Union Bank Plc’s net income fell in the half year while margins are pressured and the coronavirus pandemic has compounded the woes of a lender operating in a low yield environment.
Net income fell by 0.63 percent to N11.01 billion as at June 2020 from N11.08 billion the previous year.
That compares with a 25.15 percent profit growth recorded in 2018, when the yields on short term government were high, according to data gathered by Money Central.
Coming into 2020 and before the outbreak of the coronavirus, analysts had expected revenue (interest income) of Nigerian banks to be pressured to stringent rules by the central bank.
Firstly, banks have been forced to lower interest rates earlier in a bid to meet the LDR requirement.
Secondly, as part of the CBN’s expansionary measures to support the economy in the COVID-19 era, MPR was reduced by 100bps to 12.5 percent.
Union Bank’s interest income was up 6.20 percent to N57.36 billion in June 202 from N54.07 billion the previous; that compares with a 31.45 surge interest income in 2017 financial year, data gathered by Money Central shows.
On October 2019, the Central Bank of Nigeria (CBN) banned non-bank institutions from the Open Market Operations (OMO) auctions in both primary and secondary market, which triggered liquidity squeeze in the treasury market and sent yields tumbling crashing to around 2.42 percent.
The lockdown measures put in place by government to curb COVID-19 crisis did not support loan disbursements, and one of the consequences current market reality is that industry loan growth will be stunted.
Also, assets quality is expected to deteriorate on the back of exposure to oil and gas, manufacturing, and hostility. Early earnings results shows the impact of COVID-19 that led to precipitous drop in the price of oil has deal a great blow on the earnings of oil majors.
Union Bank’s loans and advances to customers increased by 5.63 percent to N581.65 billion in June 2020 from N550.61 billion the previous year.
Deposit from customers was up 12.27 percent to N995.01 billion in the period under review as against N886.26 billion the previous year.
Union Bank and other small mid-sized lenders with weak capital buffers may not have the financial ammunition to fend off the next economic tsunami, and the regulatory environment is becoming unpredictable.
Analysts have warned that Nigeria will take a big hit to revenues and face rising borrowing costs this year as Central Bank of Nigeria (CBN) measures to support the nation’s currency squeeze lenders already hit by fallout from coronavirus and the oil price shock.