Union Bank of Colombo : Interim Financial statements as at 30th June 2022

INTERIM FINANCIAL STATEMENTS For the period ended 30 June 2022

Press Release

Union Bank posts resilient core-banking performance in 1H2022 amidst challenges.

The second quarter of 2022 witnessed a challenging macroeconomic outlook that resulted in the banking sector facing multiple headwinds with the impact of the sharp rupee depreciation, rising interest rates, an upward revision of taxes, higher impairments, supply constraints and demand side policies undertaken to dissuade imports, which lead to impeding credit growth for Banks.

Against this backdrop, Union Bank remained agile in prudently managing and controlling its existing portfolios and customer bases and implementing stringent recovery measures whilst ensuring uninterrupted banking services to customers.

Core Banking performance and profitability

The Bank recorded an improved core banking performance despite the challenges of a tough operating environment and posted an overall income of LKR 7,426 Mn for the first half, an increase of 31% over the comparative period.

Net Interest Income (NII) increased by 19 % as a result of improved yields from the re-pricing of the asset portfolio and prudent management of interest expenses which lead to an increase in the Net Interest Margin (NIM) by 57 bps.

Net Fee and Commission Income increased by 24% aided by domestic and international fund transfers, ATM transactions, credit and debit cards, remittances, and the increased activity from the trade business. Other Operating Income also increased by 141 % aided by foreign exchange income and gains.

Operating income before impairments was LKR 3,575 Mn, an increase of 18% as at 30 June 2022. Due to the delays in loan settlements brought forth by the impacts of the adverse macro-economic conditions, the Bank continued to provide for increased impairments and management overlays as a prudent measure. The impairment charge for the period was LKR 961 Mn, an increase of 120% compared to the corresponding period.

Despite prudent cost management initiatives, the total operating expenses of the Bank increased to LKR 2,059 Mn, an increase of 14 % over the corresponding period, mainly impacted by the depreciation of the Sri Lankan Rupee and consequent increase in fuel expenses etc.

Consequently, the Bank's Profit Before Tax (PBT) including its equity accounted share of subsidiaries as at 30 June 2022 was LKR 304 Mn and the Bank's Profit After Tax (PAT) was LKR 152 Mn. .

Total Assets of the Bank increased by 11% to LKR 131,744 Mn by 30 June 2022. Loans and Advances grew by 10% to LKR 74,796 Mn, whilst customer deposits increased by 16% to LKR 96,779 Mn due to the focus on sourcing CASA and term

Press Release

deposits across all segments. The CASA ratio was 27.5% as of 30 June 2022. The Bank's stage 3 loan ratio stood at 6.89%.

The Bank continued to maintain a healthy capital adequacy position, well above the regulatory requirements and the Bank's Total Capital Ratio was 16.34% as of 30 June 2022.

The Union Bank Group, consisting of UB Finance Company Ltd., and National Asset Management Ltd., recorded a PBT amounting to LKR 395 Mn for the period up to 30 June 2022. Total Assets of the Group was LKR 139,428 Mn an increase of 12% with the Bank's share amounting to over 94%.

Operational Performance

Amidst the challenges, the Corporate Banking division prudently managed its loan portfolio whilst maintaining the credit quality and recorded a 29% growth in Loans & Advances and 39% growth in Deposits.

The Treasury was able to re-align the impacted Government Securities portfolio at a much faster pace, through focused investment strategies and timely execution of auction pricing on short term T-Bills. Further, it was instrumental in providing the much-needed support to importers by way of foreign exchange with focus on USD and prioritizing of trade payments for essential items such as food, pharmaceuticals, fertilizer, fuel and student payments.

In sync with the interest rate revisions, the Retail banking sector focused on new customer relationships by expanding its deposit base through time deposits and recorded a 14% growth in deposits and a CASA ratio of 27.5% during the second quarter. In addition, customer convenience was further enhanced through the Bank's mobile banking app UBGO as well as its Agent Banking platform by facilitating deposits, loan payments and credit card payments at selected SLT Mobitel and Cargills Foodcity outlets.

