Union Bank announced a milestone financial performance for the FY2025, emerging as one of the fastest-growing banks in the country complemented by a standout bottom-line performance with the group Profit Before All Taxes reaching LKR 2.2 Bn and doubling its Profit After Tax (PAT) to LKR 660 Mn highlighting the success of its strategic transformation plans.

The Bank’s Gross Income surged to LKR 18.2 Bn supported by a strengthened Net Interest Income (NII) of LKR 5, 638 Mn and a substantial Net Fee and Commission Income of LKR 1,545 Mn, reflecting a diversified and resilient revenue base.
The Net loan portfolio climbed by 36% to LKR 110.8 Bn, maintaining the aggressive momentum seen in the previous year where the Bank significantly outpaced industry averages. This expansion was complemented by a robust growth in the deposit base, which reached LKR 118.8 Bn a 15% increase, signaling deep-rooted public confidence and the success of the Bank’s energised, sales-driven culture. The Bank maintained a comfortable Total Capital Ratio of 13.2%, remaining well above regulatory requirements and ensuring a stable foundation for future lending. The Total Assets of the Group grew from LKR 155.6 Bn to LKR 184.8 Bn, a 19% growth. The Union Bank Group consists of UB Finance Plc and National Asset Management Limited.

Dinesh Weerakkody, Chairman of Union Bank, stated that the Bank’s 2025 performance reflects the strategic and structural transformation following the entry of its new investor. He noted that stronger governance, an improved financial position, and a sharper focus on core banking segments have positioned the Bank to deliver sustainable and resilient long-term value.

Directing the Bank’s forward-looking vision, Dilshan Rodrigo, Director/Chief Executive Officer of Union Bank, stated that the Bank has firmly established itself as a top-tier contender by staying close to our customers and embracing a digital-first philosophy. The growth of our loan book is a direct reflection of our commitment to ‘Transforming Lives’ through innovation, service excellence, and expanded digital accessibility. By championing the SME sector as a catalyst for economic growth, we continue to drive a forward-looking vision that empowers our communities.

Photos;
Dinesh Weerakkody, Chairman, Union Bank
Dilshan Rodrigo, Director/Chief Executive Officer, Union Bank

Union Bank recently conducted a panel discussion with several industry experts sharing key insights on sustainable finance. The discussion covered highlights on climate finance, digital economy transition, women financing and social entrepreneurship. The panel was represented by Mr. Indrajith Boyagoda, Secretary General, Sri Lanka Banks’ Association, Mr. Shiran Fernando, Chief Economic Policy Advisor, The Ceylon Chamber of Commerce, Ms. Sriyamal Gamage, Group Treasury, Hayleys PLC, Mr. Suranga Karavita, Technical Coordinator, Climate and Environment Team, UNDP and Mr. Kapila Subasinghe, Sustainable Finance Specialist, UNIDO and moderated by Union Bank’s Head of Sustainability Adeesha Perera.

Union Bank reported an impressive financial performance for the nine months ended 30 September 2025, reaffirming its position as one of Sri Lanka’s fastest-growing private commercial banks. The Bank posted a Profit Before All Taxes (PBT) of LKR 1,178 million, an impressive 52% increase compared to the corresponding period of 2024. Profit After Tax (PAT) rose by an exceptional 194% to LKR 343 million, underscoring the Bank’s successful strategic execution and prudent financial management.

The Bank’s Gross Income rose by 7% to LKR 13,199 million, reflecting continued business expansion and improved earnings from both core and non-core activities. Net Interest Income (NII) increased by a healthy 11% to LKR 3,981 million, supported by strong loan growth and effective margin management. Complementing this performance, Net Fee and Commission Income recorded an outstanding 39% growth to LKR 1,133 million, driven by higher transactional volumes, digital channel utilization, and trade-related services. As a result, Net Operating Income increased by 19% to LKR 5,705 million.

Union Bank’s Results from Operating Activities improved significantly by 41% to LKR 1,106 million, despite a 14% rise in operating expenses, reflecting continued investments in digital infrastructure and capacity building. This demonstrates enhanced operational efficiency and earnings quality.

Meanwhile, the Non-Performing Loan (NPL) ratio was maintained at a stable level, reflecting the Bank’s robust credit risk management framework and proactive portfolio oversight, which have ensured high asset quality amidst a challenging operating environment. The Bank’s Capital Adequacy Ratios remain within regulatory thresholds, reinforcing its prudent risk and capital management practices. The Bank has also announced its intention to raise up to LKR 3 billion through Tier II Basel III compliant debentures to reinforce its capital base and support future business growth.

The Bank’s Total Assets grew by a robust 17% to LKR 171,864 million as of 30 September 2025, reflecting solid balance sheet expansion. Loans and Advances increased by a remarkable 32% to LKR 107,592 million, affirming Union Bank’s strengthened lending portfolio and continued support for businesses and individuals. Meanwhile, Customer Deposits grew by 8% to LKR 111,895 million, underscoring growing customer confidence and deepening relationships across market segments. Total assets of the Group grew by 18% to LKR 182,946 million.

Key operational highlights included the expansion of the Bank’s product range with Junior Elite for children, Power HER for women entrepreneurs, and the introduction of Gold Loans alongside pawning. The Bank also leveraged its BizDirect cash management solution to grow SME business, while Corporate Banking focused on enhancing customer profitability. Advancing its digital agenda, the Bank upgraded its core banking infrastructure and mobile app, reaffirmed its PCI-DSS certification, and partnered with Mastercard to enhance digital payment solutions.

Commenting on the results, Dilshan Rodrigo, Director/CEO, said:

“Union Bank’s exceptional performance in the first nine months of 2025 is a testament to our unwavering commitment to growth and customer centricity. We remain focused on leveraging technology, innovation, and strong governance to deliver sustainable value. The significant improvement in profitability and balance sheet strength reflects our disciplined strategy, the agility of our teams, and the trust placed in us by our valued customers and stakeholders.”

Chairman Dinesh Weerakkody added:

“These results reflect the continued progress of Union Bank’s transformation journey and the disciplined execution of its strategic priorities. Our focus remains on building a more productive, technology-driven, and customer-centric institution that consistently delivers value to shareholders, customers, and the broader economy. We will continue to pursue sustainable growth and strategic partnerships that further strengthen Union Bank’s position in Sri Lanka’s financial sector.”

Union Bank of Colombo PLC has reported a Profit After Tax (PAT) of LKR 251 million for the first half of 2025 ending 30 June, marking a 247% increase compared to the same period in 2024. This robust profit growth was underpinned by continued expansion of the Bank’s balance sheet and strategic operational improvements.

Profit Before Tax (PBT) also rose by 58% to LKR 834 million, reflecting enhanced performance across core banking operations and increased contributions from subsidiaries.

The Bank’s net loans and advances exceeded LKR 100 billion during the period, representing a 24% year-to-date growth, with focused growth strategies in leasing and pawning portfolios. This expansion directly supported income growth and was complemented by higher loan volumes and trade-related activity, which drove a 25% increase in net fee and commission income.

Union Bank also recorded a net impairment reversal of LKR 23 million, attributed to improved credit quality and recovery efforts. While operating expenses rose in line with business growth and continued investment in strategic initiatives, total operating income increased by 8%, driven by higher non-interest income and operational efficiency. Customer deposits reached LKR 108 billion, supported by a higher CASA ratio of 28.3%, indicating improved deposit mix. The Bank maintained strong capital adequacy levels, with a Total Capital Adequacy Ratio (CAR) of 13.65% and a Tier I CAR of 12.64%, remaining well above regulatory thresholds.

Total assets of the Group grew to LKR 171 billion, underscoring the Bank’s solid financial foundation and growth trajectory.

Key operational highlights during the period included the launch of Union Bank Turbo Draft, offering a fast and convenient working capital solution for vehicle owners, and the opening of a new leasing hub in Kohuwala, further enhancing access to tailored financial solutions for leasing customers. The Bank also inaugurated “Trade Connect” at its head office—a dedicated one-stop centre for trade services. These initiatives strengthened the Bank’s value proposition for retail and business customers alike.

Union Bank Chairman Dinesh Weerakkody stated that “the Bank’s latest results underscore its resilience and the effectiveness of the transformational initiatives implemented in recent periods. He noted that the Bank remains firmly focused on strengthening and expanding its customer base to drive sustainable growth”.

“Our results for the first half of 2025 reflect the positive momentum in our business, supported by sustained balance sheet growth and a disciplined approach to asset and liability management,” said Dilshan Rodrigo, Director/CEO of Union Bank. “Capital Augmenting is a key imperative to deliver value through digital banking and Business Process Re-engineering to support our focus on customer-centric solutions.”

Union Bank has reported a resilient financial performance for 2024, achieving a Gross Income of LKR 16.5 Bn and a Net Interest Income (NII) of LKR 4.8 Bn. While a declining interest rate environment necessitated repricing of the loan book, impacting income levels compared to 2023, the Bank demonstrated exceptional growth across key business segments, reaffirming its commitment to customer-centric banking.

The Bank’s gross loan portfolio grew by 28% year-on-year to LKR 88.3 Bn, significantly outpacing the industry average growth rate of 4.1%. This impressive expansion was driven by the Bank’s strategic focus on innovation and tailored financial solutions for its diverse customer base. Union Bank’s deposit base crossed the LKR 100 Bn milestone to LKR 103.7 Bn registering a 17.9% year-on-year growth, bolstered by strategic rebranding efforts, an energised sales-driven culture, and the Bank’s relentless focus on customer engagement.

Impairment charges reduced by 91.4% from LKR 1,643 Mn in 2023 to LKR 142 Mn in 2024 reflecting the Bank’s enhanced underwriting and credit origination standards to safeguarding asset quality. The Bank’s Profit Before Tax (PBT) for 2024 was LKR 1.2 Bn and the Profit After Tax (PAT) was LKR 300 Mn. The Bank also maintained a robust capital ratio of 16.6%, well above regulatory requirements. In 2024, Union Bank Group recorded a Profit Before Tax (PBT) of LKR 1.4 Bn and Profit After Tax (PAT) for the Group was LKR 300 Mn. The Total Assets of the Group grew from LKR 147.2 Bn to LKR 155.6 Bn, a 5.6% growth.

Dinesh Weerakkody, Chairman of Union Bank stated, “the Bank has developed a forward-looking vision and a comprehensive strategic plan to drive its next phase of growth. By leveraging innovation, enhancing operational efficiencies, and strengthening customer relationships, we aim to position the Bank for sustained success in a rapidly evolving financial landscape”.

Dilshan Rodrigo, Director/ CEO of Union Bank stated that “Union Bank has a bold aspiration to be a top contender in the banking industry. We are committed to transforming the Bank by embedding our core values of customer centricity and service excellence, supported by a digital-first approach, into everything we do. By combining technology, innovation, and skilled talent, we are building a stronger, more agile Bank to meet the evolving needs of our customers and stakeholders”.

As part of its transformation under CG Corp Global, the Bank undertook a major brand revamp, introducing a new identity and the promise of Transforming Lives. Expanding its product portfolio, the Bank launched leasing and pawning to better serve customer needs. Simultaneously, digital banking channels were upgraded to enhance customer experience, and digital zones were introduced in key cities for 24/7 banking services. Union Bank also became the first bank in Sri Lanka to achieve PCI DSS version 4 and ISO 27001:2022 certifications, underscoring its commitment to information security and operational excellence. In supporting SME development, the Bank launched the Union Bank School of Social Entrepreneurship (UBSSE) and partnered with the University of Moratuwa and the National Innovation Agency on the National Entrepreneurship Development Programme. The Bank continues to be recognized among LMD’s Top 100 brands and Sri Lanka’s Top 100 listed companies, reaffirming its strong market position.

Union Bank announced its financial performance for the first six months, which ended June 30, 2024, highlighting significant growth in the loan book.

As of 30 June 2024, the Bank achieved a gross income of LKR 8,458 Mn, supported by a diversified revenue base. Net interest income stood at LKR 2,544 Mn, while net fee and commission income amounted to LKR 520 Mn, reflecting the downward market trend seen in the lending and G Sec rates. Total operating income was LKR 3,495 Mn, underscoring Union Bank’s ability to capitalize on business opportunities and optimize operational efficiencies. Despite market challenges the Net operating income was recorded at LKR 3,133 Mn.

Total operating expenses were effectively managed at LKR 2,584 Mn, highlighting the bank’s commitment to prudent expense control and operational discipline. As of 30 June 2024, the Profit before Tax (PBT) stood at LKR 242 Mn and Profit after Tax (PAT) was LKR 72 Mn.

Union Bank’s balance sheet remains robust, with total assets increasing by 3% to LKR 142,755 Mn as of June 30, 2024. The Bank reported a robust growth in loans and advances, of 19% to LKR 73,977 Mn, reflecting strong demand and confidence from customers across various sectors. This growth underscores Union Bank’s commitment to supporting economic expansion through prudent lending practices and tailored financial solutions. Customer deposits also saw substantial growth, increasing by 12% to LKR 98,642 Mn, indicating customer confidence and satisfaction.

The stage 3 loans ratio improved to 10.77%, with a significant portion collateralized, ensuring prudent risk management practices. The Total Capital Ratio stood strong at 16.16% as of June 30, 2024, well above the minimum regulatory requirements, reinforcing the bank’s financial stability.

Union Bank remains dedicated to reinforcing its brand presence and customer experience through significant investments in technology and infrastructure. The bank’s rebranding initiative, including the rollout of a new logo across its branch and ATM network, underscores its commitment to a customer-centric and digitally progressive approach. This strategic move aligns with Union Bank’s vision of transforming lives and enhancing accessibility through innovative banking solutions. Union Bank’s investments in digital transformation aim to provide an enhanced customer experience through innovative technologies and seamless service delivery. As part of this effort, the bank has introduced island-wide digital zones offering round-the-clock banking services, with plans for further expansion. These initiatives reflect Union Bank’s steadfast focus on delivering exceptional service and driving sustainable growth in a rapidly evolving financial landscape.

