Union Bank growth hits profit margin

Union Bank, has announced its results for the period ended June 30 which reveal commendable growth in both deposits and advances, with a growth of 30% in deposits, from Rs. 7.7 b in June 2007 to Rs. 9.99 b in June 2008, and a growth in advances of 42%, from Rs. 5.4b in June 2007 to Rs. 7.7b in June 2008. For this comparative period, the sector had grown only by about 12.5% in both categories of business development.

The Bank’s net NPL ratio is the lowest in the industry, at 1.16%.

Bank’s Director/CEO, Mahendra Fernando, said, “We are very pleased with the growth in the two main categories of business development, which have been achieved against the backdrop of a perceptible slowing of the financial services industry due to the prevalent policies which have been prompted by high inflation and borrowing costs.

The Bank’s assets and liabilities were grown in keeping with a business model which is pivotal on not exposing the bank to significant risks in a market which is now encountering much higher incidence of NPLs compared to the same period last year (according to CBSL, NPLs for the entirety of 2007 amounted to Rs.5b, whereas for the first six months of 2008, it has already reached Rs. 16b), and we are extremely pleased because all our lending activities which have been evaluated with the Bank’s ultimate safety in mind, and not in the interest of short term gains, Union Bank is able to declare the lowest non-performing ratio amongst all commercial banks. We are especially proud of this because not too long ago when we took over the management of this bank, its NPL ratio was hovering around 32%”.

The Bank’s Pre-Tax profit increased by 50% over the corresponding period last year, and reached Rs. 54.83m, which was facilitated by a growth of 49% in net interest income and a growth of 16% in other income. Post-tax profit at Rs. 16.58m was marginally down by 0.66%, due to provisioning on taxation.

Non interest expenses recorded an increase of 27% over the corresponding period last year, reaching Rs. 182.2m, which was mainly due to the significant increase in business volumes.

The Bank’s income for the six months of 2008 grew by 50% to Rs. 870.27m. The growth in earnings has been mainly due to interest income increasing to Rs. 788.63m compared to Rs. 511.41m for the previous period.

Total shareholder funds increased by Rs. 535.81m, from Rs. 863.63m in 2007 to Rs. 1,399.44m in June 2008 and the Bank’s capital adequacy ratio is at 14.95% despite the growth in loans and advances.