The SME Banking sector was successful in securing the Asian Development Bank (ADB) funding line in 1Q 2022 and through this credit line continued its focus on new lending to support growth amongst women entrepreneurs and tea smallholders. In addition, a schematic plan was implemented to support the highly impacted SMEs with re-scheduled facilities and payment schemes. Further, the continued focus was placed on sourcing CASA through the Bank's cash management solution Union Bank Biz- Direct to new clients in both corporate and SME sectors.

Ends.

INTERIM FINANCIAL STATEMENTS

STATEMENT OF PROFIT OR LOSS

Period ended 30 June 2022

				BANK					GROUP
		For the Six months ended	For the quarter ended		For the Six months ended	For the quarter ended
		30.06.2022	30.06.2021	Change	30.06.2022	30.06.2021	Change	30.06.2022	30.06.2021	Change	30.06.2022	30.06.2021	Change
		Rs.000	Rs.000	%	Rs.000	Rs.000	%	Rs.000	Rs.000	%	Rs.000	Rs.000	%
Gross Income	7,426,170	5,673,460	31	4,277,769	2,801,554	53	8,418,481	6,515,821	29	4,761,981	3,177,522	50
Interest income	6,235,707	4,629,759	35	3,714,000	2,348,311	58	7,130,074	5,366,792	33	4,140,434	2,675,525	55
Less: Interest expenses	3,726,256	2,526,839	47	2,295,131	1,230,866	86	4,073,693	2,856,830	43	2,491,835	1,388,756	79
Net interest income	2,509,451	2,102,920	19	1,418,869	1,117,445	27	3,056,381	2,509,962	22	1,648,599	1,286,769	28
Fee and commission income	629,004	516,991	22	310,915	246,131	26	678,000	584,356	16	331,382	277,877	19
Less: Fee and commission expenses	125,033	110,374	13	62,406	55,109	13	143,155	120,544	19	67,538	58,225	16
Net fee and commission income	503,971	406,617	24	248,509	191,022	30	534,845	463,812	15	263,844	219,652	20
Net fair value gains / (losses) from financial instruments at fair
value through profit or loss	38,695	156,516	(75)	19,731	78,078	(75)	40,868	157,841	(74)	21,284	78,763	(73)
Net gains/ (losses) from financial investments	258	153,341	(100)	(2)	46,279	(100)	1,370	153,978	(99)	1,110	46,917	(98)
Other operating income	522,506	216,853	141	233,125	82,755	182	568,169	252,854	125	267,771	98,440	172
Total operating income	3,574,881	3,036,247	18	1,920,232	1,515,579	27	4,201,633	3,538,447	19	2,202,608	1,730,541	27
Less: Impairment for loans and other losses	961,148	436,245	120	673,193	240,116	180	1,202,712	548,347	119	885,964	310,514	185
Net operating income	2,613,733	2,600,002	1	1,247,039	1,275,463	(2)	2,998,921	2,990,100	0	1,316,644	1,420,027	(7)
Less:	Personnel expenses	969,003	907,904	7	499,199	452,537	10	1,135,510	1,041,062	9	586,454	528,226	11
	Depreciation and amortisation	357,707	323,326	11	177,125	166,646	6	386,598	353,096	9	192,145	183,435	5
	Other expenses	732,213	577,699	27	399,207	282,785	41	832,784	657,693	27	445,817	314,986	42
Total operating expenses	2,058,923	1,808,929	14	1,075,531	901,968	19	2,354,892	2,051,851	15	1,224,416	1,026,647	19
Results from operating activities	554,810	791,073	(30)	171,508	373,495	(54)	644,029	938,249	(31)	92,228	393,380	(77)
Share of profit of equity accounted investees, net of tax	(28,265)	(9,483)	198	(84,945)	(17,948)	373	-	-		-	-
Profit before Value Added Tax on Financial Services	526,545	781,590	(33)	86,563	355,547	(76)	644,029	938,249	(31)	92,228	393,380	(77)
Less: VAT on financial services	223,019	213,536	4	99,325	103,575	(4)	248,668	236,758	5	94,738	108,806	(13)
Profit before tax	303,526	568,054	(47)	(12,762)	251,972	(105)	395,361	701,491	(44)	(2,510)	284,574	(101)
Less: Tax expenses	151,186	113,179	34	32,774	79,503	(59)	190,365	219,585	(13)	33,433	103,567	(68)
Profit after tax	152,340	454,875	(67)	(45,536)	172,469	(126)	204,996	481,906	(57)	(35,943)	181,007	(120)
Profit Attributable to:
Equity holders of the parent	152,340	454,875	(67)	(45,536)	172,469	(126)	209,697	483,734	(57)	(27,101)	186,668	(115)
Non-controlling interest	-	-		-	-		(4,701)	(1,828)	(157)	(8,842)	(5,661)	(56)
Profit after tax	152,340	454,875	(67)	(45,536)	172,469	(126)	204,996	481,906	(57)	(35,943)	181,007	(120)
Earnings per share
Earnings per share - Basic	0.14	0.42	(67)	(0.04)	0.16	(126)	0.19	0.45	(57)	(0.03)	0.17	(115)
Earnings per share - Diluted	0.14	0.42	(67)	(0.04)	0.16	(126)	0.19	0.45	(57)	(0.03)	0.17	(115)

