Union Bank June quarter records Rs.117mn profit but margins narrow
The Union Bank of Colombo PLC group, which owns a licensed finance company, made a net profit of Rs.117.3 million or 11 cents a share for the quarter ended June 30, 2016 (2Q’16) compared to Rs.36.2 million profit recorded during the same period a year ago, the interim results released to the Colombo Stock Exchange showed.
The June quarter performance was largely supported by non-fund-based incomes such as fee and commissions and trading gains made on its fixed income security investments as the margins between its loans and deposits narrowed during the rising interest rate market.
However, the bank’s loan book expanded by a strong 21 percent or Rs.8.5 billion during the six months to June 30, but the net interest margin narrowed to 2.55 percent from 3.37 percent in December 31, 2015. The bank’s loans have largely been funded by the deposits, which grew by a similar rate of 21 percent or Rs.8.1 billion, but the faster growth in medium-term fixed deposits narrowed the low-cost current and savings accounts (CASA) base from 24 percent to 23 percent during the six months. As of June 30, 2016, the bank on a standalone basis had an asset base of Rs.82.3 billion, an increase of 16 percent. The asset quality has improved as the gross nonperforming loan ratio has come down to 2.90 percent from 3.55 percent in December 2015.
The banking group made lesser provisions in respect of possible bad loans against the same period last year.
Despite the growth in portfolios, the core banking performance had been contained by the narrowing margins as the net interest income has grown only by 7 percent year-on-year (YOY) during the quarter to Rs.658.2 million.
However, the net fee and commission income growth has been strong at 47 percent YOY to Rs.100.1 million.
The net trading income – the realized income earned from the bank’s investments made on fixed income securities – mainly in unit trusts – has increased by 151 percent YOY to Rs.132. 4 million. Other operating income has grown by 163 percent YOY to Rs. 211.2 million. As of June 30, 2016, the bank’s Tier I and Tier II capital adequacy ratios remained at 23.21 percent and 22.78 percent, respectively, well above the regulatory minimums of 5 percent and 10 percent, respectively.
Meanwhile, for the six months ended June 30, 2016, the banking group made a net profit of Rs.234.7 million or 22 cents a share, up 245 percent YOY. As of June 30, 2016, the Unites States-based Culture Financial Holdings Limited held a 70 percent stake in the bank.