Union National Bank: Financial services

THE COMPANY: Established in 1982, Union National Bank (UNB) has become a leading commercial bank in the country. To date, UNB has 55 branches across the UAE providing basic services, such as deposits, loans and credit cards, as well as more complicated ones including wealth management and investment banking. UNB is also one of the traditional commercial banks that have opened their own Islamic service windows, which provide services that include asset management and investment banking. In addition, UNB offers conventional and Islamic brokerage services through its subsidiary, UNB Brokerage Company. Meanwhile, another subsidiary, Al Wifaq Finance Company, offers sharia-compliant financial, commercial and investing services to both retail and institutional customers.

As part of the bank’s vision to expand its geographic presence, it has established UNB Egypt after successfully acquiring the erstwhile Alexandria Commercial & Maritime Bank. UNB has also ventured to Qatar, putting up a branch in Doha, and opened a representative office in Shanghai, as an initial step to exploring the burgeoning trade relations between the UAE and China. In 2011, UNB also received a licence to operate in Kuwait. The bank is reviewing other locations and strategic alliances that will add to shareholder value.

UNB’s major shareholders include the Abu Dhabi Investment Council (50.01%) and the Investment Corporation of Dubai (10.00%), while the rest of the shares belong to the public.

FINANCIAL PERFORMANCE: In the first half of 2012, UNB reported a 6.32% advance in its attributable profits to Dh926.78m ($252.25m), underscoring continuing improvement and the strength of both the bank’s franchise and business model. The improvement in profits came on the back of stronger interest income and improved interest margins. Net interest income from conventional and Islamic financing improved by 10% year-on-year. Effective liquidity management coupled with a reduction in the cost of deposits led to an improved net interest margin in the first half of over 3%. This, along with higher average interest-earning assets led to an increase in the net interest income and income from Islamic financing.

UNB continues to show some of the negative aftereffects of the amendment made in 2011 on the rule on retail banking as fees and commission income have both dropped. However, this was partially offset by gains on dealing in foreign currencies and trading and non-trading financial instruments, which together increased by 137% in the first half to Dh60.6m ($16.49m).

Credit volume increased by 1.9% quarter-on-quarter to Dh57.3bn ($15.6bn), as of June 30, 2012. Meanwhile, deposits rose at a faster rate of 2.6% to Dh60bn ($16.33bn). The loans-to-deposits ratio stood at 95.5%, as of June 30, 2012, mostly unchanged compared to end-2011. UNB’s non-performing loans (NPL) ratio, as of June 30, 2012, reached 4.9% versus 3.7% as recorded in end-2011. Loan loss coverage, meanwhile, stood firm at 62.1%. The higher NPL ratio’s negative read-across is somewhat diluted by the bank’s capital adequacy. The capital position of UNB was augmented as well by the Basel II capital adequacy ratio, after the distribution of the cash dividend for the year 2011 and the payment of interest on the Tier 1 capital notes, improving to 23.1% as of June 30, 2012 from 21.9% in end-2011, an increase of 120 basis points. In April 2012, global ratings agency Fitch affirmed its A+ rating of UNB, with outlook kept at stable, on account of UNB’s steady profitability, liquidity and capital adequacy.

SHARE PRICE PERFORMANCE: UNB’s share price is up more than 7% year-to-date, hitting a high of Dh3.30 ($0.90) per share in August 2012. The rise was reflected sector-wise, as overall bank earnings performed robustly in the second quarter and the first six months of 2012. Medium-term support level for UNB is seen at Dh3.00 ($0.82) per share, followed by Dh2.76 ($0.75). Resistance is seen at Dh3.30 ($0.90) per share, followed by Dh3.50 ($0.95). Note that these sentimental barriers were spotted as of September 30, 2012 and based on a closing price of Dh3.06 ($0.83) per share.