Union Bank shows resilience in a challenging environment

Union Bank has recorded a resilient performance within the first six months of 2020 amidst many challenges triggered by the COVID-19 outbreak in Sri Lanka from March this year.  

Commencing from April 2020, the Bank began to immediately roll out the customer financial relief programs recommended by the Central Bank of Sri Lanka (CBSL) with special focus on affected customers in the Corporate, SME and Retail Banking segments.

Within the review period, the bank had approved debt moratoria worth Rs. 22.2 billion under the CBSL recommended debt relief scheme providing extensions for repayment of capital and interest on loans granted. Loan facilities for approximately Rs. 40 billion were granted with payment extensions for two months. 

Further, a significant number of affected customers have been granted debt relief schemes outside the CBSL defined criteria, in-line with the bank’s internal credit policy guidelines. Amongst the schemes that were considered for moratoria are loans and leases, overdrafts, pawning and trade finance facilities. Additionally, non-performing borrowers who had requested for relief schemes have also been provided customised reschedulements, inclusive of waivers on accrued interest whilst withholding further recovery action. 

Union Bank’s core banking activities compressed in the second quarter amidst the country-wide lock-down that prevailed in the month of April up until mid-May. 

Amidst the challenging economic landscape, the average prime lending rate (AWPLR) dropped by approximately 250bps and the Treasury Bill rates too showed a declining trend. The bank implemented a downward revision of interest rates on various lending schemes including credit cards in line with the directives of the Central Bank.

Union Bank has also taken measures to provide loans at concessionary rates for Working Capital requirements of SMEs and exporters by participating in the CBSL credit schemes including the Saubhagya Covid-19 Renaissance Facility. 

Maintaining healthy liquidity levels within the bank, and employee and customer safety remained key management priorities while rolling out relief schemes to mitigate the negative impact of COVID-19 on the diverse customer segments of the bank.

Within the period under review from January to June 2020, the average fixed deposits remained stable whereas total average CASA ended at Rs. 21,444 m, an increase of 13% over last year. Efforts of maintaining a healthy CASA inflow was supported through focused acquisition strategies driven by retail, corporate and SME banking segments. The CASA ratio of the Bank was 25.8% by end of the reporting period. 

Accordingly, Union Bank’s Net Interest Margin declined from 3.4% to 3.2% within the review period.  Credit Card late payment fee and other fee waivers issued to customers until September 2020 in-line with the CBSL guidelines aiming to support the customers affected by the pandemic coupled with a decline in economic activity caused a reduction of the overall fee income by about 26% during this period. 

The bank’s Treasury recorded a notable performance with a significant YoY increase of 68% in capital gains. Other Operating Income of the bank increased on the back of exchange rate deflation by 6% during the said period.

In spite of the challenging environment the Operating Income of the bank for the period was Rs.  2,951 million, an increase of 2% over last year. The Total Operating Expenses were prudently managed through wide-ranging cost management measures implemented across the bank and reduced by 3% YoY to Rs. 1,914 million during the period. Consequently, Pre-impairment profits of the bank were Rs. 1,036 million for the period and indicated a 12% growth compared to the same period last year. 

While the bank’s actual credit losses were low the bank booked significant provisions during this period to account for the deteriorating environment  leading to a 102% increase in impairment charges over the comparative period. 

Under this challenging macro-economic backdrop, the bank recorded subdued results from operating activities, reporting Rs.755.2 million which was a marginal decline of 4% over the comparable period.  The operating environment for the bank’s subsidiaries, namely UB Finance and NAMAL was also very challenging. Due to a drop-in tax rates and prudent management of reserves, the Bank including its share of ownership in its subsidiaries was able to increase its PAT by 6%.  

Owing to external pressures and continuous deterioration of macro-economic conditions since March this year, the gross NPL ratio of the bank was reported as 5.3% by end of the reporting period compared to 5.03% as of last year. 

Total assets of the bank stood at Rs. 128,643 million as at 30 June. The bank’s loans and receivables stood at Rs. 75,997 million YTD while the deposits base was Rs. 79,779 m and recorded an increase of 4%. 

The bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 16.06% as at the reporting date.  

The Group consisting of the bank and its two subsidiaries, UB Finance Company Ltd. and National Asset Management Ltd. reported a Profit before All Taxes of Rs. 796 million for the period. The Profit after Tax of the Group in comparison to the corresponding period last year declined by 3%. Total assets of the Group were Rs. 135,724 million of which 95% was represented by the bank. The Group maintained a healthy Core Capital Ratio of 16.30% as at reporting date. 

The bank continued its interaction with Retail, SME and Corporate clients to identify their unique banking needs and provide customised solutions during these uncertain times. Union Bank BizDirect transaction banking solution was instrumental in providing Corporate and SME clients the much-needed remote control of their business transactions to stay safe during the pandemic. 

Union Bank Online Banking and Mobile Banking solutions played key roles in providing safe and remote access to accounts and credit cards of Retail Banking customers. The Online Banking registration process was further simplified in order to encourage a smooth shift towards these channels as consumer trends shifted gears towards safe and secure banking options to avoid unnecessary exposure. 

Union Bank Credit Cards continued to offer savings on essential item purchases and online purchases to continuously add value to cardholders during these difficult times.  

In-line with health authority guidelines, the bank prioritised its focus on the implementation of comprehensive measures to ensure the safety of customers and staff, resulting in stringent hygiene and safety practices across the branch network and Head Office premises. Continuous access was made available for customers to reach the bank’s ATM network, online/mobile banking platforms and the 24-hour contact centre further enabling a safe and secure banking experience. 

Commenting on the first half performance of the bank, Union Bank Director/CEO Indrajit Wickramasinghe said: “Our key focus during the second quarter of the year has been on the efficient rollout of the relief programs to support our customers affected by the COVID-19 pandemic through continuous engagement with customers at branch/regional level to identify their unique challenges and provide suitable solutions. The first half results of the bank reflect the very challenging conditions in which we operated in. I’m pleased to state that the results also indicate the strong liquidity and capital position of the bank despite the external pressures. We will continue to provide the much-needed financial impetus to our customers across Retail, Corporate and SME segments while ensuring the health and well-being of our customers as well as our staff which are key focus areas of the bank while we operate in the new normal.”