In addition, the Bank has actively expanded its outreach across the island through retail product activations, promotions, and the launch of competitive pawning services, ensuring quick processing and competitive advances for customers. The bank’s continued commitment to supporting SMEs and corporates has been further demonstrated through a series of workshops focused on critical topics such as treasury, trade, exports, and cash management, providing valuable insights and fostering growth opportunities for businesses nationwide.

For more information on Union Bank’s 1H2024 financial results, please visit www.unionb.com

Union Bank remains steadfast in its pursuit of growth and innovation across all sectors of operation. As of 31 March 2024, the Bank’s Total Assets amounted to LKR 128,534 Mn. Notably, loans and advances exhibited a positive trajectory, experiencing a 7% increase to reach LKR 66,742 Mn, indicative of an improved economic environment. Customer deposits demonstrated robust growth, rising by 4% to LKR 91,489 Mn, reflecting favourable market sentiment and customer confidence.

The Bank encountered mixed challenges in its financial performance during the first quarter of 2024. Total operating income experienced a reduction of 9% to LKR 1,869 Mn. compared to the corresponding period of 2023, primarily attributed to decreased spreads in the treasury and loan portfolios. Additionally, adverse impacts from LKR appreciation led to a decline in exchange related income by LKR 82 Mn. Impairments was LKR 295.3 Mn, reflecting a reduction due to improved collections. Operating expenses were effectively managed at LKR 1,294 Mn, representing only a 7% increase. Consequently, the Banks results from operating activities was Rs 280m, the Bank’s Profit Before Tax, including the equity accounted share of subsidiaries, amounted to LKR 135 Mn, and the Profit After Tax was LKR 48.6 Mn for the quarter.

CASA ratio was 23.3% . Stage 3 loans ratio was at 11.35% with a significant amount being collatarised. Total Capital Ratio was 16.85% as of 31 March 2024, well above the regulatory requirements. Union Bank Group consisting of National Asset Management Ltd & UB Finance Company Ltd, reported a PBT of LKR 152 Mn and a PAT of LKR 48.98 Mn with the Bank share being 95%.

Throughout the first quarter of 2024, Union Bank diligently pursued new avenues for growth and innovation, reinforcing strategic objectives and transformation evidenced by significant measures and milestones including a fresh outlook for the Union Bank brand with a new logo, symbolizing customer-centricity, service excellence, and digital transformation. This was cascaded bank-wide and supported by a cohesive communication campaign across media and digital platforms and an engaging customer event for the unveiling of the new logo. The Bank also proudly announced the launch of the Union Bank School of Social Entrepreneurship (UBSSE) which represents the Bank’s commitment to society through knowledge, education, skills development, guidance, and social wellbeing.

Corporate and SME Banking demonstrated a steadfast commitment to fostering new customer relationships, driving business expansion, and fortifying market presence. The Treasury prudently managed the reinvestment risks associated with the further reduction of interest rates whilst maximizing gains from the Government Securities Portfolio and managing the impact of the appreciation of the Rupee through hedging strategies. Retail Banking focused on expanding the loan portfolio, driving growth in Current Account Savings Account (CASA), and enhancing fee income through strategic initiatives, including leveraging alternate channels such as Bancassurance. Driving digital Innovation, the Bank inaugurated the first digital zone at the head office, offering round-the-clock smart banking services, underscoring dedication to harnessing technology for comprehensive banking solutions. Enhancing customer engagement, the Bank also hosted several customer engagement events in celebration of International Women’s Day 2024. The Bank also received recognition with a merit award for financial inclusivity at the LankaPay Technovation Awards 2024.

The year 2023, marked a key milestone for Union Bank with CG Capital Partners Pte. Ltd., indirectly acquiring the majority shareholding through its ownership in Culture Financial Holdings Ltd. CG Capital Partners Pte. Ltd., is an affiliate company of the international powerhouse CG Corp Global (CG).

The improved macroeconomic outlook during FY2023 positioned Union Bank to better navigate the evolving financial landscape. The Bank recorded a steadfast performance during FY2023, with an improved core banking performance with an 18% increase in gross income. The gross income for the year stood at LKR 22,410 Mn.

The Net Interest Income (NII) which was the main contributor increased by 8% to LKR 6,290 Mn. as a result of improved yields from loans and treasury assets. Driven by timely repricing of the asset book and prudent management of interest expenses, the Net Interest Margin was 4.7.% .Net Fee and Commission Income increased by 5% to LKR 1,200 Mn as a result of increased trade activities, credit cards and bancassurance fees. The Bank’s Operating Income before impairments was LKR 8,098 Mn an increase of 4%. The Impairment charge for the period was LKR 1,643 Mn. Despite prudent cost management initiatives, the Bank’s total operating expenses increased by 20% to LKR 5,120 Mn. as a result of significant increases in utility tariffs and general expenses impacted by inflation.

The Bank’s Profit Before Tax (PBT) including its equity accounted share of subsidiaries increased by a noteworthy 119% to LKR 780 Mn. and the Bank’s Profit After Tax (PAT) also increased by 21% to LKR 379 Mn. as at 31 December 2023. Taxes and levies during the year increased significantly due to the Social Security Levy (SSCL), increased VAT on financial services and the Corporate Tax rates.

The Total Assets of the Bank stood at LKR 139,087 Mn as of 31 December 2023 which was a growth of 7% over the previous year. The Bank maintained a strong liquidity position during the period under review and the Liquid Asset Ratio stood at 37.93% whilst, the Liquidity Coverage Ratio for all currencies was 787.67%, well above the regulatory requirements.

The Bank’s Loans and Advances were LKR 62,208 Mn, whilst customer deposits were LKR 87,985 Mn. Supported by strong sourcing efforts across all business segments the Bank’s CASA ratio was recorded at 27%. The focused CASA drives across the business lines resulted in an increase of 8% in the CASA portfolio.

The Bank’s stage 3 loans ratio was at 12.5% as some of the large collateralised exposures moved into stage 3. The Bank continued to maintain a strong capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 18.2% as of 31 December 2023.

The Union Bank Group, consisting of UB Finance PLC and National Asset Management Ltd., recorded an improved overall performance with a 72% increase in PBT amounting to LKR 901Mn and an increase in PAT by 10% amounting to LKR 464Mn for the period up to 31 December 2023. The Total Assets of the Group were LKR 147,332 Mn with the Bank’s share amounting to over 94%.

Safeguarding the corporate banking portfolio amidst a fluid operating environment, Corporate Banking proactively realigned its lending strategies based on a clear understanding of industry specific risks whilst ensuring credit quality and leveraging on the Union Bank BizDirect Cash Management solution and superior relationship management to onboard customers. The Treasury prudently managed the reinvestment risks associated with the reductions in interest rates in the second half of the year whilst maximising returns on the Government Securities Portfolio and management of the Bank’s Foreign Currency Liquidity positions to ensure the Bank’s Net Open Position (NOP) remained within regulatory limits.

Ensuring continued support to SMEs, the Bank focused on customer rehabilitation to assist customers impacted by the economic slowdown and also provided advisory and funding through the SME line of Credit (SMELoC) with a focus on Tea Small Holders, SME businesses and Women entrepreneurs. The Bank also signed an agreement with the United States Agency for International Development’s (USAID) CATALYZE private sector development (PSD) activity to support the bank’s efforts to foster its women focus financial services. As a result of the economic impacts, Retail Banking broad based its efforts to consolidate the retail banking business with selective lending whilst focusing on mobilising savings with a focus on the institutional channel as well the Agent Banking network to source CASA.

In 2023 the Bank invested in further strengthening the overall digital banking experience and IT infrastructure by upgrading to the latest cloud-based software and adding new virtualised server architecture for enhanced scalability and interoperability to support the Bank’s digital expansion plans and customer experience.

For the 12th consecutive year, Union Bank was listed amongst the top 100 brands in Sri Lanka and was also ranked amongst the LMD’s Most Respected Entities in 2023. Union Bank was also recognised as a Women-Friendly workplace by Satyn-CIMA Women Friendly Workplace Awards.

Attached Photos :
Nirvana Chaudhary, Chairman, Union Bank
Indrajit Wickramasinghe, Director / Chief Executive Officer, Union Bank

Union Bank was able to continue a steadfast performance in the 9 months ended 30 September 2023 recording a notable improvement in the core banking performance with an overall income of LKR 17,314 Mn, a 36% increase over the comparative period.

Net Interest Income (NII) was a key driver for the increase in the Bank’s revenue, which increased by 19% to LKR 4,822Mn as a result of improved yields from the loan portfolio and treasury assets. The Bank does not hold any International Sovereign Bonds (ISBs), and the Sri Lanka Development Bonds (SLDB’s) portfolio was exchanged for LKR denominated Treasury Bonds as part of the DDO. The Net Interest Margin (NIM) increased by 72 bps due to the timely repricing of the asset book along with prudent management of interest expenses.

Net Fee and Commission Income increased by 9% aided by credit cards, remittances, and increased activity from the trade business. The Bank’s Total Operating Income before impairments was LKR 6,185Mn., an increase of 11%. The Bank’s impairment charge for the period was LKR 1,200Mn. Despite the prudent cost management initiatives, the Bank’s Total Operating Expenses increased by 22% to LKR 3,838Mn mainly due to, significant increases in the utility tariffs, salaries and exchange impacted general expenses.

Consequently, the Bank’s Profit Before Tax (PBT) including its equity accounted share of subsidiaries as of 30 September 2023, increased by 81% to LKR 717Mn and the Bank’s Profit After Tax (PAT) also increased by 65% to LKR 375Mn. Taxes and levies during the 9 months increased significantly due to the Social Security Contribution Levy ( SSCL) and the increase in the Corporate tax rate.

The Total Assets of the Bank stood at LKR 130,319Mn as of 30 September 2023. The Bank maintained a strong liquidity position during the period under review and the Liquid Asset Ratio stood at 39.16% whilst, the Liquidity Coverage Ratio was 878%, above the regulatory requirements. The Bank’s Loans and Advances were LKR 63,204Mn, whilst customer deposits were LKR 85,798Mn. The CASA ratio was recorded at 24.33% as of 30 September 2023, aided by macro-economic drivers backed by strong sourcing initiatives across all business segments. The Bank’s stage 3 loan ratio improved to 10.52%.

The Bank continued to maintain a healthy capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 18.54% as of 30 September 2023.

The Union Bank Group, consisting of UB Finance Company Ltd., and National Asset Management Ltd., recorded an improved overall performance with a 57% increase in PBT amounting to LKR 825Mn and an increase in PAT by 52% amounting to LKR 459Mn for the period up to 30 September 2023. The total Assets of the Group was LKR 138,519Mn with the Bank’s share amounting to over 94%.

During the period under review, the Bank focused on new business prospects and initiated several customer acquisition programmes across all business segments. The Bank continued its funding support to SMEs through the SME line of Credit (SMELoC) and enhanced its support and advisory with a focus on Tea Small Holders, Coconut cultivators and Women entrepreneurs. Union Bank Credit Cards continued to provide attractive savings and 0% payment plans across several categories to support cardholders with better financial planning. The bank was once again ranked amongst the LMD’s Most Respected Entities 2023 with an accolade for upholding excellence in Corporate Culture. Fitch Sri Lanka reaffirmed Union Bank’s rating at BBB-(lka) with a stable outlook and removed Rating Watch Negative.

On 24 October 2023, the Board of Directors of Union Bank received formal notification that the transaction between TPG and CG Capital Partners Global Pte Ltd had been completed and through its ownership in Culture Financial Holdings, CG Capital Partners is now the major shareholder of Union Bank. The new partnership with CG Group reaffirms the Bank’s financial stability and provides a platform for enhanced growth and expansion.

Photos:
Trevine Fernandopulle, Acting Chairman, Union Bank
Indrajit Wickramasinghe, Director / Chief Executive Officer, Union Bank

The first six months of the year marked improvements to Sri Lanka’s macro-economic landscape with inflation continuing to decrease and the IMF bailout followed by the Domestic Debt Optimization (DDO) announcement.

During the 1H2023, the Bank recorded significant improvement in the core banking performance and posted an overall income of LKR 11,729Mn, which is an increase of 58% over the comparative period.

The increase in the Bank’s revenue is mainly attributed to the increase in the Net Interest Income (NII) which increased by 24% to LKR 3,118Mn resulting from improved yields from the loan portfolio and treasury assets. The Treasury recorded significant contributions in the areas of GSEC Capital Gains and FX profitability. The Bank does not hold any International Sovereign Bonds (ISBs), and the Sri Lanka Development Bonds (SLDB’s) held by the Bank have matured and are awaiting settlement. The Net Interest Margin (NIM) increased by 82 bps due to the timely repricing of the asset book along with prudent management of interest expenses.

Net Fee and Commission Income increased by 18% aided by credit cards, remittances, and increased activity from the trade business. The Bank’s Total Operating Income before impairments was LKR 4,029Mn., an increase of 13%. In comparison to the comparative period the Bank’s impairments charge reduced to LKR 726Mn as a result of stringent recovery measures. Despite the prudent cost management initiatives, the Bank’s Total Operating Expenses increased by 21% to LKR 2,496Mn mainly due to the increases in salary bill, utility tariffs and exchange impacted general expenses.

Consequently, the Bank’s Profit Before Tax ( PBT) including its equity accounted share of subsidiaries as of June 30, 2023, increased by 76% to LKR 533 Mn and the Bank’s Profit After Tax (PAT) also increased by a notable 94% to LKR 295Mn.

