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Union Bank: NOT YET OUT OF SLUMBER

At an event held on Saturday, April 1st, 2017, at the Lagos Oriental Hotel, Lekki, Lagos, Union Bank, tagged one of Nigeria’s most-respected financial institutions by the organizer , emerged winner in the Best Rebranding category at the same event .The award was a recognition of the Bank’s new brand identity unveiled in October 2015 by the management .It had previously won two international Gold awards at the Transform Awards MENA 2016 for ‘Best Brand Development to Reflect Changed Mission / Vision / Positioning’ and ‘Best Visual Identity from the Financial Services Sector’.

Highly enthusiastic at the said event, the Head of Corporate Affairs & Corporate Communication, Ogochukwu Ekezie-Ekaidem, noted thus : “ Our brand identity is a critical piece of Union Bank’s overall transformation ; the bank’s award winning identity gives us even more reasons to celebrate while reflecting our proposition to make banking simpler and smarter for our customers”. Indeed, the award reechoed the memory of the old days of big ,strong and reliable of the old brand of Union Bank

.While above efforts are worthy and rationale, however, since the bank was rebranded till now, it is yet to generate commensurable values and its shareholders are mostly at the receiving end ; this is going by its roller coaster of lethargic performance in the last few years. With the release of the full year result for 2020 , the red ink blotting the progress of Union Bank PLC was dabbed off leaving only promises of a perpetual stay within the black lines of profitability . It is with this level of expectations that investors and indeed the financial world waited to see UBN’s result for 2021 . But the bank disappointed them with uninspiring results from the first Quarter, 2021. .Also , practically all other performance metrics looked down in the third quarter of the year except the gross earnings that increased marginally . Its Q3 2021 -audited results for the period ended September 30th, 2021 show its gross earnings grew merely by 1.4% to N123bn from N121bn in the previous quarter , profit before tax declined by 8% to N14.2bn.while profit after tax declined by 11% to N13.4b .

But the above does not even depict its real and comprehensive picture of the bank in the third quarter of 2021 .A detailed analysis of the bank book revealed a dangerous slide on. its fortunes . The figures of its profitability shown above are incomplete without the total comprehensive income .The bank subsequently ended Q3 with N7.6 billion or 55.5 percent drop against N17.1 billion in the corresponding period of 2020 .This was due to a gross expense of N3.1billion sustained from its discontinued operations as against N1.9 billion income from it and a N6.2 billion loss from financial assets in the other comprehensive segment of its profit and loss account ..Against this total comprehensive income , the bank ordinarily would have recorded N15.4 billion as its profit for Q3 ,2021 , little less than N15.8 billion registered last year , if not for the injuries in the discontinued and other comprehensive income segments .Though its earnings have grown by 13.3% per year over the past 5 years , however , it has had negative earnings growth of -1.3% over the past year compared to the sector’s or industry average of 10.5%

.INEFFICIENCY AS THE MAJOR HEADACHE

The source of worry is its inefficiency and the management is allegedly the major culprit . Size has nothing with efficiency .This is a hard fact ; just as bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence . The argument is that there are so many examples of companies that even overcame seemingly insuperable resource handicaps and built positions of global leadership with sound management in place

.OUTRAGEOUS COST TO INCOME RATIOS

Since Union Bank was taken over from the old management whose managerial malfeasance threw the bank into distress mode, it has not been the same again . A proof to justify this allegation is the management obvious inability to control costs A major riddle yet to be resolved by Union Bank could be situated in its operating activities where it has not been able to either boost revenues high enough or douse the fire from its operating costs hitting the roof top in the last few years . In Q3 ,2021, the bank’s operating income inched up 2 percent to N71.2 b from N69.5b , its Net impairment write-back on other financial assets grew by 11percent to N340m from N306m and the bank’s operating Expenses increased by 3.3% YoY to N55.3b from N53.6b reflecting higher non- discretionary regulatory costs as well as depreciation and amortization costs from technology spent .However , this scenario above may be deceptive . The bank’s Cost to income Ratio (CIR) increased by 50bps from 77.1% in 9M 2020 to 77.6% in 9M 2021 This is where the bank slaughters its fortunes and terminates the hope on its much needed efficiency . In a layman’s term it indicates the bank is converting only 23 kobo to profit from every N1.00 made as revenue . This is a tradition not accidental . Cost-to-income ratio is the measure of the costs of running a company in relation to its operating income. The higher the ratio, the greater the risk of zero profitability. Between 2015 and 2019 it ranged from70.70%,66.20% ,63.00%,82.90% to 74.10% while its three and five years averages were 73.33% and 71.38%

But the reason for this is clear .: when a leadership too often assumes that competition is limited to market share with little attention to competition for foresight, competition to build competencies, and competition to shape industry evolution , the drive for industry leadership is sacrificed . To avert such a disaster a proactive leader often engages in both extra-market, or non-market and market competitions . This is no doubt the managerial lacuna expected to be filled if any sound management is put in place to move Union Bank forward

WHEN SHAREHOLDERS ARE AT THE RECEIVING END

From every indication , the problem with Union Bank allegedly is lack a capable hand or strategic leadership to efficiently turn it around and its shareholders are at the receiving end. Banks have five constituencies to serve and from these constituencies one can decipher its performance and health. These include the community at large which expects to be good corporate citizen surplus units from which it borrows, deficit units which borrow it and the regulatory authorities who interest is to ensure that the bank does not take excessive risks , For all these , Union Bank performance does not raise any eyebrow . However , it is for the fifth constituency , the shareholders , which requires adequate or maximum returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources as and when need , that its performance is miserable .This comes clearly from the perspectives as its profit margins , returns on equity and assets , dividend yields ,earning per share and market values . These are all rendered less impressive and less competitive by the bank’s outrageous costs and its risk management.

