 16 cents a share in the year earlier period. 

The bottomline was assisted by fee incomes, which rose by 28 percent to Rs.345.7 million from a year ago levels, which the bank attributed to, “increased activity from the trade business, remittances, credit, and debit cards”. 
The bank’s loans suffered slight de-growth when the foreign currency translation impact was stripped out. 

The bank reported a Stage 3 ratio, somewhat equivalent to the gross non-performing loans of 8.19 percent, up sharply from 4.46 percent at the start of the year. 
The private equity firm Culture Financial Holdings Limited held 70.84 percent stake in Union Bank by the end of December 2022.