The total Assets of the Bank stood at LKR 128,904Mn as of 30 June 2023. The Bank maintained a strong liquidity position during the period under review. The Bank’s Loans and Advances was LKR 62,446Mn, whilst customer deposits were LKR 88,907 Mn. The CASA ratio improved to 25.19% as of 30 June 2023, aided by macro-economic drivers backed by strong sourcing initiatives across all business segments. The Bank’s stage 3 loan ratio stood at 10.5%.

The Bank continued to maintain a healthy capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 19.01% as of 30 June 2023.

The Union Bank Group, consisting of UB Finance Company Ltd., and National Asset Management Ltd., recorded an improved overall performance with 56% increase in PBT amounting to LKR 618Mn and 77% increase in PAT amounting to 364Mn for the period up to 30 June 2023. Total Assets of the Group was LKR 136,991Mn with the Bank’s share amounting to over 94%.

During the period under review, the Bank initiated several customer acquisition programmes with focus on business expansion. The Bank’s refinance schemes enabled the SME banking sector to reach a wider customer base for funding opportunities including women entrepreneurs. Union Bank Credit Cards also initiated several savings and cashback offers with a range of merchants including supermarkets, dining and shopping coupled with 0% interest extended payment plans with no handling fee covering health, education, autocare, leisure and travel for its cardholders. The Union Bank brand continued to maintain its status within the top 100 brands in Sri Lanka in the latest rankings issued by Brand Finance for 2023. The Bank was also recognised for building a network of female managers at the Satyn CIMA Women Friendly Workplace Awards 2023.

Photo:
Atul Malik, Chairman, Union Bank
Indrajit Wickramasinghe, Director / Chief Executive Officer, Union Bank

The first quarter of 2023 witnessed continued positive sentiments in Sri Lanka’s economic activity with the IMF approved Extended Fund Facility (EFF). Significant exchange rate appreciation, moderating inflation, a notable drop in T-bills rates and selective easing of import restrictions resulted in the Banking sector to re-align its business focus. At a time when the IMF reiterates the importance of stability of the banking system through robust capitalisation, Union Bank continues to remain resolute with a strong capital position well above the regulatory requirements.

During 1Q2023 Union Bank posted an increased total operating income of LKR, 2,064Mn an increase of 25% over the corresponding period ensuing in an improved core-banking performance as a result of the Bank cautiously managing its businesses whilst selectively pursuing new business opportunities.

The resultant increase in revenue was mainly derived from the increase in the Bank’s Net Interest Income (NII) by 49% to LKR 1,622Mn due to improved yields from the repricing of the loan portfolio and treasury assets. The Treasury prudently managed the Government Securities Portfolio whilst taking advantage of the inter-bank market opportunities. Timely repricing of the asset book along with prudent management of interest expenses lead to an increase in the Net Interest Margin (NIM) by 172bps. Net Fee and Commission Income also increased by 26% to LKR 321Mn as a result of the notable increases in the trade business supported by deposits related fees and credit card fees.

In comparison to the same period of the previous year where the Rupee depreciation resulted in notable exchange rate gains, the appreciation of the rupee during the quarter under review adversely impacted the Bank’s Other Operating Income to reduce by 97% to LKR 9.2Mn, resulting adversely towards the Bank’s profitability.

Continued challenges to recovery and collection activities compelled the Bank to prudently provide for increased impairments, which negatively impacted the Bank’s profitability. As a result, the impairment charge for the period was LKR 450Mn, an increase of 56% compared to the corresponding period.

Despite stringent cost management measures, the Total Operating Expenses of the Bank increased by 23% to LKR 1,213Mn over the corresponding period due to the significant increase in inflation. Consequently, the Results from Operating Activities were LKR 401Mn.

The Bank’s Profit Before all Taxes including its equity accounted share of subsidiaries was LKR 422Mn and the Bank’s Profit After Tax (PAT) was LKR 145Mn for the quarter ended 31st March 2023. In comparison to the first quarter of last year, the significant increase in corporate tax, VAT and Social Security Contribution Levey adversely impacted the current period’s bottom line.

The Total Assets of the Bank was LKR 118,800Mn by 31 March 2023. Due to the limited opportunities in the market and the revaluation of the foreign currency loans as a result of the LKR appreciation against USD, the Bank’s Loans and Advances contracted marginally to LKR 62, 978 Mn and the downward revaluation of the foreign currency deposits also resulted in the contraction of the Bank’s liability book. The Bank maintained a healthy liquidity position both in LKR and FCY during the quarter and the Bank’s deposits at the end of the quarter was LKR 90,250Mn supported by prudent deposit mobilisation measures and strategically managed margins. The CASA Ratio improved to 25.5%. The Bank’s Total Capital Ratio was well above the regulatory limits and stood at 18.55% as of 31 March 2023.

The Union Bank Group, consisting of Union Bank of Colombo PLC, UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT before all taxes amounting to LKR 496Mn and a PAT of LKR 174Mn for the quarter ended 31 March 2023. The Total Assets of the Group was LKR 125,803Mn and the Bank’s share amounted to over 94%.

During the period under review, Union Bank was recognised among the Top 100 public limited liability companies in Sri Lanka for transparency in corporate reporting by Transparency International Sri Lanka (TISL). The Bank was placed 14/100 for the year 2022 and was ranked fully transparent on Organisational Transparency and significantly transparent on Anti-corruption and Domestic Financial Reporting.

Bank

• Gross Income LKR 18,966 up 73%
• Net Interest Income LKR 5,814 MN up 36.6%
• Net Fee and Commission Income LKR 1,143 Mn up 32.8%
• Net Interest Margin up 116bps
• Total Operating Profit Before All Taxes LKR 925 Mn
• Profit After Tax LKR 314 Mn
• Total Assets LKR 129,483 Mn
• Total Capital Adequacy Ratio 18.26%

Group

• Profit Before All Taxes LKR 991Mn

Union Bank continued to be resilient throughout 2022 leveraging on its strong capital position and remained agile, posting an increased overall income leading to an improved core-banking performance during the year. The Bank’s gross income for the year increased significantly by 73% to LKR 18,966 MN as a result of the Bank cautiously managing its businesses with a stringent risk and recovery framework, whilst selectively pursuing for new business opportunities.

Net Interest Income (NII) increased by 36.6% to LKR 5,814 MN as a result of improved yields from the repricing of the loan portfolio and treasury assets. Prudent management of interest expenses lead to an increase in the Net Interest Margin (NIM) by 116 bps. Net Fee and Commission Income increased by 32.8% to LKR 1,143 MN aided by increased activity from the trade business, remittances, credit, and debit cards. Other Operating Income also increased by 121% as a result of the foreign exchange income and gains.

As a result of the stresses stemming from the macroeconomic environment and further challenges to the settlement of loans due to continued pressures faced by impacted borrowers, compelled the Bank to prudently provide for increased impairments which impacted the Bank’s profitability. The impairment charge for the year was LKR 2,556 Mn, an increase of 174% compared to the corresponding period.

Despite prudent cost management initiatives, the Total Operating Expenses of the Bank increased to LKR 588 Mn, an increase of 16% over the corresponding period, impacted by the Rupee depreciation and the increase in utility tariffs.

Consequently, the results from operating activities were LKR 925 Mn and the Bank’s Profit Before all Taxes including its equity accounted share of subsidiaries for the year was LKR 788 Mn and the Bank’s Profit After Tax (PAT) was LKR 314 Mn for the year ended 31 December 2022.

The Total Assets of the Bank increased by 9.4% to LKR 129,483 Mn by 31 December 2022. With the contraction in private sector credit and lending opportunities, the Bank’s Loans and Advances at the end of the year was LKR 67,727 Mn. All business segments focused on expanding lending to existing customers and maintaining credit quality whilst pursuing selective lending opportunities during the year. The Bank secured a funding line from the Asian Development Bank (ADB) which aided further funding to SMEs to sustain and revive businesses. The Bank continued to support impacted customers with customised payment plans whilst extending the relief measures mandated by the Central Bank.

The Bank maintained a robust liquidity position both in LKR and FCY throughout the year. Customer deposits remained stable and increased by 11% to LKR 92,592 Mn aided by prudent deposit mobilization amidst rate revisions. The average CASA of the Bank remained healthy with a CASA ratio of 23% as of 31 December 2022. The Bank’s stage 3 loan ratio stood at 8.19%.

The Bank continued to maintain a robust capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 18.26% as of 31 December 2022. During the year, the rating of the Bank was reaffirmed at BBB-(lka) with a Negative Rating Watch by Fitch due to the stresses in the operating environment.

The Union Bank Group, consisting of Union Bank of Colombo PLC, UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT amounting to LKR 991 Mn and a PAT of LKR 423 Mn for the year ended 31 December 2022. The Total Assets of the Group was LKR 136,679 Mn an increase of 10% with the Bank’s share amounting to over 95% noting that the group performance is propelled by the Bank.

The Bank acted with empathy in understanding the evolving needs of customers during a challenging year and remained committed to ensuring uninterrupted services with an enhanced focus on digital platforms. During the year, the Bank invested in several key digital transformation and IT infrastructure projects with a focus on improved security and reliability including the upgrade of the Data Centre and the ATM Switch. The Bank also connected to the LankaPay Online Payment Platform for IRD, Customs and Ports Authority payments and added Cargills FoodCity network of outlets for deposits and credit card payments through its Agent Banking service providing enhanced convenience to customers. The Bank also provided an enhanced range of services including onsite cheque printing through its cash management solution Union Bank BizDirect for ease of business operations of the SME and Corporate customers. During the year Union Bank continued to uphold its status in the LMD Most Valuable Brands in Sri Lanka and was also listed in the LMD Most Respected Entities.

Photo Caption:
Atul Malik, Chairman, Union Bank
Indrajit Wickramasinghe, Director/Chief Executive Officer, Union Bank

The third quarter of 2022 witnessed continued challenges to the Banking sector amidst mixed sentiments and subdued economic activity despite a staff level agreement with the IMF. The economy continued to depend on the banking sector for immediate respite for the import of essentials including fuel. Progress and credit growth of Banks continued to be impacted due to the weakened rupee, forex scarcity, interest rate increases and the contraction in imports due to temporary suspensions.

Against this backdrop, the Bank continued to sustain a stable core banking performance and selectively pursued business opportunities within a robust risk approach and prudently managed the portfolio and collections whilst supporting customers and businesses to revive from the setbacks of a challenging period.

Core Banking performance and profitability

Despite the challenges of a hard-hit operating environment, the Bank stood resilient and recorded an enhanced core banking performance with an overall income of LKR 5,343 Mn for the third quarter which is an increase of 109% over the comparative period. For the 9 months ended 30 September 2022, the Bank’s overall income increased by 55% to LKR 12,769 Mn.

Net Interest Income (NII) increased by 58% as a result of improved yields from the repricing of the loan portfolio and treasury assets. Prudent management of interest expenses lead to an increase in the Net Interest Margin (NIM) by 83 bps.

Net Fee and Commission Income increased by 53% aided by domestic and international fund transfers, ATM transactions, credit and debit cards, remittances, and the increased activity from the trade business. Other Operating Income also increased by 23 % aided by foreign exchange income and gains.

Operating income before impairments was LKR 1,977 Mn in the 3rd quarter, an increase of 45%.

The Bank continued to provide for increased impairments and management overlays as a result of further challenges to the settlement of loans and recovery due to continued pressures faced by impacted borrowers. The impairment charge for the 3rd quarter was LKR 591 Mn, an increase of 324% compared to the corresponding period.

Despite prudent cost management initiatives, the total operating expenses of the Bank increased to LKR 1,088 Mn, an increase of 18% over the corresponding period, impacted by the Rupee depreciation and the increase in utility tariffs etc.

Consequently, the results from operating activities for the quarter stood at LKR 298 Mn and the Bank’s Profit Before Tax (PBT) including its equity accounted share of subsidiaries for the third quarter was LKR 93 Mn and the Bank’s Profit After Tax (PAT) was LKR 74 Mn. For the 9 months ended 30 September 2022, the results from operating activities were LKR 852 Mn and the PBT was LKR 397 Mn., while the PAT was LKR 227 Mn.

The total Assets of the Bank increased by 15% to LKR 136,715 Mn by 30 September 2022. Loans and Advances grew by 11% to LKR 75,148 Mn, whilst customer deposits increased by 13% to LKR 93,876 Mn due to the focus on sourcing CASA and term deposits across all segments. The CASA ratio was 23.7% as of 30 September 2022. The Bank’s stage 3 loan ratio stood at 7.29%.

The Bank continued to maintain a strong capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 17.02% as of 30 September 2022. The rating of the bank was reaffirmed at BBB-(lka) with a Negative Rating Watch by Fitch in September 2022 due to the stresses in the operating environment.

The Union Bank Group, consisting of UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT amounting to LKR 130 Mn for the quarter and LKR 525 Mn for the 9 months ended 30 September 2022. The Total Assets of the Group was LKR 143,910 Mn an increase of 16% with the Bank’s share amounting to over 95%.

Operational Performance

The Corporate Banking division focused on providing customised financial solutions to take advantage of new business opportunities in selected segments despite the prevalent economic backdrop and strengthened existing client relationships whilst prudently managing the loan portfolio and credit quality. Corporate Banking Loans & Advances grew by 32% and deposits by 29% year to date.

