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Union Bank of Nigeria’s Focus on Nigerian Business Yields Early Benefits



Union Bank Board Appoints Emeka Okonkwo As CEO; Emeka Emuwa to Retire After 8 Years Brandnewsday

…as topline Shrinks Despite Significant Revaluation Gains

Union Bank of Nigeria (UBN)’s topline slightly decreased by 3.75% YoY to NGN166.55bn in 2020FY on the back of a downtrend in interest income and fees. Decline in Interest income by 3.34% YoY to NGN113.16bn (vs. NGN117.07bn in 2019FY) was driven by a drop in investment securities as a result of the low-interest rate environment and decline in asset yield during the year.

Also, despite the rapid growth in the Union Bank’s digital footprint, e-business income and account maintenance fees dragged fees and commission income down by 4.61% YoY to NGN14.27bn. Nevertheless, non-interest income increased by 3.86% YoY to NGN44.48bn supported by FX revaluation gains which grew by 368.71% to NGN3.82bn. Gains (+104.57% YoY) on disposal of fixed income securities also contributed to the growth in non-interest income.

Union Bank Board Appoints Emeka Okonkwo As CEO; Emeka Emuwa to Retire After 8 Years Brandnewsday

Emeka Emuwa, CEO |

We expect the growth in trading gains to be relatively muted this year as yields tick up while FX revaluation gains are expected to moderate as we do not envisage as much devaluation of the Naira as occurred last year. Outlook for interest income is however positive given the current uptrend in interest rates and the bank’s anticipated growth in interest-earning assets.

Divestment to Significantly Boost Bottom Line in 2021FY

Union Bank’s net interest margin remained weak at 4.80% as against 5.80% in 2019FY despite the decline in cost of funds by 140bps to 4.20%. Increased traction on the bank’s digital channels supported retail deposit mobilization efforts leading to a 27.61% YoY growth in deposits to NGN1.13trn, composed mostly of low-cost funding. The bank’s operating expenses, however, increased by 10.17% owing to higher regulatory charges (AMCON Surcharge), software maintenance expenses (to support digital channels and support growth in transactions), and (one-off) Covid19 donations.

In spite of reversals of the impairment charge, the cost to income ratio (CIR) climbed 132bps to 75.42% from 74.10% in 2019FY. Loss from discontinued operations dragged profit after tax by 6.05% to NGN18.67bn (vs. NGN19.88bn in 2019FY). We note that the bank’s divestment from its UK subsidiary- in line with its strategy to focus on Nigeria- is still ongoing. We expect a moderation in OPEX growth as one-off items such as covid19 donations are not expected to recur. Furthermore, sustained growth on digital channels should continue to support a decline in the cost of funds via low-cost deposits.

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Our projections assume that the sale of the UK subsidiary will be concluded this year and that should significantly boost bottom-line performance.

Asset Quality Maintains Solid Footing

Union Bank was able to grow its gross loans by 23.76% to NGN736.71bn in 2020FY despite the fragile macroeconomic environment. This combined with a decline in the non-performing loans by 15.29% YoY helped moderate the NPL ratio to 4.00% (vs 5.84% in 2019FY) indicating an improvement in the asset quality. Furthermore, the proportion of Stage 2 Loans to Gross Loans also declined to 19.85% from 23.54%.

We are quite pleased with the bank’s credit risk management framework and we do not envisage any significant threats to asset quality over the near term. We however think that the bank needs to deploy more risk assets in order to meet up the minimum LDR requirement so that funds are not tied down in restricted deposits which are costly but yield no interests. Effective CRR currently stands at 31.65% (against the prudential guideline of 27.50%) while LDR is at 61.51%.


We project an EPS of NGN0.88 and target P/E to 9.00x to reflect the bank’s positive outlook. This produces a Target Price of NGN7.92, with a upside potential of 49.41%. Thus, we recommend a Buy

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