Unity Bank faces significant challenges over Q1 2023 retained earnings

Unity Bank is facing significant challenges with negative retained earnings of N379.786 billion and negative shareholders’ funds of N139.797 billion in the first quarter of 2023.

According to its financials for the quarter under review, the decline in earnings poses a significant obstacle to the bank’s profitability and the restoration of positive shareholders’ funds.

In the 2022 financial year, the bank recorded the lowest profit after tax of N941 million in five years, representing a 70 per cent year-on-year decline.

Although profit after tax grew by 21 per cent year-on-year to N1.048 billion in the first quarter of 2023, it was not significant enough to have a substantial impact on reducing the negative shareholders’ funds.

The bank’s financials indicate accumulated losses and a weakened financial position, raising concerns about its ability to generate sustainable profits and meet financial commitments.

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In the first quarter of 2023, the negative shareholders’ funds were down 49 per cent year-on-year to N139.797 billion. That was primarily driven by the issuance of debentures.

The bank’s statement of changes in equity reflects the issuance of debentures amounting to N135.181 billion. Issuance of debentures introduces additional debt and carries interest payments and repayment obligations. This has been reflected in the bank’s debt-to-assets ratio at about 80 per cent in the first quarter.

The bank needs to expand its income base, especially its interest income, which accounts for 80 per cent of gross earnings. The decline in loans and advances by 32 per cent from N293 billion in December 2022 to N199 billion in the first quarter of 2023 is a matter of concern.

If this trend continues, it can have a significant impact on its interest income, earnings, and stunt restoration.

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Negative shareholders’ funds can impact the potential returns for investors. If the company is unable to generate profits and restore positive shareholders’ funds, it may not be able to distribute dividends to shareholders.

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This can result in diminished returns for investors who rely on dividend income as part of their investment strategy. This is perhaps one of the reasons why Unity Bank is currently not paying dividends.

While Unity Bank’s negative shareholders’ funds may impact the potential returns for investors and limit the ability to distribute dividends, it is worth noting that the bank’s share price has managed to remain afloat and has even gained 1.82% year-to-date (YTD).

This suggests that despite the financial challenges the bank is facing, investors still have some confidence in its prospects and value.

Notwithstanding, Unity Bank would need to focus on implementing strategies to enhance profitability, such as increasing revenue, reducing expenses, improving operational efficiency, and managing risks effectively.

While the issuance of debentures provided some short-term relief, the long-term goal for Unity Bank should be to restore positive retained earnings through sustained profitability and prudent financial management.