Union Bank recorded an impressive Profit Before Tax and VAT of Rs.558 Mn, led by core banking growth that reported a 42% growth YoY for the period ending 30th June; further consolidating its growth prospects for the year.

Core Banking Growth and Profitability

Continuous growth in core banking operations contributed to the healthy performance during the period under review. Focused revenue management using portfolio realignment within and across the business units resulted in a 14% YoY growth in Net Interest Income (NII) which recorded Rs.1,785Mn during the period ended 30th June. Both Net Interest Margins (NIM) and spreads depicted an improvement during the reporting period in comparison to FY 2017. This was despite the withdrawal of the notional tax credit which bears a direct impact on the interest income earned on the Government securities portfolio carried prior to the change in the tax regulations.

The fee and commission income of the Bank continued to improve through the key enablers articulated in the business strategy. Fee and commission income grew by 21% YoY to Rs.447 Mn during the period under review. Growth was mainly attributable to processing fees on an expanding loan book, commission on guarantees and CASA related fees.

Net trading and other income grew to Rs.405 Mn during the period under review. A strong performance by the Treasury function resulted in capital gains of Rs.142 Mn in comparison to Rs.99Mn reported in the corresponding period last year, which translated to a 44% growth YoY. Income from units was Rs.154 Mn. The Bank has no exposure to trading equities and has not invested in equity funds as at the reporting date.

Total Operating Income of the Bank rose to Rs.2,575 Mn, and represented a growth of 22% YoY. Total Operating Expenses, on the other hand, were well managed and grew only by 17% YoY to Rs.1,899 Mn during the period.

Pre-impairment profits of the Bank was Rs.677 Mn which was a 37% increase YoY. The impairment charge of the Bank was Rs.158 Mn which was only a 20% increase YoY. This contributed to a strong 42% growth in Results from Operating Activities to Rs.518 Mn. Reflecting consistent performance across the group, share of profits from subsidiaries too grew by 36%.

Profit after Tax (PAT) for the period was Rs.253 Mn and represented a 22% growth YoY. PAT was adversely impacted due to the changes in the tax regulations subsequent to the New Inland Revenue Act enforcement. Effective tax rate for the quarter increased significantly in comparison to 1st quarter. This is mainly due to the withdrawal of tax exemptions on profits made out of SLDB and Corporate Debt Instruments invested prior to the tax changes and withdrawal in the notional tax credits.

The Bank’s loans and receivables stood at Rs.72,241 Mn while the deposits base was Rs.69,824 Mn as at June 2018. The Bank’s focus on asset quality continued through a robust risk management frame work and the implementation of rigorous risk management practices. The net NPL ratio of the Bank was 2.07% at the end of the reporting period.

Total CASA (Current and Savings Accounts) grew to Rs.15,798 Mn which translated to an increase of Rs.1,282 Mn over the 1st Half of 2017. The impressive CASA growth that outperformed the market growth rate, was enabled by focused CASA acquisition strategies driven by the Retail, SME and Corporate Banking segments.

The Bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 19.36% as at the balance sheet date.

Despite the challenging macro environment, 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.670 Mn for the period which was a growth of 35% YoY. Total assets of the Group was Rs.123,162 Mn of which 93% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 18.93% as at the balance sheet date.

Business Performance and Strategic Enablers

The Corporate Banking portfolio of the Bank continued to expand during the period under review with an YTD corporate loans portfolio growth of 7%. The premier cash management solution of the Bank, Union Bank Biz Direct continued to strengthen the corporate banking proposition of the Bank by garnering the trust and confidence of some of the top corporates in the country through customised cash management solutions while supporting the portfolio expansion through CASA and fee income growth.

The SME Banking portfolio of the bank continued to grow, aided by greater portfolio rationalisation and better customer segmentation. In line with its commitment to empower and deliver enhanced value to this vital sector, the Bank introduced a range of value added products and services under the proposition themed ‘Union Bank Biz Partner’. The proposition is linked to the business savings/current account relationship of a client and is offered in three distinctive tiers based on the balance maintained in the respective savings or current account. The three tiers namely, Gold, Platinum and Signature offer unique, customised benefits that include preferential tariffs, special interest rates on fixed/savings deposits, tailor-made banking solutions to meet specific business requirements, special fee waivers on business banking services such as telegraphic transfers, letters of credit, import collection bills and foreign exchange transactions as well as dedicated Account Relationship Manager (ARM) services along with affordable access to Union Bank’s exclusive transaction banking technology. While creating value and giving due recognition to the SME clients of the Bank, this enhanced range of services is expected to enable better relationship management with this nationally significant client segment. Union Bank Biz Partner has been well accepted by SMEs and have shown positive returns during the first six months of its launch, enabling the Bank to on-board a sizable number of mid- tier of SMEs.

The retail banking portfolio continued to be strengthened during the period under review with the retail deposits base growing to Rs.45,388 Mn. A focused strategy with enhanced relationship management on identified segments along with aggressive sales efforts refocusing on segment based products enabled the deposits growth. Continuing to instill the habit of savings and encouraging customers to grow their savings for greater stability the Bank once again conducted the ‘Kalin Avurudu Ganu-Denu’ promotion in April 2018. With enhanced emphasis been placed on mortgage backed lending, the retail loans portfolio of the Bank which consists of Personal Loans, Home Loans and Loans against Property recorded a steady growth during the period under review.

The Treasury which consists of Interbank, Fixed Income and Corporate Sales desks continued to perform well above expectations, making significant contributions to the Bank’s bottom line.

Commenting on the 1st half performance of the Bank, Union Bank’s Director/CEO Mr. Indrajit Wickramasinghe said, “The Bank has continued on its steady growth trajectory within the 1st half 2018, recording noteworthy performance in all its key business and profitability growth areas. We will continue to build on this enhanced momentum to reach the envisioned growth objectives of the year, in line with the three-year strategic growth plan set in motion by the Bank at the beginning of this year.”