Union Bank posts strong income growth in 1Q2023

The first quarter of 2023 witnessed continued positive sentiments in Sri Lanka’s economic activity with the IMF approved Extended Fund Facility (EFF). Significant exchange rate appreciation, moderating inflation, a notable drop in T-bills rates and selective easing of import restrictions resulted in the Banking sector to re-align its business focus. 

At a time when the IMF reiterates the importance of stability of the banking system through robust capitalisation, Union Bank continues to remain resolute with a strong capital position well above the regulatory requirements. 

During 1Q2023 Union Bank posted an increased total operating income of Rs. 2,064 million an increase of 25% over the corresponding period ensuing in an improved core-banking performance as a result of the Bank cautiously managing its businesses whilst selectively pursuing new business opportunities. 

The resultant increase in revenue was mainly derived from the increase in the Bank’s Net Interest Income (NII) by 49% to Rs. 1,622 million due to improved yields from the repricing of the loan portfolio and treasury assets. The Treasury prudently managed the Government Securities Portfolio whilst taking advantage of the inter-bank market opportunities. 

Timely repricing of the asset book along with prudent management of interest expenses lead to an increase in the Net Interest Margin (NIM) by 172bps. Net Fee and Commission Income also increased by 26% to Rs. 321 milion as a result of the notable increases in the trade business supported by deposits related fees and credit card fees. 

In comparison to the same period of the previous year where the Rupee depreciation resulted in notable exchange rate gains, the appreciation of the rupee during the quarter under review adversely impacted the Bank’s Other Operating Income to reduce by 97% to Rs. 9.2 million, resulting adversely towards the Bank’s profitability. 

Continued challenges to recovery and collection activities compelled the Bank to prudently provide for increased impairments, which negatively impacted the Bank’s profitability. As a result, the impairment charge for the period was Rs. 450 million, an increase of 56% compared to the corresponding period.

Despite stringent cost management measures, the Total Operating Expenses of the Bank increased by 23% to Rs. 1,213 million over the corresponding period due to the significant increase in inflation. Consequently, the Results from Operating Activities were Rs. 401 million.

The Bank’s Profit Before all Taxes including its equity accounted share of subsidiaries was Rs. 422 million and the Bank’s Profit After Tax (PAT) was Rs. 145 million for the quarter ended 31 March 2023. In comparison to the first quarter of last year, the significant increase in corporate tax, VAT and Social Security Contribution Levey adversely impacted the current period’s bottom line. 

The Total Assets of the Bank was Rs. 118,800 million by 31 March 2023. 

Due to the limited opportunities in the market and the revaluation of the foreign currency loans as a result of the LKR appreciation against USD, the Bank’s Loans and Advances contracted marginally to  Rs 62, 978 million and the downward revaluation of the foreign currency deposits also resulted in the contraction of the Bank’s liability book. The Bank maintained a healthy liquidity position both in LKR and FCY during the quarter and the Bank’s deposits at the end of the quarter was Rs. 90,250 million supported by prudent deposit mobilisation measures and strategically managed margins. The CASA Ratio improved to 25.5%. The Bank’s Total Capital Ratio was well above the regulatory limits and stood at 18.55% as of 31 March 2023. 

The Union Bank Group, consisting of Union Bank of Colombo PLC, UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT before all taxes amounting to Rs. 496 million and a PAT of Rs. 174 million for the quarter ended 31 March 2023. The Total Assets of the Group was Rs.  125,803 million and the Bank’s share amounted to over 94%.

During the period under review, Union Bank was recognised among the Top 100 public limited liability companies in Sri Lanka for transparency in corporate reporting by Transparency International Sri Lanka (TISL). The Bank was placed 14/100 for the year 2022 and was ranked fully transparent on Organisational Transparency and significantly transparent on Anti-corruption and Domestic Financial Reporting.