Union Bank of Colombo : Interim Financial Statements as of 31/12/2021

INTERIM FINANCIAL STATEMENTS

For the period ended 31 December 2021

Press Release

Union Bank maintains steady growth despite challenges in FY21

Bank

• Profit Before All Taxes LKR 1,348mn
• Profit After Tax up 33%
• Net Interest Income up 10%
• Net Fee and Commission Income up 22%
• Net Interest Margin up 37bps
• NPL's reduced from 6.05% to 5.65%
• Strong Total Capital Adequacy Ratio of 16.47%

Group

• Profit Before All Taxes Rs 1,669mn
• Profits After Taxes up 37%

Union Bank maintained a steady growth momentum reflecting the determined pursuit of its business strategy, primarily driven by the Bank's core banking performance in the first six months of 2021. Whilst cautiously managing the risks within its business operations, the Bank continued its support to impacted customers with the extension of debt moratoria in line with the relief measures mandated by the Central Bank. The Bank also maintained a strong liquidity and capital position throughout the year, and the latest Fitch review in September 2021 reaffirmed Union Bank's rating at BBB(-) with a stable outlook; driven by several key factors including high liquidity, significantly higher capitalisation and potential for growth under improved operating conditions.

The Net Interest Income (NII) of the Bank increased by Rs. 387Mn to Rs. 4,257 Mn in 2021, reflecting a YoY growth of 10%. The interest income of the Bank was impacted by lower AWPLR that prevailed during the year and the extension of CBSL's new credit relief schemes for impacted borrowers. However, NII benefited from the reduction in liability interest expense at a faster pace of 33.1% over the corresponding year. Net Interest Margin (NIM) increased from 3.2% in 2020 to 3.5% in 2021. NIM for the current period would have been 3.7% if the return from investment in units were considered as part of interest income. Return from investment in units was Rs. 261 Mn and has been recorded under net fair value gains/losses from financial instruments at fair value through profit and loss.

the Bank's loans and advances stood at Rs. 67,835 Mn by year-end, marginally higher than in the corresponding year. The portfolio growth was primarily driven by Corporate, SME and Credit Cards while focused efforts for prudent credit growth and portfolio consolidation were continued throughout the year across Retail, SME and Corporate Banking segments of the Bank. The Credit Card business growth was propelled by numerous acquisition strategies and attractive offers that included 0% installment plans for easy repayments, balance transfer options and special seasonal discount schemes at over 100 merchant partner outlets with the aim of acquiring new customers and gaining wallet-share of the existing customers. The SME credit portfolio too saw growth during the year, owing to focused efforts on empowering selected industries and businesses in line with the national agenda for SME revival.

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The deposits base stood at Rs. 83,416 Mn as at year-end. Despite the low-interest rate regime, the Bank maintained a healthy Current Accounts and Savings Accounts (CASA) mix of 30%. While the Bank followed a prudent deposit mobilization strategy which was reflective of subdued loan growth, the Bank continued to maintain its strong liquidity position throughout the year.

Despite extending fee waivers in compliance with the CBSL guidelines, the Fee and Commission income of the Bank for 2021 increased by 21% YoY to Rs. 1,054 Mn, driven by fee income generated from Credit and Debit Cards, Trade and Remittances.

Net trading and other income decreased by 41% to Rs.778 Mn in 2021 mainly due to the exceptional performance by Treasury in 2020 and the Treasury performance being impacted in 2021 by the reductions in trading opportunities, shortage of foreign exchange and the exchange rate volatility that prevailed throughout the year. Income from investments in unit trusts also decreased to Rs.261 Mn in 2021 from Rs. 321 Mn in 2020. Consequently, total capital gains, including income from unit trusts declined to Rs. 421 Mn in 2021 from Rs. 1,153 Mn in 2020. However, other operating income of the Bank increased to Rs. 339 Mn, reporting a YoY increase of 94.7% mainly due to foreign exchange gains.

The total operating income of the Bank was Rs. 5,895 Mn in 2021. The Total Operating Expenses decreased by 2.4% YoY to Rs. 3,680 Mn, as a resultant effect of the Bank-wide cost management initiatives implemented throughout the previous years.

The gross NPL ratio of the Bank improved to 5.65% in December 2021 from 6.05% in December 2020, aided by continued focus on managing its portfolio quality amidst the deteriorating macro-economic conditions.