With the markets signaling a positive momentum, the Treasury prudently managed the critical liquidity requirements of the Bank, both in LKR and FCY/USD whilst managing the Government Debt Security Portfolios to support the continued stability of the overall banking operations. The Bank Notes Operation of the Bank recorded the highest ever currency repatriation during the quarter with a record shipment in the month of September. Timely repricing of the Government Debt Security Portfolios aided the Bank to strengthen its Net Interest Income (NII) position. With USD liquidity issues faced by local banks marginally easing off, the Bank effectively managed its foreign currency cashflows. In line with the Bank’s risk appetite in the current economic landscape, the Bank does not hold any International Sovereign Bonds (ISBs), and the Sri Lanka Development Bonds (SLDB’s) held by the Bank also have short term maturities with LKR flexibility for liquidity.

The Retail Banking division aggressively canvassed for new client relationships with focus on time deposits and CASA taking advantage of the rise in interest rates and recorded 8% growth in deposits and a CASA ratio of 26%. Union Bank credit cards focused on providing cardholders relief and respite through balance transfers, zero interest instalments and loan on card plans and offers on e-commerce platforms to provide convenience. Discounts and savings were offered on essentials and utility bill payments amongst others, whilst prudently managing payments and collections. The Bank’s digital platforms continued to provide greater banking convenience to customers.

As a result of the contraction in private sector credit growth and lending opportunities, during the quarter the SME Banking division focused primarily on cautiously managing the loan portfolio and collections whilst expanding lending to existing customers and assisting them to sustain and reinvigorate businesses. The Asian Development Bank (ADB) funding line secured in early 2022 continued to support the Bank’s lending initiatives. SME Banking deposit base increased by 10%. The Bank’s award-winning cash management solution Union Bank BizDirect continued to be a key driver in sourcing CASA and facilitated the securing of a significant number of new clients.

Reaffirming its corporate ethos and values, Union Bank was ranked amongst the ‘Most Respected Entities in Sri Lanka 2022’ the annual ranking publication conceptualised by LMD and conducted by Nielsen IQ. The Bank continued to maintain a positive sentiment amongst employees and in its continued efforts to create employee well-being and engagement, successfully concluded several initiatives including a digitally driven walk and win fitness challenge that received overwhelming participation from employees across the Bank network.
Ends.

The second quarter of 2022 witnessed a challenging macroeconomic outlook that resulted in the banking sector facing multiple headwinds with the impact of the sharp rupee depreciation, rising interest rates, an upward revision of taxes, higher impairments, supply constraints and demand side policies undertaken to dissuade imports, which lead to impeding credit growth for Banks. Against this backdrop, Union Bank remained agile in prudently managing and controlling its existing portfolios and customer bases and implementing stringent recovery measures whilst ensuring uninterrupted banking services to customers.

Against this backdrop, Union Bank remained agile in prudently managing and controlling its existing portfolios and customer bases and implementing stringent recovery measures whilst ensuring uninterrupted banking services to customers.

Core Banking performance and profitability

The Bank recorded an improved core banking performance despite the challenges of a tough operating environment and posted an overall income of LKR 7,426 Mn for the first half, an increase of 31% over the comparative period.

Net Interest Income (NII) increased by 19 % as a result of improved yields from the re-pricing of the asset portfolio and prudent management of interest expenses which lead to an increase in the Net Interest Margin (NIM) by 57 bps.

Net Fee and Commission Income increased by 24% aided by domestic and international fund transfers, ATM transactions, credit and debit cards, remittances, and the increased activity from the trade business. Other Operating Income also increased by 141 % aided by foreign exchange income and gains.

Operating income before impairments was LKR 3,575 Mn, an increase of 18% as at 30 June 2022. Due to the delays in loan settlements brought forth by the impacts of the adverse macro-economic conditions, the Bank continued to provide for increased impairments and management overlays as a prudent measure. The impairment charge for the period was LKR 961 Mn, an increase of 120% compared to the corresponding period.

Despite prudent cost management initiatives, the total operating expenses of the Bank increased to LKR 2,059 Mn, an increase of 14 % over the corresponding period, mainly impacted by the depreciation of the Sri Lankan Rupee and consequent increase in fuel expenses etc.

Consequently, the Bank’s Profit Before Tax (PBT) including its equity accounted share of subsidiaries as at 30 June 2022 was LKR 304 Mn and the Bank’s Profit After Tax (PAT) was LKR 152 Mn.

Total Assets of the Bank increased by 11% to LKR 131,744 Mn by 30 June 2022. Loans and Advances grew by 10% to LKR 74,796 Mn, whilst customer deposits increased by 16% to LKR 96,779 Mn due to the focus on sourcing CASA and term deposits across all segments. The CASA ratio was 27.5% as of 30 June 2022. The Bank’s stage 3 loan ratio stood at 6.89%.

The Bank continued to maintain a healthy capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 16.34% as of 30 June 2022.

The Union Bank Group, consisting of UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT amounting to LKR 395 Mn for the period up to 30 June 2022. Total Assets of the Group was LKR 139,428 Mn an increase of 12% with the Bank’s share amounting to over 94%.

Operational Performance

Amidst the challenges, the Corporate Banking division prudently managed its loan portfolio whilst maintaining the credit quality and recorded a 29% growth in Loans & Advances and 39% growth in Deposits.

The Treasury was able to re-align the impacted Government Securities portfolio at a much faster pace, through focused investment strategies and timely execution of auction pricing on short term T-Bills. Further, it was instrumental in providing the much-needed support to importers by way of foreign exchange with focus on USD and prioritizing of trade payments for essential items such as food, pharmaceuticals, fertilizer, fuel and student payments.

In sync with the interest rate revisions, the Retail banking sector focused on new customer relationships by expanding its deposit base through time deposits and recorded a 14% growth in deposits and a CASA ratio of 27.5% during the second quarter. In addition, customer convenience was further enhanced through the Bank’s mobile banking app UBGO as well as its Agent Banking platform by facilitating deposits, loan payments and credit card payments at selected SLT Mobitel and Cargills Foodcity outlets.

The SME Banking sector was successful in securing the Asian Development Bank (ADB) funding line in 1Q 2022 and through this credit line continued its focus on new lending to support growth amongst women entrepreneurs and tea smallholders. In addition, a schematic plan was implemented to support the highly impacted SMEs with re-scheduled facilities and payment schemes. Further, the continued focus was placed on sourcing CASA through the Bank’s cash management solution Union Bank BizDirect to new clients in both corporate and SME sectors.

The first quarter of 2022 witnessed the gradual recovery of economic activity resultant from the setbacks of the COVID-19 3rd wave. However, during 1Q 2022, continued political uncertainty that prevailed, largely impacted normalcy, with public and businesses facing heightened challenges brought-forth by gas and fuel shortages, rapidly rising inflation, FX reserves depletion, depreciation of the LKR and import restrictions. With most COVID-19 related customer relief measures concluding in December 2021, the Banking sector faced continued asset quality pressure. Several monetary and other policy measures were implemented in the first quarter to aid the much-needed economic revival and stability.

In this backdrop, Union Bank’s primary focus was to remain agile and resilient by leveraging on its strong capital position, stringent risk management approach and prudent cost measures to minimise the impacts of these external shocks to its operations and customers.

Core Banking performance and profitability

The Bank recorded an improved core banking performance despite the challenges of a tough operating environment and posted an overall income of LKR 3, 148 Mn for the quarter, which is a 10% increase over the comparative period. Net Interest Income (NII) increased by 11% owing to improved yields from the re-pricing of the asset portfolio and prudent management of interest expenses which lead to an increase in the Net Interest Margin (NIM) by 33 bps. Fee and Commission Income increased by 17% as a result of the higher contribution from Credit and Debit Cards and the increased activity from the trade business. Other Operating Income decreased by 4% due to the lack of liquidity & volatility in the Government Securities market. The Operating Expenses of the Bank increased to LKR 983 Mn, an increase of 8% over the corresponding period, mainly impacted by the depreciation of the LKR and the increase in other expenses.

Considering the stresses stemming from the macro- economic environment, the Bank conservatively provided for impairments including management overlays. The impairment charge for the period was LKR 288Mn an increase of 47% compared to the corresponding period 1Q 2021.

Consequently, the Bank’s Profit Before Tax (PBT) including its equity accounted share of subsidiaries for the period under review remained flat at LKR 316Mn compared to last year due to the deteriorated operating environment and increase in VAT on Financial Services from 15% to 18% in 2022. In comparison to 1Q 2021, the Bank’s Profit After Tax (PAT) was adversely impacted as the corresponding year’s charge was after the one-off reversal of the overprovision made in the previous year. Total Assets of the Bank increased by 10% to LKR 129,878 Mn by 31 March 2022. Loans and Advances grew by 11% to LKR 75,479Mn, whilst customer deposits increased by 9% to LKR 91,226Mn due to the heightened focus on CASA balances across all segments. The CASA ratio remained at a healthy 30.4% as of 31 March 2022. The Bank’s stage 3 loan ratio was controlled at 4.8% aided by strong recovery capabilities and customised re-payment plans

The Bank continued to maintain a healthy capital adequacy position, well above the regulatory requirements and the Bank’s Total Capital Ratio was 14.45% as of 31 March 2022.

The Union Bank Group, consisting of UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT of LKR 398Mn for the period, a decrease of 5% compared to the corresponding period. Total Assets of the Group was LKR 136,132Mn an increase of 10% with the Bank’s share amounting to over 95%.

Operational Performance

In sync with the private sector credit growth and leveraging its relationship capabilities to seize timely opportunities, the Corporate Banking division posted a noteworthy improvement in its performance during the period and recorded 27% growth in Loans & Advances, 29% growth in Deposits and 13% increase in Commission & Fee Income. The increase in the loan and deposit bases were resultant of the revaluation of the foreign currency book due to the currency depreciation.

Focused efforts to grow foreign currency deposits and strategically managed margins resulted in the Retail Banking sector recording a 6% growth in deposits and a 28%
CASA ratio. The credit card portfolio continued its strong growth momentum during the period under review.

The SME Banking sector was successful in securing the Asian Development Bank (ADB) funding line that will further support the Bank to propel growth amongst entrepreneurs with the primary focus of the credit-line being placed on women entrepreneurs and tea smallholders. The period under review recorded an increase in
Deposits and CASA from the SME banking sector. The Bank’s award-winning cash management solution Union Bank Biz-Direct was the key driver for CASA and facilitated the securing of a significant number of new clients in both corporate and SME sectors.

The Union Bank brand continued to maintain its status within the top 100 brands in Sri Lanka in the latest rankings issued by Brand Finance for 2022. The Bank’s Annual
General Meeting for the year 2021 was concluded on 31 March 2021 and the 2021 Annual Report of the Bank was published under the theme “Persist, Persevere”.

The third wave of the pandemic impacted Banking activities owing to limitations caused by the travel restrictions imposed during August and September, while the resultant economic challenges of trade and foreign reserves limitations continued to weigh on the overall business landscape. In order to support borrowers impacted from the Covid-19 pandemic, the Central Bank introduced a further extension to the debt moratorium relief programme in September 2021.

Despite external challenges, Union Bank continued to maintain its strong liquidity position. During the period under review, average fixed deposits remained stable while average CASA grew by 9% YoY reporting Rs.23,854 Mn.

The latest Fitch review in September 2021, reaffirmed the Bank’s rating at BBB(-) with a stable outlook; driven by several key factors including high liquidity, significantly higher capitalisation and potential for growth under improved operating conditions.
The Net Interest Income (NII) for the 3rd quarter was impacted by the adverse macro environment along with the Bank extending debt moratoria to support its customers during these tough times and intensified further by the significant drop in AWPLR by 280 basis points compared to the rates in 2020. As a result, NII during the first nine months of the year was reported as Rs.3,078 Mn and was a marginal growth compared to last year.

The fee income was well manged with timely strategic adoptions, resulting in a 31% YoY growth for the period, reporting Rs. 612 Mn.
Amidst a challenging economic landscape, the Rupee continued to depreciate against the USD impacting trade income and affecting supply/demand dynamics. The Treasury performance was greatly impacted by this exchange rate volatility and the limited trading opportunities that depressed the Treasury and Trading markets income, which was comparatively very high in 2020- particularly in the 2nd and 3rd quarters. Consequently, Trade and Other income of the Bank declined by 37% YoY.
The YTD Operating Income of the Bank was Rs. 4,397 Mn by end September. The Total Operating Expenses were well-managed through bank-wide cost management initiatives and reduced by 4% YoY to Rs. 2,730 Mn. Pre-impairment profits of the Bank were Rs. 1,667 Mn.
Due to the challenging economic environment, the Bank continued to follow its impairment models with the same assumptions applied in December 2020 and continued to consider customers in risk elevated industries for impairment calculations. Therefore, while the Bank’s actual credit losses were low, significant provisions were recorded through management overlays to account for the deteriorating environment.

Against the continuously challenging macro-economic backdrop, the Bank along with its ownership interest of subsidiaries recorded a profit before all taxes of Rs. 1,102 Mn for the nine months period.
The Profit After Tax (PAT) for the period was Rs. 614 Mn and recorded a 12% growth YoY.
The gross NPL ratio of the Bank improved to 5.79% by end of the reporting period from 6.05% in Dec 2020. The Bank continued its focused actions towards managing portfolio quality by containing NPLs amidst the weakened economic landscape.

Total assets of the Bank stood at Rs. 118,682 Mn as at 30th September. Loans and receivables were Rs. 69,708 Mn YTD and grew by 3% YoY while the deposits base was Rs.85,259 Mn and expanded by 3% during the review period.
The Bank continued to maintain its capital adequacy ratios well above the regulatory requirements and reported a robust Total Capital Ratio of 15.20% as at the reporting date.

The Group consisting of the Bank and its two subsidiaries, UB Finance Company Limited and National Asset Management Limited reported a Profit before all taxes of Rs. 1,325 Mn for the period. The Profit after Tax of the Group increased by 17% YoY. Total assets of the Group were Rs. 125,163 Mn of which 95% were represented by the Bank. The Group maintained a healthy Core Capital Ratio of 15.67% as at the reporting date.

