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Unity Bank Plc , no doubt , is a metaphorical albatross ; with the stigma of negative equity  in the last few years , the burden has been on the neck of  Mrs  Tomi Somefun , its  CEO   Despite this , she remains undaunted ,battling   its soul to mitigate its investors’ pains and save their investments .   However,   the financial year 2020 has proved to be another  hard nut for her after a relieve and reprieve  authored by  the bank’s  return to profitability ; from every indication, investors pains are by no means alleviated with the bank’s fundamentals and valuation multiples still in  shambles .

The last financial year results   saw virtually all its performance handles southward  ;it sent some signals that the beautician behind the potential bride  has  not gotten the jokers right . Although there was a +28.66% rise in gross earnings in 2019, the upward lift was unsustainable.   In 2020 , as a result of the revenue-damaging effects of the COVID-19 pandemic in that year the FY2020 audited result shows that the lender’s gross earnings dropped slightly by -4.21% from N44.59bn in 2019 to N42.71bn. Its pre tax and post tax profits also slumped seismically by 39% and 38.3% respectively.   Both crashed N fromN3,642 and N3,383b  in 2019 to N2,223 b and N2,086b in2020 respectively .

 But that is just a tip of the iceberg . A  deeper  analysis of  some  issues exposes the gloomy  picture of Unity Bank’s  health position . The management inability to sustain the momentum of the so called return to  profitability being  celebrated by some insiders is now raising questions  . Unity   Bank’s gross earnings have bumped downwards over the last five years as weakness in underlying lending and contingent operations shrunk its top line growth.   


 It is now clear to   some   who   concentrated  on its  return to profitability and its growing asset base  with superfluous optimism   that the return to profit is not an evidence that   a cure all strategy has been discovered  .  That  seems to be farther from the truth  . It   will be very naïve to measure profitability so narrowly in absolute term . From the point of view of investors,  profit is measured against equity, assets and with regards to margins . When all these are considered Unity Bank is just another lemon  investment  .     

  Its pretax margins slumped to    5.2%  in 2020  from 8 2% in 2019 while its  post tax margins followed the same trend to  4.9%  from  7.6% .   Profit margins , indicators  by which revenues are converted to profit are quite disastrous .From the above calculations the bank  got roughly N5.00 from every N100.00 revenue with the balance going for its costs at various levels at post tax level . The only  few attractive things  about this bank  are  its sufficient allowance for bad loans at 300%  and level of bad loans 0.9 %  .These are not even worthy of celebration as they are all outcomes of its book cleaning exercise and restricted loan facilities .   


 The bank is finding it difficult  to create any tangible  wealth as it does not have any meaningful market value with its market  capitalization of  N7.0b   .Moreover , its negative shareholder fund  of N275.41bn in 2020  is terribly putting its potentials on hold . Although its  asset to equity ratio -1.8x is considered  very low  , its   dividend yield stood at  o% ; 54% o f its liabilities are made up of primarily of higher risk sources of funding .  All these attributes   portend ill health for the bank .   

  The bank’s  stock  has been  hunted by extremely low market returns  over years .   .Its stock  underperformed the industry and the market which returned 29.1% and  49.5% respectively  against its 15.4% in the past one year  .Although it PE ratio at 3.4x  indicates investors are willing to  part with more money to acquire its stock ,  its weak  fundamentals are the major drawbacks  . More so ,that it undervalued the   industry  at 4x and the  market at  7.1x  . With its negative shareholder fund its price to book is negative at  -0.04x   against the industry 0.4x  and the market 0.7x making the share to be changing hands at a large discount .In other ,its  book value is above its market value , signifying a total red flag situation

 Unity Bank’s  annual earnings growth  is negative at -3.1%   against industry 14.4% and the market 10.9% in the last five years . In the last one year it registered -38.3%  earnings  against industry and the market  4.9% and 15.7% earnings respectively . Its Return on Equity ,ROE , is 0.0% while its  Return on  Assets is ROA 0.4% ,Both are indications of non performance .

The negative impacts are palpable on its share price movements and value. Its volatile share price over the past three months is  more than 75% of the entire market is a signal of   investors’ poor perception.     On May 10, 2021  , the bank topped  the chart of 15  losers as it  down -8.33% to close at N0.55 despite the fact that the market   maintained a bullish recovery as the trading session  during that  week.   

