Unity bank is one of the tier 2 commercial banks in the country, but has lagged behind its counterparts for several reasons. Here’s a breakdown of the current state of the bank and why we have a bearish outlook.
Unity bank was founded in 2006 from the merger of 9 commercial banks namely; Intercity Bank Plc, First Interstate Bank Plc, Tropical Commercial Bank Plc, Pacific Bank Limited, Centre Point Bank Plc, Societe Bancaire Limited, NNB International Bank Plc, Bank of the North Ltd and New Africa Bank Plc. This is following the consolidation exercise mandated by the Central Bank of Nigeria (CBN) in 2004
Unity bank’s board comprises several influential businessmen who can channel huge deposits to the bank from their businesses. The bank also has a strong base in the North.
By virtue of its capital base, Unity Bank is a tier two bank, thus playing in the same field with the likes of Diamond Bank, Stanbic Ibtc, and FCMB. Going by the recent results released by the bank, it has a lot of catching up to do. HY 2017 results by Unity Bank show it made a gross income of N42 billion and a profit before tax of N2.3 billion. Diamond bank had a gross income of N62 billion and a Profit Before tax of N10.7 billion. FCMB had gross earnings of N77.5 billion and a profit before tax of N3.0 billion.
Factors hindering the bank
Though the bank has N86.5 billion worth of shareholder funds as at Dec 2016, the bulk of the funds arise from a share reconstruction carried out in 2016, and as such may merely exist on paper.
A large proportion of loans are held by past and present board members of the bank. As at December 2017,a total of N23 billion was held as loans by past and present directors. This same group also has a high proportion of non -performing loans. Non performing insider loans amounted to N15.3 billion as at December 2016. Current chairman of the bank Thomas Etuh has non performing loans amounting to almost N4.5 billion.
AMCON has a huge stake in the bank amounting to 34%. This in effect makes the government the majority shareholder in the bank. Government institutions tend to be poorly run and slow in decision-making.
Negative retained earnings
The bank had negative retained earnings of N237 billion as at the half-year ended June 2016, which is rare for a financial institution. Essentially, the bank is running on borrowed funds and may not be in a position to make more provisions for bad loans.
Limited Branch and ATM Network
Even though banking is increasingly tilting towards digital channels, brick and mortar banking still plays a key role. Unity bank has very few branches and ATMs which would have been a source of income. When customers use ATMs belonging to another bank,, the bank gets a fee. Banks with a large network of ATMs tend to make money from such transactions.
Though plans are underway to raise fresh capital, the funds required to bring the bank to shape are enormous. A total of N52 billion has been loaned to the bank by the Central Bank of Nigeria (CBN).Total indebtedness was N50 billion in 2016, and an additional N2 billion was lent to the bank in H1 2017.
Due to the influence wielded by its majority shareholders, the CBN may be unwilling to order a management reshuffle of the bank as it did with Skye bank.
Unity bank shares closed at 56 kobo in yesterday’s trading session on the Nigerian Stock Exchange. Year to date, the stock is up almost 2% lagging behind virtually all other banking stocks in terms of price appreciation. Diamond bank is up 36% year to date, while Skye bank is up 26% year to date.
FY 2016 Earnings Per Share (EPS) of 19 kobo means the stock is trading cheaply at almost 3 times earnings, but its poor fundamentals do not make it a buy.
The Economic and Financial Crimes Commission (EFCC) is after the Managing Director of Heritage Bank Plc, Ifie Sekibo, who has allegedly ignored a series of invitations from the commission.
Reliable sources at the EFCC disclosed that Sekibo was invited for his role in the alleged diversion of N13bn belonging to one of the Western state.
The source said the money was lodged in some secret accounts in the bank in connivance with some top state government officials.
However, the state government said it had no knowledge of such allegation.
A top source at the anti-graft agency said, “We recently got information about some suspicious accounts in Heritage Bank. We believe the funds in the accounts are part of the proceeds of crime, particularly money laundering and outright diversion of public funds.
“We received intelligence reports from some concerned citizens that the money, which is about N13bn was diverted from Oyo State between 2014 and 2015 and the money found its way into some secret accounts fraudulently manipulated by top management of Heritage Bank on behalf of some prominent government officials of the State.
“The money was deposited in a secret fixed account with an agreement to share the accrued interest among them.”
The source alleged that about N180m was traced to Sekibo, while another N85m was kept in a fixed deposit account on behalf of some top bank officials.
The source added, “About N1.3bn was paid into a company’s account from which the bank’s managing director, directly benefitted N180m. The sum of N85m was kept in another fixed account in 2015, suspected to be for another top executive of the bank. There are other fixed deposit accounts where money had been lodged since 2015, known to and operated by top management of the bank, without proper documentations.”
The source said letters of invitation sent to the bank for the release of account officers to the said accounts were turned down by the management, while the bank could not provide necessary documents relating to the accounts.
He added that all efforts made by the EFCC to confirm the source and beneficiaries of the accounts proved abortive when officials of the bank would not provide necessary information on the accounts as requested by the investigators.
However, it was learnt that three bank workers including a relationship manager and a compliance officer were arrested by the anti-graft agency.
Detectives of the EFCC were said to have stormed the bank’s head office last week to recover some sensitive documents.
The source added: “Letters of invitation sent to the bank officials were not honoured. Some officials were arrested and have made useful statements to the commission.
“The bank’s MD, who we believe to be deeply involved in the scam, did not honour several invitations sent to him by the commission. There are indications that the MD may have fled the country to one of the European countries as some bank officials claimed he had gone for medical trip abroad.”
The spokesman for the EFCC, Wilson Uwujaren, confirmed to our correspondent on the telephone that the commission was investigating some accounts at the bank but refused to give more information.
He said: “It is true that some of our people went to the bank but it was a routine investigation. They went to get documents in relation to the investigation. I cannot say more than that for now.”
The Group Head, Corporate Communication, Heritage Bank, Mr. Fela Ibidapo, confirmed that the EFCC was investigating some accounts at the bank.
He, however, said: “There is no management fraud. There is a customer’s account that the EFCC is interested in and the normal thing is to talk to the account officer. They are just investigating an account entry. They have invited the relationship manager. It is still being investigated and for confidential issues I can’t divulge more than that,” he said.