Unity Bank Plc – Profitability Improves; LDR Still Low At 29.15% in H1 2019

Wednesday, July 31, 2019 1:30PM / Proshare Research

Highlights

Gross earnings grew by +17.5%
Operational expenses(OPEX) fell by -11.95%
Shareholders fundremained negative
Profit before tax grewby over +90%
Loans and advances havegrown steadily
Customer deposit hasfluctuated over time, perhaps reflecting anxiety
LDR has a low base of 29% for Q2 2019 (24% for Q1 2019) as againstthe statutory minimum of 60% by September 2019

BankPumps Earning Machine in Q2 2019, as OPEX Falls

Unity Bank Plc has released its Q2 2019unaudited results to the Nigerian Stock Exchange, NSE. The bank sustainedconsistency in growing gross earnings as it recorded +17.5%growth in H1 2019 to close the half year period with a gross earning ofN20.55bn as against N17.49bn in H1 2018.

The bank’s operational expenses fell by -11.95% to N9.15bn in H1 2019 from N10.39bn in H12018. The drop in OPEX reflected cost reduction measures put in place by thebank’s management, the efforts at smothering cost has yielded positive resultsand supported effort at a bank turnaround.

Net Interest Income, however, dropped by -4.25%. The 55.35% growth recorded in Interest Expensecontributed to this drop. Also, the +85% increasein debt and borrowed funds contributed to the decline recorded in Net InterestIncome.

Chart 1 Gross Earnings, Net Interest Income and OPEX Q2 2018-Q2 2019

Source: Unity Bankunaudited Q2 Accounts 2019

Profitability

The bank’s pre-tax profit grew significantly by +96.3% in H1 2019 while its Q-o-Q growth wasrelatively low with +4.1% growth recorded.The bank’s PBT rose to N1.05bn in H1 2019 from N536m in H1 2018.

Chart 2 Profit Before Tax Q2 2018-Q2 2019

Source: Unity Bankunaudited Q2 Accounts 2019

Similarly, profit after tax (PAT) grew by +96.3% which is reflective of the growth in itspre-tax profit as it recorded N968m PAT in H1 2019 compared to N493m in H12018.

Chart 3 Profit After Tax Q2 2018-Q2 2019

Source: Unity Bankunaudited Q2 Accounts 2019

Balance Sheet Blues

Total Assets and Shareholders’ Fund

The bank’s total asset grew by +36% inH1 2019 as it glided up from N196.75bn in H1 2018 to N267.79bn in H1 2019.However, negative shareholder fund recorded by the bank as a result of poorlegacy loans written-off continue to plague its fortunes. Its shareholders fundwas -N243.15bn in H1 2019 as against - N240.53bn in H1 2018; reflecting, anegative rise of +1.09%.

Chart 4 TotalAssets/Shareholders Fund Q2 2018-Q2 2019

Source: Unity Bankunaudited Q2 Accounts 2019, Proshare Research

Unity Bank’s loans and advances have been grownsteadily on a quarterly basis while customer deposits have fluctuated. Despitethe Q-0-Q drop in the bank’s deposits in Q2 2019, it loans and advances grewover the period.

The bank’s Loan to deposit ratio (LDR) alsocontinued to grow Q-0-Q and in tandem with the growth in the bank’s loans andadvances. The bank’s LDR stood at 29.15% in H1 2019 compared to 4.89% in H12018.

However, the current LDR recorded is remainsextremely low relative to the minimum statutory LDR of 60% set by the industryregulator and which is set to take effect from September 30, 2019.

Chart 5 CustomerLoans and Deposits Q2 2018-Q2 2019

Source: Unity Bankunaudited Q2 Accounts 2019, Proshare Research

Chart 6 Loan-to-Deposit Ratio (LDR) Q2 2018-Q2 2019

Source: Unity Bankunaudited Q2 Accounts 2019

Peer Comparison: Tier 2 Banks H12019 Price Performance

A review of the tier 2banks H1 2019 price performance mirrored that Union Bank of Nigeria Plc topped with 22% return. Thisis closely followed by Sterling Bank and Wema Bank Plc with 16% and 5% returns respectively while Unity Bank Plc recorded the least with -39% negative return.

Chart 7 Share Price Performanceof Tier2 Banks Listed on The NSE H1 2019

Source: NSE, Proshare Research

Table 1 Share price Performance of ListedTier 2 Banks on The NSE

Bank	31-Dec-18	28-Jun-19	H1 (%) Chg
UBN	5.60	6.85	22%
STERLNBANK	1.90	2.20	16%
WEMABANK	0.63	0.66	5%
FCMB	1.89	1.63	-14%
STANBIC	47.95	40.25	-16%
FIDELITYBK	2.03	1.70	-16%
ETI	14.00	11.00	-21%
UNITYBNK	1.07	0.65	-39%

Source: NSE, Proshare Research

Appendix

Unity Bank Statement of Financial Position Highlight (N'm)
	Q2' 2019 (N'm)	Q2' 2018 (N'm)	% change
Loans & advances	70,617	12,782	452.47%
Total Asset	267,790	196,751	36.11%
Customer Deposits	242,220	261,459	-7.36%
Total Liabilities	510,939	436,831	16.96%
Shareholders' Fund	(243,149)	(240,526)	-1.09%

Unity Bank Key Metrics Highlight (N'm)
	Q2' 2019	Q2' 2018
Net Interest Margin	14.22%	8.06%
Yield	25.87%	18.78%
Cost of Fund	3.57%	4.76%
Return on Asset	0.59%	0.82%
Cost of Risk	4.27%	1.66%
Cost to Income	95.10%	89.69%
Liquidity	33.85%	36.84%
Earnings Assets/Total Assets	61.89%	73.99%
Loan to Deposit	4.95%	29.15%
Low Cost Deposit	70.52%	71.25%
Interest Income/Gross Earnings	80.54%	84.06%
Non Interest Income/Gross Earnings	19.46%	15.94%

Unity Bank Fundamental Analysis (N'm)
	Q2' 2019	Q2' 2018	% change
Earnings Per Share (EPS) (kobo)	17.99	9.16	96.33%
P.E (x)	3.61	10.58	-65.87%
PBT Margin (%)	0.05	0.03	67.14%
PAT Margin (%)	0.05	0.03	67.14%
Net Asset Per Share (N)	(21)	(21)	-1.09%
ROA%	0.79%	0.55%	43.85%
ROE %	-0.87%	-0.45%	-93.68%