Corporate, SME and Retail Banking segments of the Bank continued to pursue focused growth while delivering tailored financial solutions to support customers. During the review period, the Bank heightened its focus on digital initiatives and introduced its enhanced mobile app under the brand name ‘UBgo’, which is enriched with capabilities of QR payments and instant payments enabled by JustPay, thus making banking more accessible and simplified to customers.

Commenting on the third quarter performance of the Bank, Director/CEO Indrajit Wickramasinghe said, “As we steer with prudence amidst prevailing challenges, we hope to maximise on the opportunities available with the gradual re-opening of the country, to meet the readjusted strategic objectives of the Bank. Engaging with customers to offer tailored financial solutions and ensuring the well-being of our staff and customers would remain priorities when operating under the current conditions. Maintaining a healthy liquidity position while pursuing profitability and prudent portfolio growth will be key focus areas of the Bank during the last lap of this year.”

Union Bank stood resilient despite economic setbacks resulting from the pandemic in 2020 and re-aligned its strategy for recovery and growth, reporting a strong performance during the first quarter of 2021 with favourable returns and increased revenue. However, challenges continued with a third wave hitting in April 2021 adding further limitations to the business growth momentum. Despite these setbacks the Bank continued to maintain consistent performance even during the second quarter and concluded the first half of the year 2021 with a strong core banking performance.

Although the banking sector activities were under pressure in the second quarter amidst travel restrictions etc. that delimited operations, the focused efforts of Union Bank’s operations contributed to this performance in the second quarter. Revenues were impacted by the low AWPLR that prevailed along with the new credit relief schemes introduced by the Central Bank of Sri Lanka (CBSL) for customers affected by the third wave of the pandemic. The relief scheme which came into effect in May 2021 was rolled out by the Bank immediately; offering extensions of capital and/or interest payments to affected customers up to 31st August 2021. The concessions assented relief for customers within the Retail, SME and corporate segments affected by the third wave of the pandemic and included late payment fee waivers, due date extensions and payment flexibilities for credit cardholders as well.

Despite the above, the Bank’s Net Interest Income (NII) during the first half of 2021 was Rs. 2,103 Mn and reported a growth of 4% YoY. The Net Interest Margin improved to 3.44% during the period ended 30th June 2021, compared to 3.23% in the comparative period.

Late payment and other fees were waived for impacted customers until August 2021 in-line with the CBSL guidelines. The Decline in economic activity and import restrictions further impacted fee income. However, the Net Fee and Commission Income of the Bank grew during the first half by 42% YoY. The significant growth in fee income also reflects the impact of the Covid-19 relief schemes granted in 2020, which affected the revenues in the comparative period last year.

Total other income of the Bank declined during the 1st half by 18% YoY to Rs. 527 Mn. This was mainly due to total capital gains including investments in unit income declining by 43% to Rs. 310 Mn. However, exchange gains increased by 117% YoY, largely driven by the exchange rate deflation by 8% and the rate fluctuations during the said period.

Despite external challenges, the Operating Income of the Bank for the period ended 30th June 2021 was Rs. 3,036 Mn and reported a growth of 3% over the comparable period last year. Due to continued focus and efforts on prudent cost management across the bank, the Operating Expenses reduced by 6% YoY to Rs. 1,809 Mn. Pre-impairment profits of the Bank for 1H2021 were Rs.1,227 Mn and reflected a 18% growth YoY.

Due to the challenging economic environment, the Bank continued to follow its impairment models with the same assumptions applied in December 2020. Accordingly, the Bank continued to consider customers operating in risk elevated industries (industries with a significant increase in credit risk) for impairment calculations. Further, the higher weightage applied to the worst-case macro-economic scenario has continued to be applied in the expected credit loss calculations as well. Therefore, while the Bank’s actual credit losses were low, the Bank booked significant provisions during this period to account for the weakened environment, resulting in a 55% increase in impairment charges over the comparative period.
Overcoming the challenges in the external environment, the Bank recorded healthy results from operating activities before all taxes and the share of subsidiary profits amounting to Rs. 791 Mn, which was an increase of 5% over the comparative period. The Profit after Tax of the Bank for the period under review grew by 44% to Rs. 455 Mn highlighting its steady progress during the first half of 2021.
The gross NPL ratio of the Bank reduced to 5.83% by end of the reporting period compared to 6.05% as of December 2020.
Total assets of the Bank stood at Rs. 121,244 Mn as of 30th June. The Bank’s loans and receivables stood at Rs. 70,656 Mn reflecting a 5% YTD growth, while the deposits base was Rs. 85,132 Mn with a YTD growth of 3%. From January to June 2021, average CASA grew by 11% over the comparative period. Efforts of maintaining a healthy CASA inflow was supported by focused acquisition strategies driven by retail, corporate and SME banking segments despite the challenges in movement and restrictions in effect. The CASA ratio of the Bank was 28.5% by end of the reporting period.

The Bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 15.88% as at the reporting date.
The Bank’s subsidiaries, UB Finance and NAMAL also continued to be impacted by the external environmental pressures and the Group consisting of the Bank and its two subsidiaries, reported a Profit before all taxes of Rs. 938 Mn for the 1st Half of 2021. The Profit after Tax of the Group in comparison to the corresponding period last year increased by 43%. Total assets of the Group were Rs.127,361 Mn of which 95% was represented by the Bank. The Group maintained a healthy Total Capital Ratio of 16.49% as at the reporting date.

Maintaining healthy liquidity levels and uninterrupted operations amidst challenges, while ensuring employee and customer safety remained key management priorities when operating through the pandemic stricken second quarter of the year. The Bank continued its close engagement with Retail, SME and Corporate customers through branches and relationships managers to identify their unique challenges and provide necessary banking assistance including the efficient roll-out of the CBSL relief schemes, for the much-needed financial ease during these uncertain times.

In line with its strategic plan on digital banking and enhancing its digital prowess during the period under review, Union Bank’s Mobile Banking app was further enhanced and relaunched as ‘UBgo’ and was also linked with the Lanka QR standard to enable a seamless payment experience to its users. Lanka QR integration on the Union Bank Mobile App has enabled fast and secure, cashless payments directly through Union Bank accounts. This was a step in the direction of revolutionizing the digital banking experience of its customers as the Bank plans to continue to invest in and enhance its mobile banking app further to develop this as a key banking channel in future. With continued commitment to enhance technology enabled banking conveniences, Union Bank also introduced the Missed Call Banking service during the month of June as an inclusive, wide-ranging mobile-based banking facility that can be accessed with any type of mobile phone. It is a SMS-based notification service that provides account holders with an instant and secure means of obtaining their account balances on their mobile phone.
While operating as an essential service in the midst of the third wave, the Bank prioritised its focus on continuation of the comprehensive measures implemented to ensure the safety of customers and staff, resulting in stringent hygiene and safety practices across the branch network and Head Office premises while enabling work-from-home facilities to identified staff members to reduce exposure. Continuous access was made available for customers to reach the Bank’s ATM network, online/mobile banking platforms and the 24-hour contact center further enabling a safe and secure banking experience, while strategically identified branches remained operative even amid travel restrictions to facilitate essential banking services.

Commenting on the 1st half performance of the Bank, Director/Chief Executive Officer Indrajit Wickramasinghe said, “The Bank’s growth momentum in the second quarter of 2021 was impacted by the sudden outbreak of the third wave and its resultant impacts on the operating environment. With the development of the third wave, our key priority had to be adjusted once more towards extending the CBSL recommended credit relief to impacted customers in a bid to support them to cope with the continued financial pressures. During this challenging period while managing its bottom line, the Bank remained mindful in maintaining its healthy liquidity position, strong capital adequacy and ensuring the safety of customers and staff as a part of its sustainable business strategy. In the remainder of the year, while providing the much-needed financial impetus to our customers across Retail, Corporate and SME segments we will continue the focussed growth initiatives to drive performance while taking all due precautions to maintain optimum safety levels for our staff and customers.”

Core Banking Growth and Profitability

Union Bank ended the first three months of 2021 with a strong performance, reflecting a steady growth momentum and fueling favourable expectations.

Union Bank’s core banking performance was propelled by focused efforts on strategically significant product and service propositions. Despite challenges that continued to prevail during the review period, the Bank’s re-strategised product and service prioritisation and swift action to capitalise on the positive sentiments in the macro-economic dynamics since the roll-out of the vaccination campaign, paved the way for this growth in the first quarter of 2021.

Union Bank’s overall revenue for the quarter was Rs.1,521 Mn and despite the tough operating environment the overall revenue grew by 1% over the comparative quarter.

The Bank’s Net Interest Income (NII) was Rs. 985 Mn and declined marginally by 4% over the comparative period ended 31st March 2020, due to the lower AWPLR that prevailed during the review period in comparison to the previous year. Interest rate rebates and rate caps imposed on certain products under CBSL directives along with concessionary lending programmes which continued in support of Covid-19 affected customers further contributed to this decline.  While the credit demand had not picked up at the expected pace despite conducive market interest rates and concessions granted to customers, an uptick in economic activity contributed to the overall credit growth. Effective portfolio management strategies contributed towards managing the NII amidst these challenges.

Profitability was strengthened by improved net fee and commission income and other operating income. The Bank’s net fee and commission income stood at Rs. 216 Mn at the end of Q1 2021, recording an increase of 7% over the comparative period with fee income from business lending, credit cards and trade related transactions being the primary contributors.

The Treasury which consists of Interbank, Fixed Income and Corporate Sales desks performed well in the first quarter, making significant contributions to the Bank’s bottom line especially in terms of capital and exchange gains. Other Operating Income of the Bank increased significantly by 73% and was backed by exchange rate fluctuations.

As a result of continued efforts for enhanced operational efficiency and cost management initiatives, the Operating Expenses of the Bank decreased by 9% YoY to Rs. 907 Mn during the review period.

Pre-impairment profits of the Bank were Rs. 614 Mn for the period and indicated a significant growth of 23% YoY.

In line with prevalent macro-economic stresses and the additional lockdowns the Bank conservatively provided impairment charges and accordingly, the impairment charges for the quarter increased by 111% YoY to Rs. 196 Mn.  Due to focused recovery efforts along with an overall improvement of repayments and loan growth, the Gross Non-Performing Loans (NPL) ratio of the Bank improved from 6.05% in December 2020 to 5.85% in the quarter under review.

Results from operating activities for the quarter was Rs.418 Mn and it was increased by 3% YoY.

The Bank’s post tax profit including its ownership share of subsidiaries for the quarter was Rs. 282 Mn and recorded a 57% increase YoY. This represents the positive impact from the Bank and the negative impact that came through the deferred tax asset recorded in UB Finance Co. Limited’s books as a result of the change in corporate tax rate.

The total comprehensive income of the Bank was Rs. 137 Mn.

The Bank’s Total Assets increased to Rs. 124,796 Mn by 31^st March 2021. Loans and advances grew by 6% to Rs. 71,609 Mn while the customer deposits reflected a growth of 2% to Rs. 83,829 Mn within the review period. Efforts of sustaining a healthy CASA inflow was further continued through focused acquisition strategies driven by retail, corporate and SME banking segments. As a result, the overall CASA balances increased by 4.2% during the period under review and the CASA ratio stood at 30.5%

Maintaining strong capital ratios continues to be a management priority. Union Bank’s Total Capital Adequacy Ratio as at 31st March 2021 was 15.88% and is well above the regulatory requirements.

The Group comprising the Bank and its two subsidiaries, National Asset Management Limited and UB Finance Company Limited, reported a Profit after Tax of Rs. 301 Mn for the period and was increased by 54% YoY.

Total assets of the Group were Rs. 131,305 Mn of which 95% was represented by the Bank. The Group maintained a healthy Total Capital Ratio of 15.97% as at quarter-end.

Operational Performance

Ringing an optimistic start to the year, Union Bank was announced the winner of the  prestigious ‘Best Cash Management Bank in Sri Lanka’ title at the Asian Banker Transaction Finance Awards 2020, reaffirming the success of the Bank’s state-of-the-art cash management solution Union Bank BizDirect. With increased take up on the digital cash management service by Corporate and SME banking customers of the Bank, Union Bank BizDirect contributed to the CASA and fee income growth of the Bank in the first quarter of 2021.

The Bank’s Corporate Banking portfolio recorded an upward movement in the quarter under review.  The corporate loans portfolio expanded by 13% Year to Date (YTD) and the deposits base of the corporate banking segment increased by 6% YTD. The SME Banking portfolio set off on a positive note in the 1^st quarter of 2021 recording a loan growth of 3% supported by a strategic lending approach. The SME business also created a strong pipeline for asset growth while increasing its geographical focus at branch level for the growth of the SME business including the SME CASA base.

Despite the challenging market dynamics that prevailed, the Retail Banking segment of the Bank recorded a YTD deposits growth with a strong CASA portfolio expansion of 10% YTD. Despite the low interest environment, the Bank’s prioritised approach to new acquisitions propelled this growth. Retail assets portfolio continued to expand aided by the Bank’s focused efforts to grow its credit cards portfolio.  The Credit Card offers included flexible 0% instalment plans for easy repayments, balance transfer options and special avurudu discounts at over 100 merchant partner outlets with the aim of acquiring new customers while gaining wallet-share of existing customers. Joining the national drive towards attracting foreign worker remittances, the Bank introduced a promotional gift offer for Western Union money transfers during the period under review to further encourage remittances by rewarding customers on a tiered gift plan.

