How Union Bank lifted profit by 127% to N12.6bn

Union Bank of Nigeria Plc recorded an impressive first quarter of 2023, with after-tax profit increasing by 127.6 percent to N12.6 billion, analysis by BusinessDay has shown

Data gleaned from the Nigerian Exchange Group said the improved performance was driven by a windfall of N17.9 billion from net trading gains, due to rising gains from fixed-income securities.

BusinessDay’s findings showed the bank’s net trading income was more than five times higher than the corresponding figure in the previous financial year. This development helped offset the weakness in interest margin, which was more than compensated for by the exceptional growth in non-interest earnings.

Non-interest income grew by 122.7 percent quarter-on-quarter to N25.6 billion at the end of Q1. This was driven by the strong performance of the trading portfolio, as well as other income lines such as fees and commissions.

Further findings showed the bank’s net trading income increased by 173.3 percent in the past two years, reaching N23.6 billion in the 2022 financial year. This development has helped to boost the bank’s operating numbers, despite the challenge of low-interest margins.

Due to a number of factors, including the rising cost of money in the Nigerian economy, the bank’s cost of funds increased by 64 percent quarter-on-quarter in Q1 2023, compared to 26.6 percent in 2022.

Despite the increase in the cost of funds, the bank’s managing director/CEO, Mudassir Amray, said that Q1 2023 saw an increase in new-to-bank customers across different regions. This helped to swell the deposit portfolio by about N150 billion to N1.63 trillion.

Interest income grew by 25.6 percent in Q1 2023, but interest expenses grew 2.5 times faster. This led to a 26.6 percent drop in net interest income to N9.8 billion.

The net impairment charge for credit losses also increased, from N375 million in Q1 2022 to over N2 billion in Q1 2023. This further reduced net interest income to N7.7 billion, a 40.3 percent decline from the previous quarter.

The slowdown in interest income growth and the increase in credit losses were the main factors behind the decline in net interest income in Q1 2023.

Analysts said the bank will need to find ways to increase interest income and reduce credit losses in order to improve its financial performance in the coming quarters.

The bank’s management faced a challenge in Q1 2023, as interest earnings failed to grow enough to meet the increases in interest expenses and loan impairment charges. This led to a drop in net interest income, which could have had a negative impact on the bank’s profits.

However, the bank’s net trading income increased significantly in Q1, which helped to offset the decline in net interest income. This, combined with tight control over operating expenses, led to an increase in operating income of 32.2 percent.

The bank’s gross earnings also increased significantly in Q1, by 50.9 percent. This was driven by the strong performance of the trading portfolio and other income lines.

Overall, the bank’s financial performance in Q1 was positive, despite the challenges it faced. The bank’s management is confident that it can continue to grow its profits in the coming quarters.