IFRS 9-led higher provisions, modest loans...
Acautious approach t owards new lending amid higher costs stemming from rising sour loans and first time impact coming from the adoption of new accounting standards on loan i mpairments appear to have caused Union Bank of Colombo PLC to report lower earnings for the final quarter of FY18.
The bank with assets of just under Rs.126 billion reported earnings of 9 cents a share or Rs.93 million for the October – December period (4Q18) compared to 12 cents a share or Rs.130.4 million earnings reported for the corresponding quarter last year, which translates into a 29 percent decline in earnings.
The bank reported a 23 percent year-on-year (YOY) growth in net interest income to Rs.1.12 billion and the net fee and commission income grew by 19 percent YOY to Rs.260.3 million.
Union Bank launched its credit cards in August last year, and within a period of five months, the company built a portfolio of Rs.243.4 million.
Cards play a vital role in generating fee incomes for an issuer.
Pre-provision operating income of the bank grew by 20 percent YOY to Rs.1.6 billion.
The bank made Rs. 203.7 million provisions for possible bad l oans under the new accounting standard on financial instruments which has a more forward looking impairment method. The provisions for the same period last year was Rs.86.2 million.
Meanwhile, for the full year ended December 31, 2018, the bank provided Rs.543.4 million for possible bad loans, up from Rs.377.5 million a year ago.
For the full year, the bank reported earnings of 47 cents a share or Rs.517.8 million, barely changed from the previous year. The net interest income for the year was Rs.4.47 billion, up 21 percent YOY.
The bank gave Rs.4.3 billion of new loans recording an increase of 6.0 percent and raised deposits of Rs.9.0 billion recording an increase of 12.8 percent. The subdued growth in loans reflects the adoption of a cautious approach by the bank amid general decline in the industry asset quality. The bank’s gross non-performing loans ratio rose to 3.68 percent from 2.69 percent in December 2017.
If not for the cautious approach, Union Bank operates with comfortable level of capital and liquidity, which could have otherwise used for aggressive lending.
The bank’s net interest margin was 2.98 percent, lower than the industry average.
Commenting on the performance of the bank in an earnings release, Director/chief Executive Officer of Union Bank Indrajit Wickramasinghe stated, “2018 was a year that placed heavy demands on the banking industry which faced multiple headwinds in the economic and political spheres. With cohesive strategic realignment, Union Bank remained resilient and showcased impressive progress and financial performance with outstanding growth in its core banking operations.
“Our aim is to further strengthen our position as one of Sri Lanka’s fastest growing banks and become the preferred retail/ SME and transactional bank by 2021, a virtue that will be built on trust and partnerships.
“We will build on this growth and carry the momentum during the year 2019, with focused commitment on meeting the strategic growth objectives of the 2nd year of our three-year strategic growth plan.” As of December 31, 2018, Culture Financial Holdings Limited held 70 percent stake in Union Bank being its single largest shareholder.