Human Resources and operations functions of the Bank continued to support the business growth with the reorganisation of resources and processes to match market dynamics while ensuring prime performance with optimal cost management.  As part of its continued staff engagement efforts, the Bank introduced an all-new digital engagement and collaboration portal to enhance interactions between employees irrespective of their geographic location and despite the social distancing limitations. Union Bank which completed its milestone 25^th year of operations during 2020 celebrated its long serving employees at a special ceremony held during the 1^st quarter of 2021, in a bid to value the lasting commitment of employees who have contributed to the Bank’s evolution over the years.

Union Bank’s Annual Report 2020 was presented in February 2021, on the theme ‘Refocus, Readjust, Reinforce’-which signifies the Bank’s commitment to forge ahead amidst challenges with renewed strength, while building on the profound stakeholder relationships and leveraging on its unique strengths. The Bank’s AGM was successfully concluded during the review period and was conducted as a virtual meeting to ensure adherence with the health and safety guidelines set by authorities.

Commenting on the performance of the Bank, Director/Chief Executive Officer of Union Bank Mr. Indrajit Wickramasinghe stated “We are off to a positive start in 2021, and the 1^st quarter performance signifies the Bank’s capacity to reach the growth targets set for the year. We are continuing to support our customers who have been impacted by the COVID-19 pandemic and will be focused to achieve the desired strategic growth across Retail, SME, and Corporate banking segments. With the backing of a strong capital base and a focused strategic business plan, Union Bank is geared to take on the unfolding challenges and opportunities of the market.”

Financial Performance Overview

In 2020, Union Bank crossed the significant milestone of completing 25 years of service to the nation. The year tested the grit and foundations of the Bank in many ways and the Bank emerged strong amidst challenges. While operational performance was impacted amidst the slowdown of economic activity, the Bank continued to focus on cost optimisations, effective resource and productivity management as well as prudent portfolio management to overcome these tough conditions.

Despite the challenging backdrop, Union Bank increased its liquidity buffers prudently and was able to maintain a strong excess liquidity position. Fitch ratings in its 2020 ratings release affirmed the Bank’s current rating, which was backed by the strong liquidity and capital. Union Bank stands confident with an industry leading capital position alongside significant financial flexibility that effectively help mitigate the pandemic induced economic impacts. The Bank maintained a robust Capital Adequacy Ratio throughout the year reporting 16.95% total capital ratio as at year end – which was well above regulatory requirement levels.

Union Bank swiftly re-aligned its operations, prioritising its focus on the new market dynamics and customer inclinations that resulted from the pandemic. The Bank executed an inclusive business strategy that ensured smooth continuity of its services while safeguarding the health and well-being of its customers and staff as top priorities. Significant investments were made in ensuring the health and safety of staff by providing alternate work solutions, work from home facilities as well as setting up additional infrastructure to facilitate a smooth work environment for critical staff that attended work despite lockdowns.

An imperative focus was placed on rolling out a cohesive plan across all customer segments to provide support to re-build their businesses and lifestyles with the implementation of the CBSL recommended relief schemes for COVID-19 impacted customers. In line with the CBSL directives and policy rate cuts administered to enable economic growth, Union Bank implemented a downward revision of interest rates on its lending products including credit cards. Moratoriums of capital and interest were extended to affected borrowers in-line with the CBSL’s financial relief package while a significant number of affected customers were granted debt relief outside the CBSL criteria, as per the Bank’s internal credit policy guidelines. Amongst the schemes that were considered for moratoria were loans, leases, overdrafts, pawning and trade finance facilities. Non-performing borrowers eligible for relief schemes were also provided customised re-schedulements, inclusive of waivers on accrued interest while withholding further recovery action.

The Bank’s loans and advances stood at Rs 67,518 Mn. The deposits base of the Bank stood at Rs. 82,384 Mn as at year-end and recorded a growth of 7.6% despite the low interest environment. The Bank’s strategic focus for low-cost deposits continued to bear results, supported by focused initiatives for CASA growth by the business units. The Bank’s CASA portfolio reflected an excellent growth of 26.8% as at December 2020, increasing the CASA Mix of the Bank to 30% in 2020 from 25% in 2019.

As a result of the numerous reliefs extended to affected customers and due to the low interest rate environment, the Bank recorded a Net interest Margin (NIM) of 3.2 % in comparison to 3.6% in 2019. The Bank’s NII was further impacted with the latest CBSL directive issued in November 2020, that mandated 60 days’ loan extension for moratoriums given in March 2020 at subsidised interest rates up to a maximum of 7%; thus, leading to a reduction of interest earned on all such credit facilities repaid on Equal Monthly Instalments (EMI) basis.

The fee income was impacted by adverse market drivers and declined by 18.4% over the comparative year. This was an outcome of the cumulative effect of fee waivers extended as part of COVID-19 reliefs, a slowdown in trade income due to import restrictions and a drop in loan related fees due to slower credit growth that prevailed during the year.

The Treasury performed exceptionally well, recording impressive capital gains that grew significantly by 84.2% YoY. Other Operating Income of the Bank grew notably by Rs.162 Mn led by Foreign Exchange income and backed by a growth in customer transactions, depreciation of the currency and the reduction of swaps in 2020.

The Bank had no trading equities and has not invested in any equity fund as at reporting date.

The total operating income for the year was Rs. 5,890 Mn and recorded only a marginal drop despite the challenging market dynamics.

The gross NPL ratio stood at 6.05% by year-end. The absolute NPL increase however was only Rs. 230 Mn, while an overall reduction in the loan portfolio caused the ratio to reflect an increase. The Bank’s prudent approaches towards managing portfolio quality proved favourable in containing NPLs amidst market volatilities.

The impairment charge recorded an 88.5% increase YoY. While its actual credit losses were low, the Bank recorded significant provisions through management overlays to account for the deteriorating environment. Three sectors were identified as risk elevated industries and accordingly additional provisions were made for these by shifting stages. Further on the Economic Factor Adjustments (EFA), weightages assigned to the worst-case scenario increased with the transferring of weightages from best-case to worst-case on 31 December 2020 to account for the deteriorating environment. This had a significant impact on the increase in impairments, while the Treasury impairment figures also inflated due to investments denominated in foreign currencies – based on the country risk downgrade. The entire modification loss on account of COVID-19 moratorium scheme was recorded under the impairment charge as per the non-substantial modification method which is in line with the Sri Lanka Accounting Standard–9(SLFRS 9).

The Total Operating Expenses were prudently managed through bank-wide cost management initiatives and were reported as Rs. 3,772 Mn, with an YoY decrease of 1.5%.

The operating margin was Rs. 2,118 Mn and recorded a decline of 3.3% YoY as an effect of a 2.2% decrease of revenue against the 1.5% drop in costs.  Excluding the 60-day moratorium impact of reducing the interest earnings to 7%, the operating margin would have improved by 3.4%.

Share of loss of equity accounted investees was Rs. 29 Mn for the year ended 31 December 2020. In the previous year, a one-off gain was reported from UB Finance amounting to Rs. 127 Mn due to tax reversals. The subsidiary profits were also impacted due to the macro-economic challenges of the year under review. Total taxes for the year was Rs. 777 Mn and was a drop of Rs. 417 Mn in comparison to the previous year.

The ‘Bank-only’ profit for 2020 was Rs. 605 Mn and was on par with the previous year. Profit of the Bank including its share of ownership in subsidiaries was Rs. 577 Mn in 2020 and was a decline of 18.8% over the previous year- mainly because of the one-off income recorded at UB Finance in 2019. Other comprehensive income for the year was Rs. 183 Mn, while the total comprehensive income of the Bank was Rs. 759 Mn.

The Group consisting of the Bank and its two subsidiaries – UB Finance Company Limited and National Asset Management Limited reported Rs. 623 Mn in profits after taxes, a decline of 22.6% over the previous year. Total assets of the group were reported as Rs. 129.6 Mn. The Bank accounts for 95% of the  Total assets of the Group and hence the Group’s performance is mainly propelled by the Bank.

Operations and Business Continuity amidst challenges

Considering the impact of the pandemic on its customer bases, the Bank’s key focus for the year was shifted to extending COVID-19 related financial relief to customers across corporate, SME and retail banking segments since March 2020, so as to not compromise on its premise to serve customers with the best suited financial solutions and tools.

Under the CBSL recommend scheme, self-employed personnel, foreign currency earners, SMEs and Corporates in identified sectors were eligible for loan repayment moratoria from Union Bank. A gamut of relief measures was channeled towards SMEs including fee waivers on cheque returns and stop payments among others. As part of the relief efforts, around 58% of the Bank’s SME portfolio was accommodated under moratorium schemes by year-end. The Bank granted around Rs 1.3 Billion worth of working capital loans under Central Bank’s ‘Saubhagya’ Covid-19 Renaissance’ credit scheme to SMEs aiding their rebuilding efforts. For impacted retail borrowers, the Bank announced immediate extensions of credit card dues along with a two-month extension for all personal borrowings such as loans and leases.  Retail banking relief measures included debt moratoria for all loans upon eligibility and credit cards related relief including minimum payment concessions and fee waivers.  Following the second outbreak in October 2020, moratoria of affected customers across all segments were further extended to ensure resilience amidst continuous contraction of business activity in identified sectors.

Union Bank’s digital cash management solution BizDirect continued to offer its Corporate and SME customers much-needed liquidity management efficiency while facilitating CASA and fee-based revenue for the Bank during the year. Due to a growing inclination for digital solutions, many new Corporate and SME Banking customers were on-boarded to the product during 2020. In recognition of its success in Transaction Banking excellence, Union Bank BizDirect was awarded the prestigious ‘Best Cash Management Bank in Sri Lanka’ title at the Asian Banker Transaction Finance Awards 2020. Retail banking business was led by CASA acquisition, deposit mobilisation and Credit Cards portfolio growth. The Bank continued to offer value to its card holders through focused lifestyle savings that included discounts on shopping, dining, and e-commerce platforms along with 0% interest instalment plans.

Despite lockdowns, curfews and regional isolation procedures imposed from time to time to curtail the spread of the virus, the Bank provided uninterrupted banking services via its strategic business continuity plan that was executed through its branches, ATMs and other touch points. Union Bank’s Online Banking portal and Mobile Banking app were further enhanced in 2020, to facilitate a wider range of banking conveniences to users enabling contactless banking from the safety of their homes.

Commenting on the 2020 performance, Director/CEO of Union Bank Indrajit Wickramasinghe said, “Our agility and apt business continuity execution have allowed Union Bank to weather the macroeconomic storm in good shape. the Bank has safeguarded the interests of its stakeholders amidst challenges and maintained healthy liquidity levels, and stands strongly capitalised to withstand the adverse environment in which we operate in. We will continue on a path of cost optimisation and enhanced operational efficiency in the year 2021 in which we have re-strategised for stronger growth and  will continue to leverage on our key strengths – while ensuring the health and safety of our customers and staff as a priority when navigating in the new normal.”

Union Bank continued to focus on its prudent cost and portfolio management strategy to remain resilient amidst a volatile macro-economic landscape that prevailed through the third quarter of the year.

The Covid-19 outbreak weakened the country outlook substantially and affected the overall business landscape of the country. Amidst a challenging economic landscape, the Average Prime Lending Rate (AWPLR) dropped by approximately 400bps YoY while the Treasury Bill rates continued on a downward trend during the period under review. In line with directives of the Central Bank, Union Bank implemented a downward revision of interest rates on its various lending products including credit cards. The Bank took 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.

In a backdrop where the negative impacts of Covid-19 on the economy, businesses and consumers continued to weigh down on the banking industry, the Bank focused on continuing the Covid-19 related benefits schemes granted to its customers in a bid to support their financial recovery while focusing on maintaining business operations in compliance with health safety guidelines set by health officials to ensure safety of staff, customers and other stakeholders.

Amidst mounting challenges, Union Bank increased its liquidity buffers on a prudent basis and has been able to maintain a strong excess liquidity position. During the period under review average fixed deposits remained stable whereas average CASA ended at Rs.23,805 Mn, with an increase of 18% over the comparative period.

As a consequence of the Bank’s policy to support its customers during these tough times and a decline in interest rates, its Net Interest Margin (NIM) declined from 3.8% to 3.3% over the comparative period.

Late payment fee and other fee waivers provided in line with the CBSL guidelines aimed at supporting the customers affected by the pandemic, alongside a decline in economic activity, caused a reduction of the overall fee income by 25% over the comparative period.

The Treasury performed notably within the period under review, recording impressive trading profit/capital gains with a significant YoY increase of 108%.  Other Operating Income of the Bank increased on the back of exchange rate deflation during the said period.

Amidst the challenging environment, the Operating Income of the Bank for the quarter was Rs. 1,692 Mn, and reduced by 3% over the comparative quarter. The Total Operating Expenses were prudently managed through bank-wide cost management initiatives and reduced by 5% QoQ to Rs. 941 Mn. Consequently, Pre-impairment profits of the Bank were Rs. 751 Mn for the quarter and was similar to that of the comparative quarter. While the Bank’s actual credit losses were low, the Bank recorded significant provisions through management overlays to account for the deteriorating environment, leading to a 31% QoQ increase in impairment charges. The entire day one loss on account of Covid-19 moratoriums was recorded under the impairment charge as per the non-substantial modification method which is in line with the Sri Lanka Accounting Standard – 9 (SLFRS 9).

Against this challenging macro-economic backdrop, the Bank recorded subdued Results from Operating Activities of Rs.470 Mn a decline of 12% over the comparable quarter. 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 maintain its PAT at the comparative quarter levels.