WEAK ROAE

Return on average equity (ROAE) is a financial ratio that measures the performance of a company based on its average shareholders’ equity outstanding ; its Return on Average Equity, ROAE, declined by 0.6 percent to 8.2% in Q3 ,2021 compared 8.8% in December 2020 ; this is very low making less than N10 for its shareholders from every N100 worth equity employed and a reflection of its weak profitability ; ROE is a measure of the profitability of the firm and helps investors gauge how their investments are generating income .Between 2015 and 2019 its ROAE ranged6.03% ,5.94% , 4.23% ,6.24% and 10.20% .However its three and five years averages were 6.89% and 6.53% respectively

.ROA TOO

This ratio is modest but for any observer in the field of finance .It ranged between ,1.35% 1.34%,1.08%,1.26%,and 1.30% from2015 to 2019.However ,this was not because of better use of its but the massive clean up of its books in those years .Though the bank clean up still continues, the pace has slowed down and its returns on assets are not that impressive as in those years of massive asset cuttings . Its Return on Assets ,ROA , follows the same trend as its ROE in 2021 highlighted above ; it was down by 0.2% to 0.9% to 1.1% in the period under review This is very low and a percentage return on assets like this indicates that the company is not making enough income from the use of its assets making less than one kobo from every one naira assets put to work . A situation like this t may indicate an unwise investment on the part of management , inefficient use of company assets or a problem with its strategic management In other words, the company receives less than one percent return or less one naira on every N100 it invests in assets

EARNING PER SHARE AND PROFIT MARGINS.

This weak earnings affected its profitability and also manifests in its Earnings per share and net profit margins ; .it recorded 53 kobo compared to 54 kobo a year ago per share .The bank EPS were 0.49,0.53,0.45,0.61and 0.84between 2015 and 2019 respectively .However , its three and five years averages were 0.63 and 0.58 . . The figures serve as indicators of a company’s profitability.

NET PROFIT MARGIN

Its net tax margins 12.5 and 13 percent between the two periods Net profit margin is the ratio of net profits to revenue for a company. The net profit margin illustrates how much of each naira in revenue collected by a company translates into profit. Between 2015 and 2019 its net profit =margins were 12.13% 12.16% ,7.94%, 12.72% and 15.24%

RIDICULOUS DIVIDEND YIELDS AND PAYOUT

In the light of the above analysis its dividend yields are ridiculous and negatively impacted on its share price and market values . UBN’s current dividend yield of 5% is higher than the bottom 25% of dividend payers in the NG market (3.09%). but this dividend (5%) is low compared to the top 25% of dividend payers in the NG market (7.27%).UBN’s This unattractive yield that bank could deliver put off investors and affects their perception of its stock value .

The above lethargic returns and profitability are clearly negatively impacting on its stock value perceptions from investors .UBN’s current trading price represents a P/E of 5.9x on its 2020 FY earnings and 0.6x on its book value per share relative to the sector 3.5 x P/E and its 1.27x P/BV which in line with the industry average confirm its weak ‘Residual Income and price multiples and the reason why investors are reluctant to change their weak perception of the stock’s value

SHARE PRICE MOVEMENTS

UBN closed its last trading day (Friday, November 12, 2021) at 5.00 NGN per share on the Nigerian Stock Exchange (NGX). Union began the year with a share price of 5.35 NGN but has since lost 6.54% off that price valuation, ranking it 123rd on the NGX in terms of year-to-date performance. UBN under performed the industry which returned -12.3% over the past year and under performed the NG Market which returned 15.9% over the past year.Union Bank Nigeria is the 37th most traded stock on the Nigerian Stock Exchange over the past three months (Aug 16 – Nov 12, 2021). UBN has traded a total volume of 98.7 million shares—in 2,534 deals—valued at NGN 497 million over the period, with an average of 1.57 million traded shares per session. A volume high of 13.7 million was achieved on October 22nd, and a low of 37,427 on August 24th, for the same period.

This is raising some critical questions : First , is the bank still being hunted by its past crisis that led to its acquisition by the present owners ? To some analysts ,this view may not be tenable looking at the bank from its growing deposits on yearly basis which is a factor of confidence from the public . That means the brand equity of this bank is still positive .Moreover , with billions of naira spent on rebranding, its brand equity is expected to have improved over years . .Another line of thinking is its current size compared to its pre-acquisition size ; but nobody would have expected it to generate profit of a first tier bank which old Union Bank belonged .But one thing is clear : from every indication ,the bank has enough resources to perform if handled by a better management particularly with current robust balance sheet.

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