Unity Bank Returns To Profit, Reports N243bn Negative Shareholders’ Fund

After what seemed like forever, infused with a lot drama and anxiety, the board of Unity Bank Plc finally published its audited account for the year-ended December 31, 2018 and by default, that of the comparable year 2017, showing that things are not too good after all with the financial institution. From indications, the company must have to seek injection of fresh equity funds to take it out of the Intensive Care Unit of the Central Bank of Nigeria (CBN). In 2018, the bank obtained N50bn short-term borrowing from the CBN to meet working capital requirements.
Besides the huge 58.49% drop in gross earnings, precipitated by the 65.94% drop in interest and similar income- the lifeblood of any bank, at a time expenses slowed down by 56.18%, it returned to profit, representing a 108.51% after tax rebound.

Gross earnings stood at N37.325bn from N89.925bn, out of which its northern operations generated N13.444bn; followed by N13.163bn from the south, while the corporate office contributed N10.716bn. Interest and similar income fell from N86.629bn to N29.505bn; while expense was constrained at N15.535bn from N35.452bn in the previous full year. This resulted in net interest income of N13.97bn, down by 72.7% from N51.176bn in 2017.
Fee and commission income dropped 9.58% from N1.683bn to N1.522bn; just as net trading income soared to N1.128bn, 6,047.52% from N18.36m; other operating income jumped to N5.168bn from N1.594bn, representing a rise of 224.2%.

Total operating income increased by 111.67% from N10.218bn in 2017 to N21.628bn; just as there was 8.11% slide in personnel expenses from N10.861bn in previous year to N9.98bn.
Depreciation of property and equipment reduced by 19.09% from N1.602bn to N1.296bn; amortization of intangible assets dropped 57.95% to N81.89m from N194.72m.
Other operating expenses dropped 24.94% from N11.801bn to N8.858bn; bringing total operating expenses to N20.217bn, down by 17.35% from N24.46bn; following which profit before tax stood at N1.411bn, improving by 109.91% from the preceding year’s N14.242bn loss.

Net profit for the year stood at N1.269bn from the N14.917bn loss; translating to Earnings Per Share of 13 kobo, compared to the prior year’s N1.28 loss. A breakdown of the contribution to profit showed that the bank was saved significantly by the N3.416bn net profit recorded by the south operations, as against its N4.245bn loss in 2017; followed by the north with N1.103bn, as against the loss of N3.087bn in prior year. The he corporate office however posted N3.251bn loss, a drop from N7.585bn in prior year.

On its balance sheet, Unity Bank grew total assets by 50.78% from N156.506bn to N235.976bn, with customer loans and advances at N43.657bn, up from just N8.958bn. The bank’s loans are mainly skewed towards Abuja, which accounts for N29.899bn or 68.89%, up from N1.005bn in 2017. A further breakdown of the bank’s loan book shows a deliberate focus on the agric sector which commanded N32.698bn or 73.64% in the revenue period, from just N163.745m or 1.73% in 2017, boosted by the N37.45bn from the CBN for on-lending to rice Farmers Association of Nigeria (RIFAN), as part of the Federal Government’s initiative to provide single digit interest rates for the sector. Of the amount, N30.6bn has been disbursed. There was therefore a significant drop in the bank’s lending to government, which stood at N3.926bn or 41.48% in 2017; and power, at N2.536bn or 26.8%.
Debt instruments at fair value through other comprehensive income was however the bulk of assets at N76.089bn. Total liabilities grew from N398.699bn to N479.663bn, representing an increase by 20.31%, with customer deposits of N124.18bn, rising from N80.546bn, debt issued and other borrowed funds climbed from N80.546bn to N124.18bn; just as amount due to other banks increased from N42.957bn to N100.347bn.

This resulted in negative shareholders’ funds of N243.686bn, as against the previous N242.193bn, not helped by its negative retained earnings of N340.021bn, slightly above the previous N338.694bn; the effect of which was mitigated by the positive “other reserves” of N67.684bn, a marginal decline from N68.241bn. The negative shareholders’ funds, the bank explained, was caused by t,he 2017 “strategic disposal of non-performing loans under a toxic asset resolution initiative in the ongoing capitalization process,” a situation, it added, impacted on the N243.69bn reported for year 2018. The good thing, the directors say, is that the bank is currently carrying a zero non performing loan book, thereby extremely minimizing the bank’s credit exposure.

As at year-ended December 31, 2018, Unity Bank’s largest shareholder is the Federal Government, represented by the Asset Management Corporation of Nigeria (AMCON), holding 4.002bn shares or 34.24% stake, followed by PanAfrican Capital Nominee, 1.48bn units or 12.67%; followed by Thomas Etuh’s 1.053bn or 9.01%. Ibad Ltd holds 717.722m units representing 6.14% stake; El-Amin (Nig) Ltd represented by the chairman- (the Babangida family) follows with 5.27%, bringing total stake of the majority holders to 7.869bn or 67.33%. The directors who are persons of means, can therefore save the bank by injecting fresh capital, while in the process significantly reducing the stake held by AMCON.

Meanwhile, the bank’s external auditors- Ahmed Zakari & Co, in its report to shareholders notes the importance of a capital raising exercise, which it says remains a key audit matter, given that its success would “reverse the bank’s negative shareholders’ funds and capital adequacy ratios and to provide assurance on the bank’s ability to carry on operations as a going concern.”It is also expected to provide trading funds to strategically reposition the bank in the industry and improve its capacity to operate sustainably.”
The auditors also note that “a number of potential investors have indicated interests in participating significantly in the bank’s equity. Some have concluded their due diligence on the bank are at various stages of negotiation.

https://investdata.com.ng/2019/04/unity-bank-returns-to-profit-reports-n243bn-negative-shareholders-fund/