YTD Operating Income of the Bank was Rs. 4,643 Mn and was similar to that of the comparative period. The Total Operating Expenses were prudently managed through bank-wide cost management initiatives and reduced by 4% YoY to Rs. 2,855 Mn. Consequently, Pre-impairment profits of the Bank were Rs. 1,787 Mn for the period and indicated a 7% growth over the same period last year. While the Bank’s actual credit losses were low, the Bank recorded significant provisions through management overlays to account for the deteriorating environment, leading to a 59% increase in impairment charges over the comparative period. The entire day one loss on account of Covid-19 moratoriums was recorded under the impairment charge as per the non-substantial modification method which is in line with the Sri Lanka Accounting Standard – 9 (SLFRS 9).

Against a continuously challenging macro-economic backdrop, the Bank recorded subdued Results from Operating Activities of Rs.1,226 Mn YTD, a decline of 7% over the comparable period. The operating environment for the Bank’s subsidiaries, has also continued to be 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 3% YoY.  Total comprehensive income for the Bank YTD was Rs.812 Mn.

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 5.48% by end of the reporting period compared to 5.03% as of last year. The Bank’s prudent approaches towards managing portfolio quality proved favourable in containing NPLs even within a weakened economic landscape.

Total assets of the Bank stood at Rs. 122,291 Mn as at 30^th September. The Bank’s loans and receivables stood at Rs. 71,333 Mn YTD while the deposits base was Rs. 81,958 Mn and expanded by 7% during the period.

The Bank continued to maintain its capital adequacy ratios well above the regulatory requirements and reported a robust Capital Adequacy with a Total Capital Ratio of 16.26% as at the reporting date.

Union Bank’s robust liquidity position and stability were further affirmed by Fitch Ratings in the latest ratings release in 2020 which confirmed the current rating of the Bank.

The Group consisting of the Bank and its two subsidiaries, UB Finance Company Limited and National Asset Management Limited reported a Profit before all taxes of Rs. 1,306 Mn for the period.

The Profit after Tax of the Group in comparison to the corresponding period last year declined by 5%. Total assets of the Group were Rs. 129,008 Mn of which 95% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 16.41% as at the reporting date.

During the period commencing from April 2020 to 30^th September 2020, the Bank had approved debt moratoria under the CBSL recommended debt relief scheme providing extensions for repayment of capital and interest on loans granted. Loan facilities were granted with payment extensions providing relief to customers to navigate during these challenging times. Amongst the schemes that were considered for moratoria are Loans and Leases, Overdrafts, Pawning and Trade Finance facilities.

Union Bank’s Corporate Banking customers were proactively approached with customised financial solutions to help stabilize their strategic redirections post-lockdown. Union Bank’s SME Banking segment focused its support towards customers that were affected by the pandemic lock-down, supporting to re-ignite their businesses and livelihoods while channeling the CBSL backed funding schemes to enable SME business revival in-line with the national vision for economic recovery.  During the period under review, the Bank has granted Rs 1.3 Billion worth of working capital loans under Central Bank’s ‘Saubhagya’ concessionary credit scheme to SMEs in diverse sectors that were adversely affected by the pandemic. As part of its relief efforts for affected customers, around 58% of the SME portfolio value had been accommodated under different moratorium schemes. These measures have substantially helped affected entrepreneurs to re-strategize and recommence business activities amidst subdued economic conditions.

Union Bank BizDirect continued to offer the Bank’s Corporate and SME customers the much-needed liquidity management efficiency while facilitating prudent and convenient cash management expertise to maximize on liquid positions of their companies during these challenging times. Due to a growing inclination for digital solutions over traditional banking methods, many new customers were on-boarded for Union Bank BizDirect in both Corporate and SME segments during the period under review.

Retail banking business growth was led by CASA acquisition, deposit mobilization and Credit Cards portfolio expansion. The Bank continued to offer greater value to its Cardholders through focused lifestyle offers that included discounts on hotel stays, dining and shopping along with 0% interest instalment plans. Union Bank’s digital banking channels continued to provide added convenience to customers by facilitating a contact-free and secure banking experience.

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. Convenient access was made available for customers to reach the Bank’s ATM network, online/mobile banking platforms and the 24-hour contact center, thus enabling a safe and secure banking experience.

Commenting on the performance, Director/Chief Executive Officer of Union Bank Mr. Indrajit Wickramasinghe said, “We have placed a steady focus on maintaining a healthy liquidity position while engaging with our customers to provide them with the necessary impetus to navigate through these difficult times.  The 3^rd quarter results display the resilience of Union Bank against a challenging landscape. As we steer with prudence and continuously adjust our sails to withstand the extreme volatilities which have become the new-norm in the current times, we hope to continue the engagement with customers and provide tailored financial solutions that would better-suit their unique financial needs and challenges while ensuring the well-being of our staff and customers at all times.  Maintaining a healthy liquid position, driving profitability and prudent portfolio growth will be key focus areas of the Bank during the last lap of this year.”

Union Bank 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 programmes 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 Bn under the CBSL recommended debt relief scheme providing extensions for repayment of capital and interest on loans granted. Loan facilities for approximately Rs. 40 Bn 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 re-schedulements, 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 Mn, 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 Mn, 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 Mn during the period. Consequently, Pre-impairment profits of the Bank were Rs.1,036 Mn 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 Mn 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 Mn as at 30^th June. The Bank’s loans and receivables stood at Rs. 75,997 Mn YTD while the deposits base was Rs. 79,779 Mn 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 Limited and National Asset Management Limited reported a Profit before all taxes of Rs. 796 Mn 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 Mn 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 center further enabling a safe and secure banking experience.

Commenting on the first half performance of the Bank, Union Bank Director/CEO Mr. Indrajit Wickramasinghe said, “Our key focus during the second quarter of the year has been on the efficient roll -out of the relief programmes 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.”

Core Banking Growth and Profitability

Despite its strong-footed entry into the first quarter of 2020, Union Bank’s core banking growth compressed since mid-March up until the end of the first quarter, owing to unprecedented economic impacts of the ongoing global pandemic. The Bank focused on continued cost optimisation and portfolio preservation to manage the bottom line in a challenging environment, which saw the Banking industry capitulating in the face of weak economic performance.

Net Interest Income (NII) of the Bank was affected by low credit growth and the pressure on lending rate caps introduced by the Central Bank of Sri Lanka (CBSL). As a result, the Bank’s NII increased only by 2% YoY to Rs.1,031 Mn. The effective fund management strategies coupled with timely re-pricing of assets and liabilities contributed towards sustaining NII amidst challenges.

The Bank’s fee and commission income declined by 8% YoY to Rs. 201 Mn due to the drop in demand for fee based activities across credit related product lines and mainly due to the reduction in the import and export business lines along with some Covid-19 relief measures that came into effect during the latter part of the quarter. However, the fee income from credit cards increased due to focused acquisition of this product which helped recompense for the drop in other fee based income.

The Bank’s Treasury recorded a notable performance with a significant YoY increase of Rs.119 Mn in capital gains mainly due to the favourable movements of interest rates.  Other Operating Income of the Bank increased significantly on the back of exchange rate deflation by 5% YTD. Operating Income of the Bank for the period was Rs. 1,498 Mn.

As a result of focused efforts on enhancing operational efficiency, the Operating Expenses of the Bank increased only by 5% YoY to Rs. 1,001 Mn during the period under review.

Pre-impairment profits of the Bank were Rs. 498 Mn for the period and indicated a growth of 20% YoY.

Stressed economic conditions that prevailed within the reporting period which intensified by mid-March, affected business cash flows across the country. Accordingly, the impairment increased by 81% YoY to Rs.93 Mn. In line with the industry, the Gross NPL ratio of the Bank stood at 5.11% while the Net NPL ratio was reported as 3.37%.

Weighed down by the challenges of the operating environment, Union Bank recorded a subdued profit before all taxes of Rs. 405 Mn. Profit after Tax (PAT) of the Bank was Rs. 180 Mn. The total comprehensive income of the Bank was Rs. 240 Mn.

Total assets of the Bank stood at Rs. 131,195 Mn as at 31st March 2020. The Bank’s loans and receivables stood at Rs. 78,266 Mn and the deposits base was Rs. 83,924 Mn by quarter-end.  Total average CASA grew to Rs. 20,010 Mn.  Efforts of sustaining a healthy CASA inflow was supported through focused acquisition strategies driven by retail, corporate and SME banking segments.

Maintaining strong capital ratios continues to be a management priority. Union Bank’s Total Capital Adequacy Ratio as at 31st March 2020 was 15.81% and is well above the regulatory requirements.

The Group comprising the Bank and its two subsidiaries, National Asset Management Limited and UB Finance Company Limited, reported a Profit after Tax of Rs. 195 Mn for the period. Total assets of the Group were Rs. 139,206 Mn of which 94% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 15.50% as at quarter-end.

Operational Performance

The Bank’s operational performance was impacted by the changes to the operating environment that came into effect from mid-March due to the Covid-19 pandemic. Having identified the challenges faced by customers, Union Bank took immediate measures to roll out the financial relief scheme recommended by CBSL, in a bid to help customers to recover from the financial impacts of the medium term. The financial relief package places focus on the Bank’s Corporate, SME and Retail banking customers.

Despite challenges, the Corporate Banking business continued to sustain its portfolio but interest income compressed by end-March. Small and Medium Enterprises (SMEs) were the most affected by the trying economic backdrop. Union Bank continued to support its Corporate and SME customers with customised solutions and advisory services while rolling out the financial relief measures outlined by CBSL. The Bank immediately engaged with customers in relation to the relief measures including the offers for debt moratoriums and extensions of repayment periods. Corporates in tourism, direct and indirect export related businesses including apparel, plantations, IT and related logistic services industries and others are eligible for loan repayment moratoriums of capital and interest from Union Bank up to six (06) months; while SMEs in agriculture, manufacturing, services, construction and trading sectors are offered the relief package through continuous engagement via branch and relationship managers. With the intent of providing immediate relief to SMEs and small scale traders etc., charges on cheque returns and stop payments have been waived until 30th September 2020 while the validity period for issued cheques below Rs.500,000/- of value has been extended until 15^th May.

Retail Loans and advances showed moderate growth during the review period. The Bank’s Credit Cards portfolio expanded albeit at a slower pace, through focused sales efforts supported by time-appropriate offers that continued to add value to customers. In consideration of the challenges faced by customers due to the pandemic situation, the Bank extended a number of relief measures in-line with the CBSL package including a three-month debt moratorium for all personal loans of values less than Rs.1 million. The maximum interest rate applicable for local credit card transactions up to 50,000/- was reduced to 15% p.a and the minimum payment was reduced to 2% from 4%. Late payment fees have been waived for all credit cards and loans until 30th September 2020.

In line with its focus on building Current and Savings (CASA) balances, Union Bank continued efforts on portfolio build-up of key products such as Children’s Savings, Investment Plans and Institutional CASA, through branches and dedicated relationship managers.  The CASA ratio of the Bank improved to 29% as at 31^st March.

The Bank heightened its focus on digital delivery channels amidst restrictions caused by the health crisis, making online and mobile banking facilities more accessible to clients with simplified registration processes. The Bank’s recently revamped transaction banking system, Union Bank BizDirect continued to add value to Corporate and SME customers as a cost-effective cash management automation tool that enables remote management of business transactions.

Commenting on the 1^st quarter performance of the Bank, Director/CEO Indrajit Wickramasinghe said, “We are currently operating in unprecedented conditions and are making every effort to provide our customers optimum solutions and financial support during these difficult times. The safety of our customers and staff is a top priority and we have made necessary arrangements at our work premises to ensure that stringent levels of hygiene and safety are practiced. We are also doing our utmost to engage with customers and support their financial revival through the relief package in line with CBSL guidelines. The Bank has withstood a challenging 1^st quarter, and the results have been impacted by the economic trials of the health crisis which began its effects from mid-March and is expected to bear a ripple effect on the banking sector as well as the business community in the coming months. We will continue to support customers across Retail, SME and Corporate segments to roll out the special financial relief scheme during the next few months while ensuring sound liquidity management within the Bank”.

Union Bank demonstrated a healthy performance amidst the challenging macro-economic environment in the year 2019, recording a significant increase of 50% in profit after all taxes. Amidst sector shocks that prevailed throughout, the Bank strived for revenue optimisation through portfolio re-alignment and prudent cost management. During the year, the Bank had paid 66% of its profits as taxes which was over Rs.1 Bn.

Core Banking growth and Profitability

Despite market challenges, the core banking operations of the Bank performed consistently on the back of focused strategic initiatives implemented across Corporate, SME and Retail Banking segments, supported by an impressive Treasury performance. As a result of well- managed core banking operations, The Net Interest Income (NII) of the Bank grew significantly to Rs. 4,479 Mn, which was a YoY growth of 22.6%.

Net Interest Margin (NIM) for the year was 3.6%. NIM for the current period would have been 3.8% if the return from investments in units was considered. Return from investments in units was Rs. 227 Mn and was recorded as capital gains under “net fair value gains/ (losses) from financial instruments at fair value through profit or loss”.

Despite policy rate revisions, the demand for credit to the private sector remained subdued, affecting the balance sheet growth. The Bank’s loans and advances stood at Rs. 77,358 Mn and recorded a growth of Rs. 3,609 Mn, which was a 4.9% increase in comparison to the previous year. The growth was mainly attributable to the contribution from loans in the retail segment including a significant increase in the credit cards portfolio and the expansion of the Corporate loans portfolio.

The deposits base of the Bank stood at Rs. 76,532 Mn as at year end. The Bank’s strategic focus was shifted towards acquisition of low-cost deposits which requisitioned a strategic re-alignment of the deposits base. The growth momentum of CASA (Current and Savings Accounts) was continued throughout the year, with focused expansion of key products. As a result, the CASA base grew to Rs. 19,332 Mn by year end. The average CASA portfolio growth was 16% YoY while the CASA Mix of the Bank improved to 25%.

