Union Bank of Colombo PLC reported slightly higher profits during its April – June quarter (2Q18) as the bank could not escape from the industry-wide phenomenon of stress building up on loans amid challenging economic conditions.
The small-sized lender with an asset base of Rs.114. 4 billion reported net interest income of Rs.1.15 billion during the three months up to June 30, 2018, up 22 percent from the same period, last year.
The increase in the top line was assisted by the expansion in the margins as the growth in new loans during the first six months remained weaker.
The net interest margin increased slightly to 3.06 percent from 2.87 percent in December 2017 as the bank had increased its loan yields. The new loans grew by Rs.1.8 billion or 2.5 percent during the first six months. The bank has a loan book of Rs.73.3 billion, and 3.18 percent of those loans are in the non-performing category, up from 2.69 percent in December 2017.
The bank’s first set of 2Q financial accounts to be released— clearly reflect the common industry phenomenon of weakening asset quality and slowdown in growth in new loans.
Meanwhile, the bank’s deposit base fell by Rs.0.5 billion during the six months to Rs.69.8 billion due to a decline in foreign currency term deposit.
The balance sheet also shrank by 4.0 percent to Rs.114.4 billion.
For the quarter, the bank recorded a profit before tax of Rs.363.2 million, up 33 percent from a year ago.
But the bank reported earnings of 12 cents a share or Rs.134.3 million compared to Rs.125.8 million in the corresponding period last year.
The bank’s share closed 10 cents lower at Rs.12.30 yesterday.
Meanwhile, for the six months ended June 30, 2018, the banking group reported earnings of 25 cents a share or Rs.275.7 million, up 18 percent during the same period, last year.
The net interest income for the period was Rs.2.2 billion, up 17 percent.
Specific provisions rose sharply to Rs.196.3 million from Rs.126.3 million a year ago, reflecting the building up of stress on assets.
Union Bank said 75 percent of the loans are individually significant loans and the balance 25 percent comprised of smaller loans.
As of June 30, 2018, Culture Financial Holdings Limited held 70 percent stake in Union Bank being the single largest shareholder.