Union Bank says Non-Performing loans have 200% coverage

By Chioma Obinagwam

Shareholders and investors of Union Bank of Nigeria can now heave a sigh of relief over the current state of its Non-performing Loans (NPLs) as the bank assured that its NPLs have 200 per cent coverage.

Coverage(ratio) is the measure of a bank’s ability to absorb potential losses from its non-performing loans.

The Chief Financial Officer(CFO) of the bank, Oyinkan Adewale disclosed this during the bank’s ‘Facts behind the figures’ held in Lagos recently.

“I’d like to make a comment on the Non-performing Loans (NPL) ratio, which was 16.99 per cent at the end of 2015 and 6.90 per cent at the end of the first quarter but please pay attention to the coverage.  The coverage on those NPLs is almost 200 per cent. The NPL figure is a figure. It is a statistics. As the CFO of the bank, what   is in a risk is how covered it is. The NPL is well covered. There is also 200 per cent for the loans,” she said.

Extracts of the bank’s financials presented at the event showed that NPL ratio grew from N9.9 billion in full year(FY) 2012 to N26.6 billion in first quarter (Q1) 2016.

More so, the NPL ratio grew from 5.1 per cent in 2011 to 6.99 per cent in 2015.

Adewale, however, noted the bank is also prudent with its loans as its Loan to deposit ratio which grew by 41 per cent in 2014 was modulated to 13 per cent in 2016.

A NPL is one which interest is overdue and full collection of principal is uncertain. It is either in default or close to being in default.

Recall that the Central Bank of Nigeria (CBN) had said recently at 326th meeting of the Bankers’ Committee that Nigerian banks are well-capitalised to absorb NPLs.

She also said that the bank’s Cost to Income ratio improved tremendously during the transformation and repositioning of period.

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She said: “We have a bank that has a Cost to Income ratio of 183 per cent in 2011 and  a Cost to Income ratio of 67 per centfour years later. What we promised the last time we came here was that this going to be a journey and we have measured the performance of this journey using this metrics.”

” So, if a 183 per cent Cost to Income ratio is trending to 67 per cent and we promise to take it to 60 per cent by 2017, then I think we are definitely on the right track,” the CFO continued.

Nevertheless, she noted that the bank is working tirelessly to transform its negative Retained Earnings to positive to enable it pay dividends to its shareholders.

She said:”The hard reality is that as long as we have negative retained earnings and as long as the laws of Nigeria prevents you from a paying a dividend when you have negative retained earnings. Until we are able to resolve that with the regulators, there is absolutely nothing that Union Bank can do about paying a dividend. So we keep appealing to both the 86 per cent and the 14 per cent to understand that it is absolutely out of our hand.”

Corroborating, the Chief Executive Officer(CEO) of the bank,  Emeka Emuwa, Chief Executive Officer said: “The question around dividend is important. We are working on it. You know our decisions around paying our dividends today because of prior losses. We are engaging the right people to see how we take-off that impediment.”