UNITY Bank Plc has said its pretax profit for the half-year (H1) period ended June 30, 2016 dropped 70.2 percent to N2.61 billion from N8.77 billion declared a year ago.
Similarly, profit after tax (PAT) of the bank declined same margin of 70.2 percent N2.35 billion from N7.89 billion posted the same period of 2015.
Gross income of Unity Bank dropped 35.1 percent to N21.7 billion from N33.5 billion reported a year earlier, the mid-tier lender said in a filing with the Nigerian Stock Exchange, NSE.
Although Unity Bank achieved a high rise of 147% in profit in the 2014 operations but closed third quarter operations last year with a drop of 16% year-on-year. The full year earnings outlook for the bank indicates a drop in gross earnings and a moderate improvement in profit despite the profit fall in the third quarter.
The bank however shows an unstable pattern in earnings performance and earnings projections are therefore subject to wide variation from actual. In 2014, about 38% of its full year revenue was generated in the final quarter while a loss occurred in the final quarter as well and reduced the full year profit below the third quarter figure.
A stable track record of earnings performance is yet to be established by the bank. Gross income was flat at N49.20 billion for the bank at the end of the third quarter at 2.2% growth year-on-year. The drag was interest income, which declined by 9.3% to N35.16 billion over the period.
Non-interest income provided the strength for revenue performance during the review period at an increase of 150% to N14.04 billion. The contribution of non-interest income to gross earnings therefore increased from 19.5% in the third quarter of last year to 28.5% at the end of September this year.
The weakness of the year-on-year drop in profit at the end of the third quarter last year is somewhat remedied by a likely moderate growth at full year. A cautious projection of N11 billion net profit is made for Unity Bank at the end of 2015 subject however to a possible change in the growth rate in the final quarter. The bank’s earnings pattern still lacks the reasonable stability needed for dependable earnings projections.
Credit loss expenses were the main culprit for the loss of profit growth momentum in the last quarter of 2014. The picture of a drastic reduction in net impairment charges in the third quarter changed suddenly at the end of the year. From only N2.18 billion provision for credit losses in the third quarter, the figure soared to N15.28 billion at the end of the year.
A repetition of the same pattern in impairment charges isn’t ruled out for the bank this year. Credit loss expense dropped by 20% year-on-year to N1.74 billion at the end of the third quarter but the full year position is subject to an unpredictable change. Whether the current profit growth momentum is sustained or lost at full year depends largely on the direction that loan loss expenses will follow in the final quarter.
The bank’s ability to convert revenue into profit weakened last year on flat revenue and rising costs. Net profit margin is down from 23% in the same period last year to 18.9% at the end of the third quarter, which remains quite good by the banking industry standard. It is an outstanding improvement from the profit margin of 13.8% the bank recorded at the end of 2014. Two major expenditure lines account for the decline in profit margin this year. These are interest expenses and operating cost, which grew by 9.4% and 9.3% respectively at the end of the third quarter against a flat growth in gross earnings. Operating cost margin has increased from 43.3% to 46.3% over the review period and from 40.4% at the end of last year. Should loan loss provision change direction from a drop to a rise in the final quarter, the profit margin seen in the third quarter will decline further at full year and the full year profit projection will not be realised.
The bank earned 79 kobo per the currently outstanding shares of 11,689 million at the end of the third quarter. The full year outlook indicates earnings per share of 94 kobo for Unity Bank in 2015.

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