Union Bank of Nigeria Plc recovered roughly N7 billion in problem loans in the second quarter, which enabled its management to maintain stability in earnings performance at the end of half-year operations in June 2021.
This is more than three times the corresponding recovery of N2.1 billion in the second quarter of last year.
The loan recovery is the biggest non-interest revenue line so far this year and the main growth driver for non-interest income in the second quarter. It is a major factor in a major acceleration of non-interest income over the period.
The bank achieved a big leap of 83 per cent in non-interest earnings quarter-on-quarter to almost N18 billion at the end of June. The figure represents more than 62 per cent of the closing non-interest revenue of less than N28 billion for the half-year operations.
Other major revenue improvements were recorded in the second quarter, which includes net fee and commission income that grew by 137 per cent quarter-on-quarter, net income from other financial instruments, which multiplied five times and other operating income, which rose by 35 per cent quarter-on-quarter.
The robust growth in non-interest earnings was supported by a turnaround in interest income from a drop of 25 per cent in the first quarter. Also, Union bank recorded an improvement of over 21 per cent in interest income quarter-on-quarter in the second quarter to N33.5 billion. This accounts for 70 per cent of the bank’s interest income of N47.8 billion for the half-year operations.
A strong gain in revenue performance is the centre of Union Bank’s earnings story in the second quarter. It changed the bank’s position from a drop in gross earnings in the first quarter to a leap of 37 per cent quarter-on-quarter in the second quarter.
The gains in the second quarter led to a marginal improvement in after-tax profit at N4.8 billion for the quarter but the year-to-date position still ended in a profit decline.
Union Bank closed the six months of the 2021 financial year with gross earnings of a little over N76 billion, which is a drop of about 7 per cent or N5.6 billion year-on-year. Interest income continues to account exclusively for the drop in gross income, going down by 16.7 per cent to N47.8 billion at half a year.
One major area of concern that showed up in the second quarter is in respect of interest expenses. There is a sudden change of direction from a drop of 24 per cent in the first quarter to a rise of 42.4 per cent quarter-on-quarter in the second quarter. This means interest expenses grew twice as fast as interest income in the second quarter.
The half-year reading on interest expenses is a decline of 6 per cent year-on-year to over N27 billion while interest income dropped far ahead of that at 16.7 per cent. That led to a drop of 27.5 per cent in net interest income to N20.5 billion at the end of June 2021.
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Some respite came in respect of a big cut in net impairment charges for credit losses, which fell from over N4 billion in the same period last year to N153 million in the half year. This appears to reflect the impact of loan recoveries on the bank’s loan portfolio quality. The second quarter operations recorded a net write-back of N649 million in credit loss expenses.
Net interest income after loan loss expenses amounted to over N20 billion at the end of June, which is a drop of 15 per cent year-on-year. However, the improvement in non-interest earnings enabled the banks to achieve an increase of 3 per cent in operating income at N48 billion in June 2021.
The strong gain in non-interest income in the second quarter led to accelerated growth of 22.4 per cent in non-interest revenue to N27.8 billion at half a year. This is against an increase of 9.5 per cent in the first quarter.
This was further supported by a rein on operating expenses over the review period. Total operating expenses increased by less than 4 per cent to under N37 billion at half a year.
Union Bank Management was able to balance the revenue improvements and cost management to keep the profit from continuing operations flat at N11 billion at the end of half-year operations.
However, a loss of N1.3 billion from discontinued operations lowered after-tax profit for the period to N9.8 billion for Union Bank at the end of June 2021. This represents a drop of 11 per cent year on year.
The bank earned 38 kobos per share at the end of half-year operations, an improvement from 37 kobos per share in the same period in 2020.
Union Bank Q2 2021