During the 9th Annual General Meeting of Unity Bank Plc to review activities for the financial year ended December 2014, an opportunity was provided for the bank to commend all critical stakeholders for returning the bank to the path of profitability and also sustaining the bank on a journey that started nine years ago with the coming together of nine banks during the Soludo-era consolidation exercise.
Among the legacy banks that came together to form Unity Bank are Bank of North, Intercity Bank, Centerpoint Bank, First Interstate Bank among others. That the bank was able to face the integration challenges involved in that unique merger is a credit to those that have successfully steered the bank to today.
As at December 31, 2014, Unity Bank operated through a brick and mortar network of about 250 branches and cash centres with a total balance sheet size of N413 billion. The bank’s market reach is also complemented by alternative channels which include about 270 Automated Teller Machines and 1070 PoS terminals.
These channels are manned by about 2,331 members of staff. During the review year, the bank embarked on a restructuring exercise which comprehensively covered virtually all aspects of the bank’s operations including people, processes and products. It moved to re-brand itself and emerge with a more enthralling image among its major stakeholders. It would appear that in all critical areas of measurement results have improved significantly.
Earnings and Profitability Measures
In 2013, Unity Bank reported a loss after succumbing to adverse money market condition and adverse risk management. In 2014 however, the picture changed drastically. To start with, it reported a gross earnings of N77 billion, up from N62 billion in 2013. Interest income on loans and other investment products accounted for N63 billion or 81% of this total. Interestingly this showed Unity Bank as one of the top 3 in terms of reliance on interest related sources among the banks within our 2014 Review.
To the bank’s credit however, it succeeded in efforts to mobilise low cost funds as interest margin increased from 58% to 73%. Another area the bank proved more effective relative to the preceding year was the level of impairment charge required to met prudential standard. Only N15.3 billion as against N21.7 billion previous year was expended during the year. The restructuring measures undertaken also helped to bring down operating expenses from N52 billion to N31 billion in a manner that reflected substantial efficiency gain.
Ultimately, these positive outcome in earnings and cost efficiency resulted in a remarkably improved profit after tax of N10.6 billion in 2014 against a loss of N23 billion in the preceding year. Accordingly return on average equity improved to positive 20% from a negative of 57%. Earnings per share also turned to positive of 9k per share.
Capital Adequacy Measure
During the review period, Unity Bank happened to be one of the few that successfully approached the capital market to raise capital. In fact, it did a rights issue which fetched additional funds and helped to strengthen the capital base. In 2014 shareholders fund stood at N76 billion as against N28 billion a year earlier. This exercise made significant impact on the adequacy of capital available for the bank to do its business.
Using Basel 1 measure, Risk weighted asset ratio was estimated at 24%, up from 10% previously. However, the Basel II measure which adjusts for good will and intangibles including deferred tax yielded a regulatory ratio of just 2%. This suggests that bank is substantially short on the amount of capital required to prudently prosecute its business. A combination of further balance sheet restructuring and additional capital may need to be embarked upon to satisfy Basel II requirements.
In 2014 financial year, Unity Bank moved to increase earnings by expanding loan portfolio in the face of pressure on margins imposed by tight money market conditions. Net additions to loan portfolio was N40 billion which took the total figure to N266 billion at end of the year. Although non-performing loan ratio declined substantially from 26% to 18% the quality implied by the ratios is very poor. It turned out to be worse figure reported in the industry in 2014 just as was the case in 2013.
Notwithstanding the remarkable improvement made to clean the risk assets portfolio more and sustained efforts need to be made to achieve desired level of quality.
Deposit Mobilization and Liquidity Risk
In 2014 the tight money market affected Unity Bank’s ability to generate deposits required to create further liquidity in the system. A number of its liabilities generating products appeared weak. Accordingly customer deposit liabilities (including amounts due to other banks) declined from N303 billion to N277 billion. Other accountsalso moved in the negative direction to N14 billion. Analysts believe that some type of relationship exists between bank’s ability to collect