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											INTERIM FINANCIAL STATEMENTS
										STATEMENT OF COMPREHENSIVE INCOME
												Period ended 30 June 2022
				BANK					GROUP
		For the Six months ended	For the quarter ended	For the Six months ended	For the quarter ended
		30.06.2022	30.06.2021	Change	30.06.2022	30.06.2021	Change	30.06.2022	30.06.2021	Change	30.06.2022	30.06.2021	Change
		Rs.'000	Rs.'000	%	Rs.'000	Rs.'000	%	Rs.'000	Rs.'000	%	Rs.'000	Rs.'000	%
	Profit for the period	152,340	454,875	(67)	(45,536)	172,469	(126)	204,996	481,906	(57)	(35,943)	181,007	(120)
	Other comprehensive income to be reclassified to profit or loss in subsequent
	periods:
	Debt instruments at fair value through other comprehensive income
	Net change in fair value during the period	(24,900)	(274,416)	91	1,022,153	(69,341)	1,574	(24,900)	(274,360)	91	1,023,475	(69,694)	1,569
	Less: Income tax effect on above	5,976	76,405	(92)	(245,317)	16,642	(1,574)	5,976	76,405	(92)	(245,317)	16,642	(1,574)
	Total items that will be reclassified to the statement of profit or loss	(18,924)	(198,011)	90	776,836	(52,699)	1,574	(18,924)	(197,955)	90	778,158	(53,052)	1567
	Other comprehensive income that will not be reclassified to profit or loss in
	subsequent periods:
	Revaluation gains/ (losses) on equity instruments at fair value through other
	comprehensive income	-	-		-	-		2,903	15,425	(81)	2,903	15,425	(81)
	Less: Income tax effect on above	-	-		-	-		(1,466)	(3,702)	(60)	(1,466)	(3,702)	60
	Share of other comprehensive income of equity accounted investees, net of tax	2,625	8,623	(70)	3,300	8,414	(61)	-	-		-	-
	Total items that will not be reclassified to the statement of profit or loss	2,625	8,623	(70)	3,300	8,414	(61)	1,437	11,723	(88)	1,437	11,723	(88)
	Other comprehensive income for the period, net of tax	(16,299)	(189,388)	91	780,136	(44,285)	1,862	(17,487)	(186,232)	91	779,595	(41,329)	1,986
	Total comprehensive income for the period, net of tax
	136,041	265,487	(49)	734,600	128,184	473	187,509	295,674	(37)	743,652	139,678	432
	Attributable to:
	Equity holders of the parent	136,041	265,487	(49)	734,600	128,184	473	193,398	294,346	(34)	753,034	142,383	429
	Non-controlling interest	-	-		-	-		(5,889)	1,328	(543)	(9,382)	(2,705)	(247)
	Total comprehensive income for the period, net of taxes	136,041	265,487	(49)	734,600	128,184	473	187,509	295,674	(37)	743,652	139,678	432

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