The impairment charge for the year under review was Rs. 933 Mn and was a 26.8% increase YoY. The prevalent macro-economic environment brought forth further challenges to credit quality management, hence, the Bank recognised additional impairment on risk elevated sectors, successive moratoria and on restructured facilities, in order to manage future challenges. Impairment charges were also recognised on Sri Lanka Development Bonds (SLDBs) resultant from the sovereign rating downgrade by the rating agencies.

Union Bank's Profit after tax for the year 2021 was Rs.765 Mn and reported a 32.7% growth YoY. The reduction in the corporate income tax rate by 4% lead to a positive impact on the income tax charge for the year. The share of profit of equity accounted investees was Rs.66 Mn. This contribution was derived mainly through the Bank's subsidiary, UB Finance Limited.

The Bank continued to maintain its capital adequacy ratios well above the minimum regulatory requirements and reported a healthy Total Capital Ratio of 16.47% as at the reporting date. The Tier 1 Capital Ratio stood comfortably above the minimum requirements at 15.51% as at year end.

The Group consisting of the Bank and its two subsidiaries, UB Finance Company Limited and National Asset Management Limited reported a Profit After Tax of Rs. 850 Mn reporting a 37% growth over the corresponding year. Total assets of the Group were Rs. 124 Bn. The Bank accounts for 95% of the Balance Sheet of the Group and hence the Group performance is mainly propelled by the Bank.

Maintaining healthy liquidity levels and uninterrupted operations amidst challenges, while ensuring employee and customer safety remained key management priorities for Union Bank when operating in a

Press Release

highly volatile environment throughout the year 2021. The Bank continued its close engagement with Retail, SME and Corporate customers despite limitations and restrictions, to identify their unique challenges and provide necessary banking assistance including the efficient roll-out of the CBSL relief schemes.

In line with its strategic focus on digital banking and enhancing its digital prowess during the year, the Bank introduced its enhanced mobile app under the brand name 'UBgo', which is enriched with capabilities of QR payments and instant top-ups from other Banks enabled by JustPay, thus making banking more accessible and simplified to customers. This was a step forward in the direction of revolutionizing the digital banking experience of its customers as the Bank plans to continue to invest in and enhance its digital banking channels further in the future. The Bank's award-winning, revolutionary Cash Management Solution BizDirect continued to be extended as a value addition to Corporate and SME customers, which proved to be a key digital enabler for efficient and effective liquidity management for businesses during these challenging times. In line with its envisaged digital transformation in the year 2022 and beyond, Union Bank invested in a major upgrade to its data centre in 2021, with state-of-the- art IT infrastructure equipped with the latest technologies that are expected to further enable greater customisation and innovation capabilities, along with heightened security standards, reliability of systems and better disaster recovery capabilities.

Commenting on the Bank's financial performance of the year, Director/Chief Executive Officer Indrajit

Wickramasinghe said "When operating amidst a turbulent macro-economy, the Bank prioritised its focus on undisrupted service delivery and prudent business growth. Aided by a robust Business Continuity Plan and sound risk management strategies, the Bank remained committed to the pursuit of supporting its customers, staff and other stakeholders throughout the evolving phases of the pandemic in 2021. Due to agile strategic maneuvering, Union Bank withstood a challenging year with sound liquidity, strong capitalization and a healthy performance. The year 2022 rings in more optimism and hope as the world is emerging from the worst of the Covid-19 pandemic, prompted by the successful vaccination drive. The Bank is well poised to capitalize on the emerging opportunities within the market, and the year 2022 will be a continuation of the strategic pursuit for creating and protecting value for our stakeholders while ensuring the safety and well-being of our customers and staff members."

