Union Bank continued to focus on its prudent cost and portfolio management strategy to remain resilient amidst a volatile macro-economic landscape that prevailed through the third quarter of the year.

The Covid-19 outbreak weakened the country outlook substantially and affected the overall business landscape of the country. Amidst a challenging economic landscape, the Average Prime Lending Rate (AWPLR) dropped by approximately 400bps YoY while the Treasury Bill rates continued on a downward trend during the period under review. In line with directives of the Central Bank, Union Bank implemented a downward revision of interest rates on its various lending products including credit cards. The Bank took measures to provide loans at concessionary rates for Working Capital requirements of SMEs and exporters by participating in the CBSL credit schemes including the Saubhagya Covid-19 Renaissance Facility.

In a backdrop where the negative impacts of Covid-19 on the economy, businesses and consumers continued to weigh down on the banking industry, the Bank focused on continuing the Covid-19 related benefits schemes granted to its customers in a bid to support their financial recovery while focusing on maintaining business operations in compliance with health safety guidelines set by health officials to ensure safety of staff, customers and other stakeholders.

Amidst mounting challenges, Union Bank increased its liquidity buffers on a prudent basis and has been able to maintain a strong excess liquidity position. During the period under review average fixed deposits remained stable whereas average CASA ended at Rs.23, 805 Mn, with an increase of 18% over the comparative period.

As a consequence of the banks policy to support its customers during these tough times and a decline in interest rates, its Net Interest Margin (NIM) declined from 3.8% to 3.3% over the comparative period. Late payment fee and other fee waivers provided in line with the CBSL guidelines aimed at supporting the customers affected by the pandemic, alongside a decline in economic activity, caused a reduction of the overall fee income by 25% over the comparative period.

The Treasury performed notably within the period under review, recording impressive trading profit/capital gains with a significant YoY increase of 108%. Other Operating Income of the Bank increased on the back of exchange rate deflation during the said period.

Amidst the challenging environment, the Operating Income of the Bank for the quarter was Rs. 1,692 Mn, and reduced by 3% over the comparative quarter. The Total Operating Expenses were prudently managed through bank-wide cost management initiatives and reduced by 5% QoQ to Rs. 941 Mn. Consequently, Pre-impairment profits of the Bank were Rs. 751 Mn for the quarter and was similar to that of the comparative quarter. While the Bank’s actual credit losses were low, the Bank recorded significant provisions through management overlays to account for the deteriorating environment, leading to a 31% QoQ increase in impairment charges. The entire day one loss on account of Covid-19 moratoriums was recorded under the impairment charge as per the non-substantial modification method which is in line with the Sri Lanka Accounting Standard – 9 (SLFRS 9).

Against this challenging macro-economic backdrop, the Bank recorded subdued Results from Operating Activities of Rs.470 Mn a decline of 12% over the comparable quarter. The operating environment for the Bank’s subsidiaries, namely UB Finance and NAMAL was also very challenging. Due to a drop-in tax rates and prudent management of reserves, the Bank including its share of ownership in its subsidiaries was able to maintain its PAT at the comparative quarter levels.

YTD Operating Income of the Bank was Rs. 4,643 Mn and was similar to that of the comparative period. The Total Operating Expenses were prudently managed through bank-wide cost management initiatives and reduced by 4% YoY to Rs. 2,855 Mn. Consequently, Pre-impairment profits of the Bank were Rs. 1,787 Mn for the period and indicated a 7% growth over the same period last year. While the Bank’s actual credit losses were low, the Bank recorded significant provisions through management overlays to account for the deteriorating environment, leading to a 59% increase in impairment charges over the comparative period. The entire day one loss on account of Covid-19 moratoriums was recorded under the impairment charge as per the non-substantial modification method which is in line with the Sri Lanka Accounting Standard – 9 (SLFRS 9).

Against a continuously challenging macro-economic backdrop, the Bank recorded subdued Results from Operating Activities of Rs.1,226 Mn YTD, a decline of 7% over the comparable period. The operating environment for the Bank’s subsidiaries, has also continued to be very challenging. Due to a drop-in tax rates and prudent management of reserves, the Bank including its share of ownership in its subsidiaries was able to increase its PAT by 3% YoY. Total comprehensive income for the Bank YTD was Rs.812 Mn. Owing to external pressures and continuous deterioration of macro-economic conditions since March this year, the gross NPL ratio of the Bank was reported as 5.48% by end of the reporting period compared to 5.03% as of last year. The Bank’s prudent approaches towards managing portfolio quality proved favourable in containing NPLs even within a weakened economic landscape.

Total assets of the Bank stood at Rs. 122,291 Mn as at 30th September. The Bank’s loans and receivables stood at Rs. 71,333 Mn YTD while the deposits base was Rs. 81,958 Mn and expanded by 7% during the period.

The Bank continued to maintain its capital adequacy ratios well above the regulatory requirements and reported a robust Capital Adequacy with a Total Capital Ratio of 16.26% as at the reporting date. Union Bank’s robust liquidity position and stability were further affirmed by Fitch Ratings in the latest ratings release in 2020 which confirmed the current rating of the Bank.

The Group consisting of the Bank and its two subsidiaries, UB Finance Company Limited and National Asset Management Limited reported a Profit before all taxes of Rs. 1,306 Mn for the period. The Profit after Tax of the Group in comparison to the corresponding period last year declined by 5%. Total assets of the Group were Rs. 129,008 Mn of which 95% was represented by the Bank. The Group maintained a healthy Core Capital Ratio of 16.41% as at the reporting date.

During the period commencing from April 2020 to 30th September 2020, the Bank had approved debt moratoria under the CBSL recommended debt relief scheme providing extensions for repayment of capital and interest on loans granted. Loan facilities were granted with payment extensions providing relief to customers to navigate during these challenging times. Amongst the schemes that were considered for moratoria are Loans and Leases, Overdrafts, Pawning and Trade Finance facilities.