Union Bank concludes 1H with steady performance

Union Bank said last week it continued to maintain consistent performance even during the second quarter and concluded the first half of the year 2021 with a strong core banking performance. 

Chairman Atul Malik

CEO Indrajit Wickramasinghe

It said although the banking sector activities were under pressure in the second quarter amidst travel restrictions, etc. that delimited operations, the focused efforts of Union Bank’s operations contributed to this performance in the second quarter. 

Revenues were impacted by the low AWPLR that prevailed along with the new credit relief schemes introduced by the Central Bank of Sri Lanka (CBSL) for customers affected by the third wave of the pandemic. The relief scheme which came into effect in May 2021 was rolled out by the Bank immediately; offering extensions of capital and/or interest payments to affected customers up to 31 August 2021. The concessions assented relief for customers within the Retail, SME and corporate segments affected by the third wave of the pandemic and included late payment fee waivers, due date extensions and payment flexibilities for credit cardholders as well.

However, the Bank’s Net Interest Income (NII) during the first half of 2021 was Rs. 2,103 million and reported a growth of 4% YoY. The Net Interest Margin improved to 3.44% during the period ended 30 June 2021, compared to 3.23% in the comparative period.

Late payment and other fees were waived for impacted customers until August 2021 in-line with the CBSL guidelines. The decline in economic activity and import restrictions further impacted fee income. However, the Net Fee and Commission Income of the Bank grew during the first half by 42% YoY. The significant growth in fee income also reflects the impact of the COVID-19 relief schemes granted in 2020, which affected the revenues in the comparative period last year. 

Total other income of the Bank declined during the 1st half by 18% YoY to Rs. 527 million. This was mainly due to total capital gains including investments in unit income declining by 43% to Rs. 310 million. However, exchange gains increased by 117% YoY, largely driven by the exchange rate deflation by 8% and the rate fluctuations during the said period.

Despite external challenges, the Operating Income of the Bank for the period ended 30 June 2021 was Rs. 3,036 million and reported a growth of 3% over the comparable period last year. Due to continued focus and efforts on prudent cost management across the bank, the Operating Expenses reduced by 6% YoY to Rs. 1,809 million. Pre-impairment profits of the Bank for 1H2021 were Rs.1,227 Mn and reflected a 18% growth YoY. 

While the Bank’s actual credit losses were low, the Bank booked significant provisions during this period to account for the weakened environment, resulting in a 55% increase in impairment charges over the comparative period. 

Overcoming the challenges in the external environment, the Bank recorded healthy results from operating activities before all taxes and the share of subsidiary profits amounting to Rs. 791 million, which was an increase of 5% over the comparative period. The Profit after Tax of the Bank for the period under review grew by 44% to Rs. 455 million highlighting its steady progress during the first half of 2021. 

The gross NPL ratio of the Bank reduced to 5.83% by end of the reporting period compared to 6.05% as of December 2020. 

Total assets of the Bank stood at Rs. 121,244 million as of 30 June. The Bank’s loans and receivables stood at Rs. 70,656 million reflecting a 5% YTD growth, while the deposits base was Rs. 85,132 million with a YTD growth of 3%. From January to June 2021, average CASA grew by 11% over the comparative period. Efforts of maintaining a healthy CASA inflow was supported by focused acquisition strategies driven by retail, corporate and SME banking segments despite the challenges in movement and restrictions in effect. The CASA ratio of the Bank was 28.5% by end of the reporting period.

The Bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 15.88% as at the reporting date. 

Commenting on the first half performance of the Bank, Director/Chief Executive Officer Indrajit Wickramasinghe said, “The Bank’s growth momentum in the second quarter of 2021 was impacted by the sudden outbreak of the third wave and its resultant impacts on the operating environment. With the development of the third wave, our key priority had to be adjusted once more towards extending the CBSL recommended credit relief to impacted customers in a bid to support them to cope with the continued financial pressures. 

“During this challenging period while managing its bottom line, the Bank remained mindful in maintaining its healthy liquidity position, strong capital adequacy and ensuring the safety of customers and staff as a part of its sustainable business strategy. In the remainder of the year, while providing the much-needed financial impetus to our customers across Retail, Corporate and SME segments we will continue the focussed growth initiatives to drive performance while taking all due precautions to maintain optimum safety levels for our staff and customers.”