TheCable

Union Bank of Nigeria Plc reaped a windfall of N17.9 billion from net trading gain in the first quarter (Q1), which powered an outstanding growth of 127.6 percent in after-tax profit to N12.6 billion for the quarter.

The records are contained in the Q1 financial report of the bank for the period ended March 2023, which shows weakness in interest margin being more than remedied by exceptional growth in non-interest earnings.

The net trading income, arising from mark to market gains on fixed income securities, represents a high jump of more than five and half times over the corresponding figure of N3.8 billion in the preceding financial year.

It covered slacken performances of other income lines and spurred a top record growth of 122.7 percent in non-interest income quarter-on-quarter to N25.6 billion at the end of Q1.

The strength from net trading income is boosting the bank’s operating numbers for the second year, having recorded a leap of 173.3 percent to N23.6 billion at the end of the 2022 financial year.

The challenge of low interest margin in Q1 stems from a major increase in cost of funds during the period. Compared to an increase of 26.6 percent in interest expenses at the end of 2022, cost of funds sped up to almost 64 percent quarter-on-quarter to N29.8 billion in Q1.

Mudassir Amray, the bank’s managing director/CEO remarked that the Q1 saw an increase in new-to-bank customers across different regions, swelling the deposit portfolio by about N150 billion to N1.63 trillion.

Interest earnings failed to grow as rapidly as interest expenses over the same period. At N39.6 billion, interest income for the quarter grew by 25.6 percent, a slowdown from 29.5 percent increase at the end of 2022.

Interest expenses, therefore, grew two and half times ahead of interest earnings in Q1, which led to a drop of 26.6 percent in net interest income to N9.8 billion at the end of the quarter.

Further pressure came from net impairment charge for credit losses, which rose from only N375 million in the same period in 2022 to over N2 billion in Q1.

Net interest income after impairment charge for credit losses went down by 40.3 percent quarter-on-quarter to N7.7 billion at the end of the Q1.

The challenge to the bank’s management is that interest earnings failed to grow well enough to meet the increases in interest expenses and loan impairment charges in Q1. This development stands in the way of converting increases in interest income into profit in the current year.

The major upturn in net trading income provided the singular development that changed the bank’s earnings story in the quarter under review. It made the difference between the drop in net interest income and an increase of 32.2 percent in operating income to N33.3 billion at the end of the quarter.

The bank’s management tried to maintain stringent controls over operating expenses in Q1, but it could not achieve the record of last year when total operating cost closed flat at N79.7 billion.

At N19.9 billion at the end of Q1, total operating expenses grew by 10.4 percent quarter-on-quarter, a moderated growth, however, compared to an outstanding growth of 50.9 percent in gross earnings.

Gross income amounted to N66.3 billion for Q1, driven by non-interest income that accounted for 38.6 percent — up from 26.1 percent in the same period in the preceding financial year.

Operating cost margin went down from 41 percent in the same quarter in 2022 to 30 percent at the end of the Q1 of 2023. This reflects the ability to earn the naira of revenue with a lower operating cost than in the preceding year.

The boost in non-interest income and the cost saving from operating expenses are the two legs upon which Union Bank’s elevated after-tax profit of N12.6 billion in Q1 is built.

It is a high jump from an after-tax profit of N5.5 billion in the first quarter of 2022.