Union Bank shows strong 2015 first quarter results

Thursday, 23 April 2015 01:11 - - {{hitsCtrl.values.hits}}

Indrajit Wickramasinghe, Director/Chief Executive Officer of UBC The significant capital infusion of Rs. 11.4 b received from Culture Financial Holdings, an affiliate of TPG, one of the largest private global investment firms in the latter part of 2014 placed Union Bank (UBC) within the top five private sector banks in Sri Lanka, in terms of market capitalisation which paved the way for a complete transformation in its business strategy. Union Bank’s first quarter results in 2015 have been very positive, which is a clear reflection of the new strategy that is in place. Subsequent to the change in strategy, the bank’s rapid transition to a fully-fledged commercial bank with wider focus on retail, SME and corporate sectors saw several key changes.

These included the reconstitution of the Board of Directors with Dr. P. Jayandra Nayak, an experienced banker, taking the helm as Chairman and the appointment of new local and international directors of the highest professional acumen. Further the management team was strengthened complementing the existing management team with several new appointments in key areas to drive the bank to its new aspirations. The management team is led by Indrajit Wickramasinghe, Director/Chief Executive Officer, an experienced banker who was appointed in November 2014. There has been a significant upward momentum of the bank’s expansion initiatives. This saw a total revamping of the bank’s business strategy bringing a more customer centric layout and experience to its new and existing branches. The new outlook was unveiled at its head office in January this year and in the opening of a new branch in Rajagiriya and is now being cascaded throughout the network on a planned basis. Alternate delivery channels are also being launched including customer focused sales teams. Technology continues to be a key enabler for UBC with significant investment being made to upgrade the existing systems as well as introduce new systems resulting in greater efficiencies in processes and delivery systems. In keeping with further enhancing the process efficiencies, a project was initiated for process re-engineering of wholesale banking with the global consulting firm McKinsey, addressing several areas including the credit process, risk rating and other process improvements. The bank’s product and service portfolio is also being revamped and will provide end-to-end financial solutions to support personal and business needs. This will see the launch of several new products in the near future. Indrajit Wickramasinghe, Director/Chief Executive Officer of UBC, stated: “Post the landmark investment and the transition to be within the top five private commercial banks in Sri Lanka in terms of market capitalisation, the bank has realigned its infrastructure, human capital, systems and processes and is confidently gearing to take on the challenges of the highly-competitive banking industry. We are pleased to see the recent restructuring efforts yielding very satisfactory performances already during the first quarter of 2015.” The Board of Directors of UBC approved the financial results for the quarter ended 31 March 2015 at its meeting held in Colombo on 22 April. 1Q15 performance Operating revenue and net profit The bank recorded a significant increase in revenues for the 1Q15 in comparison to the corresponding quarter in 2014. Total operating income for 1Q15 grew by 46% YoY to Rs. 662.5 m. The primary reasons for this were the strong growth in loans and advances, improvement in margins and the quality of the loan book. The Group also recorded a significant increase in revenues for the 1Q15 in comparison to the corresponding quarter in 2014. Total operating income for 1Q15 grew by 42% YoY to Rs. 801.4 m. In 1Q15 operating expenses increased to Rs. 546.1 m from Rs. 357.4 m, up 53% YoY, due to investments in customer reach expansions, technology and investments in staff, in keeping with the strategic changes. The bank reported a profit before impairment of Rs. 116.4 m up 21% YoY in comparison to the corresponding period of last year; furthermore the bank reported a net profit after tax of Rs. 25.1 m for the quarter up 228% YoY. This is despite the significant investments that have been made, which are in line with the new strategic initiatives. The Group reported a profit before impairment of Rs. 164.9 m 33% YoY in comparison to the corresponding period of last year; furthermore the group reported a net profit after tax of Rs. 37.9 m for the quarter up 64% YoY, signalling robust growth. Net interest income and interest margin The bank’s net interest income accounted for majority of the reported income and grew by 60% YoY to Rs. 527.9 m. Interest margins in 1Q15 also showed positive signs of growth as the bank reported an interest margin of 4.3% as opposed to 3.7% in the corresponding quarter of the previous year. The Group’s net interest income also grew by 60% YoY to Rs. 614.9 m. Other income In 1Q15 the bank’s net fees and commission income declined by 10% YoY to Rs. 25.1 m and net trading and other operating income grew by 15% YoY to Rs. 109.4 m. The Group’s net fees and commission income grew by 9% YoY to Rs. 62.4 m and net trading and other operating income grew by 0.4% YoY to Rs. 124.1 m. Balance sheet: As at 31 March 2015 The total assets of the bank stood at Rs. 49.4 b and the total assets of the Group stood at Rs. 53.3 b as at 31 March 2015. Loans and advances of the bank grew 13% YTD to Rs. 29.3 b as at 31 March 2015. Term loans grew 34% YTD and stood at Rs. 13.8 b as at 31 March 2015 and accounted for 46% of the gross loan portfolio. Overdrafts and trade finance accounted for 25% and 21% of the gross loan portfolio. The customer deposits of the bank increased by 5% YTD to Rs. 29.2 b, while the focus on CASA showed a strong growth of 12% YTD. Capital adequacy and shareholders’ funds The shareholders’ funds of the bank stood at Rs. 16.8 b as at 31 March 2015. The bank is well-capitalised as indicated by it regulatory capital adequacy ratio. In 1Q15 the bank reported a core capital adequacy ratio of 38.11% and total capital adequacy ratio of 37.42%. Asset quality The bank’s net NPAs for 1Q15 stood at 4.97% in comparison to 8.80% that it reported in its corresponding quarter of the previous year. This is a significant improvement and is an area that management has identified and focused on improving which has yielded very positive results in a short period. Network The bank continued to expand its customer reach. The bank’s delivery channels accounted for 62 branches and 63 ATMs covering all provinces by the end of 1Q15. The bank’s alternate channels include internet and mobile banking. A direct sales team was also setup to compliment the other channels.