Union National Bank (UNB) - 2Q11 Results

·       Net profit reported at AED415mn exhibits growth of 23%YoY on improvement in top-line

·       Results are in line with our expectations of AED426mn (variance < 3%)

·       Net interest income surges 27%YoY; Total income grew 10%YoY

·       Fees & commission income was weak and declined 18%YoY; leads to drop in non-interest income

·       Provisions remained high, up by 21%YoY, doubled QoQ

·       NPL ratio increased by 10bps from previous quarter to 1.5% (excluding DW); coverage increased to 153%

·       Net loans were down 0.6%YTD, deposits also remain stagnant (up 0.9%YTD)

·       Capital adequacy is at 21.8% 

Analyst comments:

UNB’s results were in line with our expectations while performance was good overall. Net interest income jumped significantly, catalyzed by improvement in NIM. UNB was expected to show an improvement in NIM due to a decline in cost of funds which in turn was an effect of a decline in benchmark interbank rates. NPL ratio increased slightly but remained within expectations while coverage increased to over 150%, ex-DW. Provisions increased as well, which seem to driven largely by general provisions – we believe that AED90 – 110mn of the AED150mn taken as provisions could be portfolio provisions. Resultantly, the ratio of portfolio provisions to CRWA increased from 0.78% in 1Q11 to 0.95% in 2Q11. Fee income and therefore total non-interest income was weak due to the new retail regulations; investment gains were higher but not high enough to offset the decline in fee income. We remain satisfied with the bank’s performance for the quarter though continuation of similar provisions and weak loan growth could lead us to revise our estimates for the full year