The Bank’s well executed strategic initiatives for fee income were continued throughout the year and produced a fee and commission income increase of Rs. 101 Mn which was a 10.5% growth YoY. This was mainly attributable to income generated from a significant increase in credit cards fees due to focused acquisition efforts, supported by an inflow of Bancassurance fees and guarantees’ income. Fee income was adversely affected by the drop in trade income due to the decline of imports and exports across the industry in 2019.

Net trading and other income was Rs. 686 Mn, and recorded a reduction of 14.2% over the previous year. The reduction was primarily due to the decrease in exchange gains. The Bank’s Treasury recorded a notable performance with a significant increase of 89.4% in capital gains which was reported as Rs. 446 Mn. Income from investments in units remained flat at Rs. 227 Mn. Other operating income declined by 96.2% on the back of rupee depreciation and a significant increase in the number of funding swaps entered into, during the year under review. The decline in trade volumes was attributable to adverse macro-economic conditions which also contributed to the overall decrease in trade income. The Bank has no trading equities and has not invested in any equity funds as at balance sheet date.  The overall growth in core banking activities and the consistent financial performance which was mainly attributable to the increase of NII, led to a 13.9% growth in total operating income which was recorded as Rs. 6,021 Mn. Retail and SME segments increased their contribution to 51% of the total operating income during 2019.

Reflecting the macro-economic challenges, the Bank’s non-performing loans (NPL) ratio increased to 5.03% in 2019 in tandem with the increase of NPL ratios within the banking industry. The SME banking segment showed the highest deterioration of NPL ratios during the year.  Impairment charge for the year was Rs. 390 Mn – an increase of 14.0% YoY.

The operating expenses of the Bank was Rs. 3,830 Mn and was an increase of 2.7% YoY. Depreciation and amortisation and right-of-use asset coupled with other expenses increased by 2% YoY to Rs. 1,947 Mn. The Bank adopted SLFRS 16 “Leases” with effect from 1^st January 2019. The comparative numbers have been calculated based on the previous Accounting standard LKAS 17. Accordingly, right-of-use asset have been recognised on the balance sheet and related amortisation have been considered under depreciation and amortisation instead of rent expenses charged under other expenses in 2018. Also, a portion has been recorded under interest expense as a finance cost of lease liability.

The Bank’s cost to income ratio improved to 64% from 71% in 2018 and marked a major milestone for the Bank in 2019.The operating margin increased to Rs. 2,191 Mn, and recorded a growth of 41% YoY. This represented widened jaws due to an increase of revenue at a faster pace of 13.9% as against the increase in costs by 2.7%; which asserts effective revenue and cost management, thus reflecting a significant improvement in the productivity and operational efficiencies of the Bank.

Share of profit of equity accounted investees for the year was Rs. 104 Mn and was a growth of Rs. 69.2 Mn YoY. The Bank’s subsidiary, UB Finance was the major contributor to this increase.

Profit for the year was Rs. 710 Mn compared to Rs. 473 Mn recorded in 2018 which was an impressive increase of 50.3% over the previous period. Other comprehensive Income for the year was Rs. 346 Mn which was a result of the impact on the valuation of investments in the government securities portfolio classified under financial investments at fair value through other comprehensive income. This was due to favourable market rate movements that prevailed during the year.

The Bank maintained a robust Capital Adequacy Ratio throughout the year reporting 16.75% core capital ratio as at year end.

The Group, consisting of the Bank and its two subsidiaries UB Finance Company Limited and National Asset Management Limited recorded Rs. 804 Mn in profit after all taxes which was a 50.4% growth YoY. Total assets of the group were reported as Rs. 129,840 Mn. The Bank accounts for 93.8% of the Balance Sheet of the Group and hence the Group performance is mainly propelled by the Bank.

Sustained business growth amidst challenges

The key business lines of the Bank continued to maintain growth in the year 2019 despite macro-economic challenges that continued to weigh down on the sector as a whole.

Corporate, SME and Retail Banking segments continued to propel the Bank’s portfolio expansion with selective acquisition strategies deployed on focused client segments that were identified as strategically significant. Despite challenges in the macro-economy, the Treasury performed well in 2019, contributing to the Bank’s revenue via significant capital gains and fee and commission income. Unfavourable market conditions had the greatest impact on the SME sector. Union Bank maintained its support to this sector with greater focus on their long-term funding requirements while managing the portfolio quality through sound risk management initiatives. In view of the challenges faced by Corporate and SME industries specially impacted by the Easter Sunday attacks, the Bank extended relief programmes and moratoriums towards the clients that were impacted to support and uphold their business operations during this difficult period. Corporate Banking recorded a very good  performance through prudent management of portfolio yields, supported by new acquisitions and increased wallet share in identified segments. Union Bank BizDirect continued to be extended to the Bank’s Corporate and SME clients, facilitating best-in-class cash management convenience. In recognition of its  great strides in providing Cash Management excellence, Union Bank was awarded ‘Best Cash Management Bank  –  Sri Lanka’ title at the Global Business Outlook Awards 2019.

Retail Banking continued to support the Bank’s credit growth through focused efforts on mortgaged backed loans and an aggressive drive on credit card acquisitions. Targeted initiatives conducted across the branches and within selected customer segments contributed to the Bank’s CASA and deposits growth objectives. Union Bank’s focus to increase customer convenience through technological enhancements was steadily furthered in 2019, with several initiatives implemented through alternate channels which includes the ATM network and digital banking platforms. The Bank’s mobile banking application was further enhanced with added features and credit cards self-care services designed to provide an even better user experience. Union Bank unveiled a brand new corporate website in 2019 with a fresh outlook and improved features designed to support the Bank’s envisioned digital presence. The new and improved website of Union Bank won the Gold award under the Finance Category at dotCoMM Awards 2019 based in the USA.

Several customer engagement initiatives were carried out during the year to effectively manage key client relationships.  Amongst them, the ‘CEO Breakfast Forum’ was a key highlight where key clients across Retail, SME and Corporate segments were provided an opportunity to gain insights on the economic landscape at the time along with a platform for networking and relationship building. The Bank conducted serveral other events for clients and the investor community during the year under review.

Re-affirming its commitment to support the well-being of society with a focus on children and education, several corporate social responsibility projects were initiated at selected branch localities with the objective to improve the standards of disadvantaged schools and provide better learning environments to children attending these schools.

Commenting on Union Bank 2019 performance Director/ CEO Indrajit Wickrmasinghe said, “I’m pleased to present Union Bank’s strong performance during a challenging year. Amidst many macro-economic challenges, the Bank had improved its core banking growth with focus on interest income, portfolio realignment and prudent cost management, reporting a resultant rise in profits.  Union Bank marks its 25th anniversary in 2020 – a significant milestone that indicates our successful journey of growth over the years. During the year 2020 the Bank’s mid-term growth strategy will be furthered with a view to become a preferred banking partner to the target client segments served. We envision the business landscape to improve in the year 2020 and the Bank will continue to reinforce its Retail, Corporate, SME and Treasury businesses while capitalising on its clear competitive advantages to generate sustainable earnings. The focus on strategic growth segments, prudent portfolio expansion and inclusive banking approaches would pave the way for Union Bank’s progress in the year 2020.”

Core banking growth and Profitability

Union Bank continued to focus on portfolio alignment and prudent cost management to sustain against a hard-hitting macro economic environment that continued to weigh down the banking sector during the third quarter of 2019.

As a result of focused efforts for enhancing operational efficiency, the Operating Expenses of the Bank increased only by 5% YoY to Rs. 2,960 Mn within the period under review.

The results of the macro economic shocks that prevailed throughout, continued to affect the banking sector performance in the 3rd quarter of 2019.  Despite policy rate revisions the demand for private credit remained flat, affecting balance sheet growth through the 3rd quarter of the year. Amidst such a challenging business environment, Union Bank strived for revenue optimisation through portfolio re-alignment and enhanced emphasis on fee and commission income generation.

Total Operating Income of the Bank continued to rise reporting Rs.4,637 Mn which was a YoY increase of 19%.

Net Interest Income (NII) for the period ended 30^th September was reported as Rs.3,466 Mn. The Bank’s well executed strategic initiatives for Fee Income growth continued throughout the reporting period, resulting in a 12% YoY growth in Fee and Commission Income which grew to Rs. 784 Mn. The growth is mainly attributed to the increased influx of Credit Cards processing fees due to focused acquisition efforts along with the fee income generated through transaction banking services provided to corporate and SME banking cients.

The Bank’s Treasury performance remained notable and recorded Rs. 380 Mn in capital gains YoY, which was a significant increase of 83%.  Other Operating Income of the Bank declined on the back of exchange rate deflation and due to a significant increase in the number of funding swaps entered in to during the review period . A decline in trade volumes stemming from adverse macro economic conditions was also contributory to the above.

Pre-impairment profits of the Bank were Rs.1,677 Mn for the period, which was an increase of 54% YoY. The impairment charge of the Bank during the period under review was Rs.354 Mn. Collective impairment charge for the period ended 30^th September 2019  has been  prepared  in  accordance  with  Sri  Lanka  Accounting  Standard – SLFRS  9  (Financial Instruments), whilst prior period charge was prepared in accordance with LKAS 39 (Financial Instruments). Reflecting the stress of the macro economic challenges, the Gross NPL ratio of the Bank stood at 5.2% while the Net NPL ratio was reported as 3.9%.

Despite the challenges of the operating environment, Union Bank presented a resilient performance recording a profit before all taxes of Rs. 1,422 Mn, which was a 54% growth YoY for the period ended 30^th September, signalling the Bank’s continued progress towards achieving its strategic growth objectives for the year.

Profit share from subsidiaries was reported as Rs.98 Mn which was a Rs.51 Mn increase YoY. UB Finance Limited was the major contributor to the above increase.

Taxes including Income, VAT,NBT and DRL on Financial Services amounted to Rs.889 Mn which was an increase of 67% YoY. Profit after Tax (PAT) of the Bank was Rs.533 Mn, which was a 37% growth YoY.

The total comprehensive income of the Bank was reported as Rs. 867 Mn with an increase of 469% YoY and was supported by the positive impact from the valuation on debt instruments at fair value through other comprehensive income.

Total assets of the Bank stood at Rs.115,574 Mn as at 30^th September.The Bank’s loans and receivables stood at Rs. 74,998 Mn and the  deposits  base  was  Rs.74,707 Mn as at end of the quarter.  Total average CASA grew to Rs.18,923 Mn which reflected a 22% YoY growth.  Efforts of sustaining a healthy CASA inflow was supported through focused acquisition strategies driven by retail, corporate and SME banking segments.

Maintaining strong capital ratios continues to be a management priority. Union Bank’s Total Capital Adequacy Ratio as at 30^th September 2019 was 16.5% and is well above the regulatory requirements.

The Group comprising the Bank and its two subsidiaries, National Asset Management Limited and UB Finance Company Limited, reported a Profit after Tax of Rs.606 Mn for the period which was a growth of 36% YoY. Total assets of the  Group were  Rs. 124,061 Mn of which 93% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 16.3% as at balance sheet date.

Operational Performance

Union Bank recorded subdued business growth amidst challenging market conditions during the 3rd quarter.

The Corporate Banking business of the Bank continued to make progress within a competitive market space, with the Bank meeting its core objectives of revenue and assets growth for the period under review.

Small and Medium Enterprises (SMEs) were the most affected by the trying economic backdrop that continously tests the adaptability of the smaller players in the market.  Despite the challenges facing SMEs, Union Bank continued to identify strategically important segments and support the growth and endurance of these enterprises with customised solutions and advisory services.

The Bank’s flagship Transaction Banking solution, Union Bank Biz Direct continued to add value to corporate and SME clients as a cost-effective cash management automation tool.  The Bank is currently steering a modification of this Transaction Banking solution, with a view to enhance its functions and features to facilitate up-to-the-minute business solutions that will deliver even greater banking conveniences to its users.

Retail Loans and advances showed moderate growth during the review period with special focus being placed on meeting the home equity needs of the retail clientele. The Bank’s Credit Cards portfolio further expanded on the back of focused sales and acquisition campaigns supported by a gamut of attractive lifestyle offers in diverse segments such as leisure, dining, shopping etc.

In line with its focus on building Current and Savings (CASA) balances, Union Bank continued the momentum of portfolio build-up of key products such as Children’s Savings, Investment Plans and Institutional CASA, with intense sales drives through branches, Relationship Managers and dedicated sales teams to pursue new acquisitions.  As a result, the CASA base of the Bank grew to 26.4% YTD as at end September 2019.

Continued efforts for operational efficiency and enhanced productivity through streamlining of processes resulted in improved cost management during the period under review.

The Bank continued to offer enhanced banking conveniences to its clients via online and mobile banking facilities with a project being underway to enable credit cards self care services along with enhanced safety of transactions through these platforms.

In August 2019 , Union Bank’s corporate website www.unionb.com was awarded the Gold winner under the Finance Category at the dotCoMM Awards 2019 based in the USA. This was an affirmation of the Bank’s successful efforts in enhancing its digital impression which incorporates some of the latest technologies and features to increase digital presence and security while providing greater convenience to users.

Commenting on the 3^rd quarter performance of the Bank, Director/CEO Indrajit Wickramasinghe said,  “I am pleased to share this resilient 9 months’ performance of Union Bank amidst a challenging economic backdrop and high tax regime, which is a clear assertion of the Bank’s successful strategic direction that has helped withstand such tough conditions. I believe that the Bank’s continued focus on operational efficiency, digital banking lead and inclusive portfolio expansion will augur well for the 4^th and final lap of the year, in which we will continue to build on these growth dynamics and strive for more insistent business growth with a view to successfully meet our strategic objectives for 2019.”