The question remains, is  Tomi Somefun  really getting her strategy right ?  With the precarious position of Unity Bank Plc. , neither   a  dilettante  nor  merely  an  intellectually curious  manager could turn it around  but  only  those not content to follow, who desire to rewrite the rules of the game ,unafraid of orthodoxy, more inclined to build than to cut , those who absolutely committed to staking out the future first  . To be fair with her , when  she  mounted the mantle of Unity Bank leadership in March , 2015 , the bank was utterly in a bad shape  : stagnant growth, falling market share and declining margins were its major competitive problems starring the her in the far ; in fact , what left was almost a corporate  carcass.   The bank was weighed down by heavy burden of delinquent loans and deleterious macroeconomic environment .

 Without being disingenuous  , she was quite undaunted  . She has made some  frantic efforts to pull the chestnuts  out of  the fire ;     with stomach for emergency room surgery  ,she picked up a knife and started the brutal work of restructuring .The goal was to carve away layers of corporate fat , jettison   underperforming businesses and raise productivity . For the management that goes for restructuring,  return on capital employed, shareholders value and revenue per employee always become their primary arbiters of their performance.  But analysts  believe restructuring does more harm than good . To grow the numerator or net income, top management must have a point of view about where the new opportunities lie ,must be able to anticipate changing customer needs  ,must have invested in building new competencies and so on  . This is difficult when such a top management is under a quick pressure to improve ROI . They reach   out for the lever that will bring the quickest  ,surest improvement in ROI – the denominator . To cut the denominator, top management doesn’t need more than the pencil . This is reason why managers are usually obsessed with the denominator. Denominator management is an accountant short cut to assets productivity. This was exactly what Mrs Somefun led management did .

 That was not the only strategy adopted to bail out the bank from its ill health . Unity Bank adopted a niche approach  in 2018 , identified an area of competitive market advantage  and claimed it  has found a competence in agriculture lending .   It  also claimed to have  warmed its way into a younger deposit-mobilizing demography  allowing it to take advantage demography  of the young national population with 60% of the people in the country having ages between 16 and 35 years  . This has spurred a digital foray allowing the bank to grow service delivery by way of electronic devises  rather than brick-and-mortar branch networks. The bank’s reengineering process has involved going back to the basics by keeping strategy simple and execution intense. This has seen the bank turnaround its net profit at a time gross earnings and net interest income actually declined. 

Nevertheless, the bank’s approach to wriggling from under the rock has been decisive yet bruising as it flattened the level of its business activities while chiselling down capital. The bank’s strategic approaches of differentiation or rebranding and repositioning and cost leadership  as well as focus  or niche financing led to its return to profitability and  helped to stabilize its balance sheet but it has also raised issues of overall corporate sustainability caused by a chasm in its capital   and competency base  .  

 The reality is that  the  above initiatives  ,like a drop in the ocean ,   are yet   to yield much .

      Analysts are not surprised but are blaming the  strategy that delivered its return to profitability two years back . The bank achieved that feat with  the goal of reducing the buck for a given bang rather than increasing the bang for a given buck .  Denominator-driven corporate restructuring programs are more about cutting resources than leveraging resources. An inefficient firm that downsizes, without improving its capacity for resource leverage, will find that productivity improves for a while.

Though its  technological leadership, brand loyalty, distribution reach, and customer service  of such a firm won’t deteriorate immediately, but unless  it  discovers new approaches to resource leverage  by  ways of preserving its technological leadership on a smaller   budget, building brand loyalty with fewer advertising dollars, deepening distribution coverage more cost-effectively, and improving customer service faster than the rate at which additional resources are committed to the task , it will find, in a few months or a few years, that the numerator has shrunk and another round of non elective surgery is required. In such cases  the  firm will continue to ratchet down its resource base until investors locate a new owner with a proven track record of resource leverage. Thus is what this bank is currently facing in the financial year 2020.

