Union Bank stood resilient despite economic setbacks resulting from the pandemic in 2020 and re-aligned its strategy for recovery and growth, reporting a strong performance during the first quarter of 2021 with favourable returns and increased revenue. However, challenges continued with a third wave hitting in April 2021 adding further limitations to the business growth momentum. Despite these setbacks the Bank continued to maintain consistent performance even during the second quarter and concluded the first half of the year 2021 with a strong core banking performance.
Although the banking sector activities were under pressure in the second quarter amidst travel restrictions etc. that delimited operations, the focused efforts of Union Bank’s operations contributed to this performance in the second quarter. Revenues were impacted by the low AWPLR that prevailed along with the new credit relief schemes introduced by the Central Bank of Sri Lanka (CBSL) for customers affected by the third wave of the pandemic. The relief scheme which came into effect in May 2021 was rolled out by the Bank immediately; offering extensions of capital and/or interest payments to affected customers up to 31st August 2021. The concessions assented relief for customers within the Retail, SME and corporate segments affected by the third wave of the pandemic and included late payment fee waivers, due date extensions and payment flexibilities for credit cardholders as well.
Despite the above, the Bank’s Net Interest Income (NII) during the first half of 2021 was Rs. 2,103 Mn and reported a growth of 4% YoY. The Net Interest Margin improved to 3.44% during the period ended 30th June 2021, compared to 3.23% in the comparative period.
Late payment and other fees were waived for impacted customers until August 2021 in-line with the CBSL guidelines. The Decline in economic activity and import restrictions further impacted fee income. However, the Net Fee and Commission Income of the Bank grew during the first half by 42% YoY. The significant growth in fee income also reflects the impact of the Covid-19 relief schemes granted in 2020, which affected the revenues in the comparative period last year.
Total other income of the Bank declined during the 1st half by 18% YoY to Rs. 527 Mn. This was mainly due to total capital gains including investments in unit income declining by 43% to Rs. 310 Mn. However, exchange gains increased by 117% YoY, largely driven by the exchange rate deflation by 8% and the rate fluctuations during the said period.
Despite external challenges, the Operating Income of the Bank for the period ended 30th June 2021 was Rs. 3,036 Mn and reported a growth of 3% over the comparable period last year. Due to continued focus and efforts on prudent cost management across the bank, the Operating Expenses reduced by 6% YoY to Rs. 1,809 Mn. Pre-impairment profits of the Bank for 1H2021 were Rs.1,227 Mn and reflected a 18% growth YoY.
Due to the challenging economic environment, the Bank continued to follow its impairment models with the same assumptions applied in December 2020. Accordingly, the Bank continued to consider customers operating in risk elevated industries (industries with a significant increase in credit risk) for impairment calculations. Further, the higher weightage applied to the worst-case macro-economic scenario has continued to be applied in the expected credit loss calculations as well. Therefore, while the Bank’s actual credit losses were low, the Bank booked significant provisions during this period to account for the weakened environment, resulting in a 55% increase in impairment charges over the comparative period.
Overcoming the challenges in the external environment, the Bank recorded healthy results from operating activities before all taxes and the share of subsidiary profits amounting to Rs. 791 Mn, which was an increase of 5% over the comparative period. The Profit after Tax of the Bank for the period under review grew by 44% to Rs. 455 Mn highlighting its steady progress during the first half of 2021.
The gross NPL ratio of the Bank reduced to 5.83% by end of the reporting period compared to 6.05% as of December 2020.
Total assets of the Bank stood at Rs. 121,244 Mn as of 30th June. The Bank’s loans and receivables stood at Rs. 70,656 Mn reflecting a 5% YTD growth, while the deposits base was Rs. 85,132 Mn with a YTD growth of 3%. From January to June 2021, average CASA grew by 11% over the comparative period. Efforts of maintaining a healthy CASA inflow was supported by focused acquisition strategies driven by retail, corporate and SME banking segments despite the challenges in movement and restrictions in effect. The CASA ratio of the Bank was 28.5% by end of the reporting period.
The Bank continued to maintain its robust Capital Adequacy, reporting a Total Capital Ratio of 15.88% as at the reporting date.
The Bank’s subsidiaries, UB Finance and NAMAL also continued to be impacted by the external environmental pressures and the Group consisting of the Bank and its two subsidiaries, reported a Profit before all taxes of Rs. 938 Mn for the 1st Half of 2021. The Profit after Tax of the Group in comparison to the corresponding period last year increased by 43%. Total assets of the Group were Rs.127,361 Mn of which 95% was represented by the Bank. The Group maintained a healthy Total Capital Ratio of 16.49% as at the reporting date.
Maintaining healthy liquidity levels and uninterrupted operations amidst challenges, while ensuring employee and customer safety remained key management priorities when operating through the pandemic stricken second quarter of the year. The Bank continued its close engagement with Retail, SME and Corporate customers through branches and relationships managers to identify their unique challenges and provide necessary banking assistance including the efficient roll-out of the CBSL relief schemes, for the much-needed financial ease during these uncertain times.
In line with its strategic plan on digital banking and enhancing its digital prowess during the period under review, Union Bank’s Mobile Banking app was further enhanced and relaunched as ‘UBgo’ and was also linked with the Lanka QR standard to enable a seamless payment experience to its users. Lanka QR integration on the Union Bank Mobile App has enabled fast and secure, cashless payments directly through Union Bank accounts. This was a step in the direction of revolutionizing the digital banking experience of its customers as the Bank plans to continue to invest in and enhance its mobile banking app further to develop this as a key banking channel in future. With continued commitment to enhance technology enabled banking conveniences, Union Bank also introduced the Missed Call Banking service during the month of June as an inclusive, wide-ranging mobile-based banking facility that can be accessed with any type of mobile phone. It is a SMS-based notification service that provides account holders with an instant and secure means of obtaining their account balances on their mobile phone.
While operating as an essential service in the midst of the third wave, the Bank prioritised its focus on continuation of the comprehensive measures implemented to ensure the safety of customers and staff, resulting in stringent hygiene and safety practices across the branch network and Head Office premises while enabling work-from-home facilities to identified staff members to reduce exposure. Continuous access was made available for customers to reach the Bank’s ATM network, online/mobile banking platforms and the 24-hour contact center further enabling a safe and secure banking experience, while strategically identified branches remained operative even amid travel restrictions to facilitate essential banking services.
Commenting on the 1st half performance of the Bank, Director/Chief Executive Officer Indrajit Wickramasinghe said, “The Bank’s growth momentum in the second quarter of 2021 was impacted by the sudden outbreak of the third wave and its resultant impacts on the operating environment. With the development of the third wave, our key priority had to be adjusted once more towards extending the CBSL recommended credit relief to impacted customers in a bid to support them to cope with the continued financial pressures. During this challenging period while managing its bottom line, the Bank remained mindful in maintaining its healthy liquidity position, strong capital adequacy and ensuring the safety of customers and staff as a part of its sustainable business strategy. In the remainder of the year, while providing the much-needed financial impetus to our customers across Retail, Corporate and SME segments we will continue the focussed growth initiatives to drive performance while taking all due precautions to maintain optimum safety levels for our staff and customers.”