INTERIM FINANCIAL STATEMENTS

STATEMENT OF PROFIT OR LOSS

For the period ended 31 December 2021

				BANK					GROUP
		For the year ended		For the quarter ended		For the year ended		For the quarter ended
		31.12.2021	31.12.2020	Change	31.12.2021	31.12.2020	Change	31.12.2021	31.12.2020	Change	31.12.2021	31.12.2020	Change
		Rs.000	Rs.000	%	Rs.000	Rs.000	%	Rs.000	Rs.000	%	Rs.000	Rs.000	%
		(Audited)	(Audited)					(Audited)	(Audited)
Gross Income	10,978,924	13,370,190	(18)	2,748,310	2,811,392	(2)	12,723,121	15,042,092	(15)	3,226,530	3,207,986	1
Interest income	9,146,880	11,179,991	(18)	2,382,798	2,356,919	1	10,699,360	12,714,314	(16)	2,827,380	2,742,115	3
Less: Interest expenses	4,889,654	7,310,035	(33)	1,203,936	1,533,779	(22)	5,514,469	8,176,717	(33)	1,338,903	1,711,050	(22)
Net interest income	4,257,226	3,869,956	10	1,178,862	823,140	43	5,184,891	4,537,597	14	1,488,477	1,031,065	44
Fee and commission income	1,054,185	872,531	21	293,706	265,732	11	1,188,398	969,229	23	327,379	292,464	12
Less: Fee and commission expenses	194,130	169,906	14	45,791	29,956	53	220,438	177,230	24	56,715	33,131	71
Net fee and commission income	860,055	702,625	22	247,915	235,776	5	967,960	791,999	22	270,664	259,333	4
Net fair value gains / (losses) from financial instruments at fair
value through profit or loss	233,567	533,033	(56)	41,257	108,395	(62)	227,327	535,058	(58)	33,277	107,365	(69)
Net gains/ (losses) from financial investments	205,235	610,463	(66)	9,310	23,694	(61)	208,078	611,068	(66)	11,424	23,723	(52)
Net gain/ (loss) from financial instruments designated at fair	-	-		-	-		-	-		-	-
value through profit or loss
Other operating income	339,057	174,172	95	21,239	56,653	(63)	399,958	212,423	88	27,071	42,319	(36)
Total operating income	5,895,140	5,890,249	0	1,498,583	1,247,658	20	6,988,214	6,688,145	4	1,830,913	1,463,805	25
Less: Impairment for loans and other losses	932,879	735,731	27	357,247	174,003	105	1,136,663	948,288	20	398,656	222,084	80
Net operating income	4,962,261	5,154,518	(4)	1,141,336	1,073,655	6	5,851,551	5,739,857	2	1,432,257	1,241,721	15
Less:	Personnel expenses	1,811,802	1,901,968	(5)	460,662	545,045	(15)	2,064,869	2,131,069	(3)	510,521	585,721	(13)
	Depreciation and amortisation	677,675	664,964	2	182,329	166,012	10	737,050	724,666	2	196,707	180,806	9
	Other expenses	1,190,738	1,205,314	(1)	307,325	206,043	49	1,380,819	1,375,361	0	380,817	272,773	40
Total operating expenses	3,680,215	3,772,246	(2)	950,316	917,100	4	4,182,738	4,231,096	(1)	1,088,045	1,039,300	5
Results from operating activities	1,282,046	1,382,272	(7)	191,020	156,555	22	1,668,813	1,508,761	11	344,212	202,421	70
Share of profit of equity accounted investees, net of tax	66,038	(28,945)	328	55,204	(9,147)	(704)	-	-		-	-
Profit before Value Added Tax on Financial Services	1,348,084	1,353,327	(0)	246,225	147,408	67	1,668,813	1,508,761	11	344,212	202,421	70
Less: VAT on financial services	368,745	414,394	(11)	61,959	85,923	(28)	428,955	440,091	(3)	84,735	93,718	(10)
Profit before tax	979,339	938,933	4	184,265	61,485	200	1,239,858	1,068,670	16	259,477	108,703	139
Less: Tax expenses	214,420	362,397	(41)	33,247	35,230	(6)	389,676	445,917	(13)	81,825	61,899	32
Profit after tax	764,919	576,536	33	151,018	26,255	475	850,182	622,753	37	177,652	46,804	280
Profit Attributable to:
Equity holders of the parent	764,919	576,536	33	151,018	26,255	475	836,834	632,712	32	170,888	48,846	250
Non-controlling interest	-	-		-	-		13,348	(9,959)	234	6,764	(2,042)	431
Profit after tax	764,919	576,536	33	151,018	26,255	475	850,182	622,753	37	177,652	46,804	280
Earnings per share
Earnings per share - Basic	0.71	0.53	33	0.14	0.02	475	0.77	0.58	32	0.16	0.05	250
Earnings per share - Diluted	0.71	0.53	33	0.14	0.02	475	0.77	0.58	32	0.16	0.05	250

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