Union Bank 2Q profit up on expanding margins, fees

Union Bank of Colombo PLC got off to a robust start to the year in the first quarter, with growth in loans and solid profits but the virus-related restrictions reimposed from mid-April threw a wrench into that growth, as the bank recorded a degrowth in loans and assets, although profits were higher in the quarter ended in June from a low base a year ago. 

The bank reported Rs.1.29 billion in net interest income, despite a reversal in loan growth in the April-June quarter, as the interest expense fell sharply than the decline in the corresponding interest income, as deposits got repriced at lower rates, which helped the lender to stretch its margins. 

As a result, the net interest margin rose to 3.44 percent by end-June, from 3.16 percent at the start of the year. 

The loans fell by Rs.0.8 billion in the three months, from a Rs.4.4 billion growth registered in the March quarter, as the virus-controlling task force put restrictions on wide swaths of the economy for nearly three months, doing a bigger damage than the virus itself, as seen from the corporate earnings being released by the companies for the June quarter. 

The bank had a loan book of Rs.73.5 billion by June-end and a deposit base of Rs.85.1 billion, up Rs.2.7 billion in the first two fiscal quarters. 

“Union Bank stood resilient despite the economic setbacks resulting from the pandemic in 2020 and realigned its strategy for recovery and growth, reporting a strong performance during the first quarter of 2021, with favourable returns and increased revenue,” the bank said in an earnings release. 

“However, challenges continued with a third wave hitting in April 2021, adding further limitations to the business growth momentum,” it added.

The bank provided Rs.310.5 million for possible bad loans in the quarter, up 25 percent from the same period a year ago, as the bank applied the similar policies to that of December 2020, exercising more prudence when measuring expected credit losses due to the soured conditions. 

Despite the contraction seen in the loan book, the bank managed to gradually improve its asset quality as its reported gross non-performing loans ratio ended down at 5.83 percent, from 6.05 percent at the start of the year. 

Despite the fee waivers afforded to the pandemic-affected borrowers since May this year, the bank reported a fee income of Rs.219.7 million, up by a robust 106 percent from a year ago period, as the relief on fees were less extensive this time than a year ago. 

The bank reported earnings of 17 cents a share or Rs.186.7 million in the April-June quarter, compared to 14 cents a share or Rs.149.9 million in the corresponding period last year, recording a 25 percent growth in the bottom line. 

The bank with assets of Rs.121.2 billion operates with liquidity and capital buffers well in excess of the regulatory minimums, which are waiting to be unleashed to propel its growth momentum in the remainder of the year, if the virus-controlling authorities do not spoil the recovery in the economy once again with restrictions.  

Culture Financial Holdings Limited holds a 70.84 percent stake in Union Bank.