Union Bank reports modest loan growth amid narrowed margins

Union Bank of Colombo PLC saw its net interest income coming down in the three months to September 2024, on the back of the declining margins, despite some modest growth in loans.

The bank reported a net interest income of Rs.1.24 billion for the July-September quarter, down 36 percent from the same period last year. The net interest margin – the difference between what the bank receives from its loans and what it pays for its depositors – narrowed to 3.38 percent, from 4.68 percent at the start of the year. The bank’s gross loan book expanded by Rs.13.7 billion or by nearly 20 percent in the nine months, of which Rs.1.61 billion came in the September quarter.

The private sector credit data for the September quarter showed some robust growth in the loans by the commercial banks, resulting from the declining lending rates and also the strong recovery in the economy.
It appears that however, the loan growth has somewhat come in at lower rate in the September quarter at the bank compared to the previous two quarters.  

Meanwhile, the bank reversed its provisions made for possible bad loans by Rs.122.9 million in the quarter, from Rs.504.7 million in the year earlier period, reflecting that the bank is becoming more confident about its borrowers’ ability to repay than a year ago.

However, the so-called impaired or Stage 3 loans ratio, which is somewhat equivalent to the non-performing loan ratio, rose slightly to 13.17 percent, from 12.51 percent at the start of the year.

Union Bank is an outlier in the licensed commercial bank space for its double-digit Stage 3 loan ratio.

The bank meanwhile reported earnings of Rs.44.3 million for the September quarter or four cents a share, compared to Rs.94.7 million or nine cents a share in the year earlier period.

The net fee and commission rose by only 2 percent, perhaps reflecting the slow growth in loans in the quarter.

The performance could however improve going forward, with the low rates and the continuous growth in the economy.

MLPFS - Culture Financial Holdings Ltd has a 70.84 percent stake in Union Bank.