Rising bad debts in Nigeria’s increasingly difficult operating environment has forced Union Bank Nigeria Plc to make higher provisions for bad debts in the first half of 2016. The bank on 15 August released its results for the period ended June 2016 showing a 251% increase in total impairment charges on its books to N10.4 billion as at June 2016 compared to N2.97 billion as at June 2015.
However, a reversal of previously charged impairments amounting to N1.66 billion in the period resulted in the bank booking a net impairment charge of N8.78 billion for the first six months of the year but which is still 195% higher than that of the previous year.
Bad loans on the bank’s books moved up 76% to N39 billion as at June 2016 up from N22 billion in the comparable period ended June 2015. As a proportion of the bank’s loan book, the non-performing loans stood at an average of 7.5%, already above the Central Bank of Nigeria (CBN) desired threshold of 5%.
Many Nigerian banks are seeing a spike in their bad loan books due to a sharp deterioration in the economic environment. Half year GDP figures, which are still being expected, will confirm that the country has officially entered a recession. The oil and gas sector as well as the manufacturing sector, two of the key areas many Nigerian banks have strong loan exposures, have experienced consecutive months of negative growth, which has impacted negatively on the books of banks.
But despite the spike seen in Union Bank’s non-performing loan book, the bank recorded a positive 8.45% growth in gross earnings to N60 billion for the period ended June 2016. A marginal 3.87% growth in interest income and an impressive 25% growth in non-interest income, helped boost the bank’s earnings.
Union Bank recorded a 5.6% growth in operating income to N37.9 billion while profit before tax rose 37% to N8.76 billion for the period ended June 2016 compared to N6.36 billion in June 2015 with an average earnings per share of 52 kobo. The bank’s share priced closed today, 15 August at N4.15 per share, 3.50% higher though the Bank’s share price is down 39.9% this year.