What this also suggests is that while resource cutting is not an essentially creative activity, resource leverage is.    Cutting the buck is easier than expanding the bang; thus, organizations prefer the former over the latter. This is the strategy endorsed by Somefun and her predecessors that returned it to profitability ; but this makes success unsustainable . But  a manager , like her    must ask herself   just how much of the efficiency problem  she is  actually working on. If  her  view of “efficiency” encompasses only the denominator, if  she  does n’t have a view of resource leverage that addresses the numerator,  she has   no better than half a chance of achieving and sustaining world-class efficiency .    


The only avenues open to a firm confronting insurmountable  barriers like these  are to redraw industry boundaries so that what is now attractive lies outside the former barriers. This is usually  done by radically shifting the basis for competitive advantage in the industry  or creating entirely new industry space ideally suited to one’s own strengths  .In either case, whether the company can prosper from its ingenuity will depend on whether it can construct unique and non imitable competitive advantages. The bank initiatives above have failed this test . The management of Unity Bank has said it will not play the size game but leverage on its expertise in specific niches; this is laudable but unfortunately impracticable. Niche players will be as successful as Dinosaurs the lack of manoeuvrability  in an intensely competitive digital financial space will squeeze niche market players until they cave in to the market power of their bigger rivals.  

 The true test of bank and its management rests  firmly on its core banking arena.  When it is said that one is a good or an astute banker ,what, in fact is meant is that one is a shrewd lender ,one who lends money safely and profitably . Mrs Somefun is getting the joker right here. Unity Bank Plc increased its loan portfolio to customers by 94.3% to stand at N202.1 billion as of December 2020.

Unity Bank’s loan-to-deposit ratio (LDR) improved in 2020 but was still short of CBN’s statutory rate of 65%.  .The bank’s LDR rose to 56.67% from 40.37% in 2019, this was on the back of a +94.28% growth in loans and advances to customers while deposits from customers rose Y-o-Y by +38.39%  

  Net interest income, however, moved up Y-o-Y by +7.60% supported by a +8.82% increase in interest income. Nevertheless, the bank lost its interest rate battle , as income expense grew faster grew by +9.86% Y-o-Y.  However , her ability to sustain sound asset quality with  a non performing loans ratio of 0.9% as in 2020 ,will be subjected to test in the next few years when the volume given out is expected to have increased and the positive impact book cleaning expires .

The management inability to control costs  is another issue raising serious concerns . The bank saw a significant rise in its cost-to-income (CIR) ratio in FY2020. The bank  CIR rose from 84.3% in 2019 to 91.3% in 2020 which was the highest the bank recorded over the last five years  The major drivers of the rise in operating expense were legal costs, which rose Y-o-Y by +397.27%, and professional fees which climbed by +88.27%.  The  cost structure of the bank would have to come under critical review . A CIR of over 100% is unsustainable and the bank would have to scale back costs in non-critical areas of its operations. Administrative expenses would have to come down as a proportion of income as general and legal costs are wound down.  

    In the financial year 2020  operating expenses  increased by +18.77%    while operating income fell by -15.10% Y-o-Y. The major drivers of the decline in operating income were the bank’s net trading income and foreign exchange gain, which slumped by -1,259.17% and -86.35% respectively. Also, the Bank posted a loss of N4.51bn in securities and trading losses in the year. The indication of these unimpressive performance is a signal for to build competencies with more commitments in critical skills areas .

 This may not be farfetched.  For the bank  to be more competitive it needs to review its strategies .   When a company  is run by managers not leaders ,by maintenance engineer not architect .This is possible when changes are glacial or extrapolation of the past you can maintain your success without any threat to their survival.

However , when faced with the tides of technological, demographic, and regulatory change and order of magnitude productivity and quality gains made by non-traditional competitors  as in the Covid year of 2020  success is eroded or destroyed .

Buffeted by  above forces only few are seem to be in control  of  their own destiny.   The foundation of the past were shaken and fractured when, in all  too  many cases ,  the industrial terrain changed shape  faster  than the top management  could refashion its basic beliefs and assumptions  which markets  to serve ,which technologies  to  master ,which customers to serve and how to get the best out of employees.

       Its dependence on high levels of liquidity associated with the influence of a Board of Directors with top drawer political influence will be inadequate to guarantee sustainability. In an ecosystem speedily consolidating and reinforcing equity capital, banks with weak shareholder funding will quickly find themselves in the jaws of larger competitors

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