Union Bank of Nigeria Plc. 2020 Final Rating Report

2015 DevelopmentalUnion Bank Financial of Nigeria Institution Plc Rating

Union Bank of Nigeria Plc

A financial institution of good financial condition and strong capacity to meet its obligations as and when they fall due Rating Assigned: RATING RATIONALE

A- The rating assigned to Union Bank of Nigeria Plc (‘UBN’ or ‘the Bank’) reflects adequate Outlook: Negative capitalisation levels upheld by a good domestic brand franchise and shareholders’ Issue Date: 15 May 2020 support. The rating recognises a lower impaired loan ratio in the year under review, a Expiry Date: 30 June 2021 good liquidity profile and refinancing capacity evidenced by the oversubscription of its Previous Ratings: A- bond issuances (Series 1, 2 and 3). Offsetting these positive rating factors are the current inimical macroeconomic environment triggered by the novel COVID-19 pandemic, pending issues in the Bank’s loan portfolio and profitability ratios that lag its Industry: Banking contemporaries. The contractionary and unpredictable regulatory environment also threaten the performance of UBN and indeed the banking industry in the short term.

Analysts: Union Bank of Nigeria Plc is a tier II bank, with over a hundred years of experience in the Ada Ufomadu Nigerian banking industry. The Bank’s long-term focus on Nigeria led to the strategic [email protected] decision to divest of its United Kingdom subsidiary, Union Bank UK, during the review year (subject to regulatory approvals in Nigeria and the UK). With a clear focus on its growing customer base of 5.8 million, UBN intends to expand its physical and digital Ayokunle Olubunmi, CFA footprint in Nigeria, which comprised 240 branches (inclusive of the headquarters in [email protected] Lagos), 977 automated teller machines (ATMs) and various digital touch points as at FYE

2019.

Agusto & Co. Limited The 2019 financial year marked a critical milestone for Union Bank of Nigeria Plc as the UBA House, (5th Floor) Board of Directors obtained approval from the Central Bank of Nigeria (CBN) to pay 57, Marina dividends to shareholders for the first time in over a decade. This feat was achieved on Lagos the back of an improved performance in FY2019 as evidenced by a 32.6% growth in pre- Nigeria tax profits year on year. Growth in profits was upheld by sustained income from the

Bank’s fund based activities, loan recoveries and non-interest income. UBN’s cost

management drive through its Long Term Efficiency Acceleration Program (LEAP) also www.agusto.com saved the Bank over ₦2.4 billion in recurrent expenditure, translating to a cost-to-income

ratio (CIR) of 74.1% (FY2018: 79.3%) in 2019. Profitability ratios such as pre-tax return on average assets (ROA) and pre-tax return on equity (ROE) strengthened to 1.5%

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2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

(FY2018: 1.3%) and 12.4% (FY2018: 8%) respectively, albeit lower than its peers. We envisage lower profits by Nigerian banks in the short term on the back of a slower growth in the loan book as the CBN continues to extract excess liquidity out of the system through discretionary cash reserve requirements (CRR) debits. In addition, profitability will be moderated by higher impairments in the loan book due to the downturn in the economy and lower non-interest income elicited by regulatory constraints. However, UBN’s complete divestment of its UK subsidiary should support income in 2020.

Union Bank’s non-performing loan (NPL) ratio improved year on year due to the declassification of impaired loans worth ₦58 billion from the stage 3 category to stage 2 and stage 1 in line with the industry-wide syndicate loan classification and better performance of some obligors. UBN’s NPL ratio moderated to 5.8% (FYE2018: 8.1%) while stage 3 loans as a percentage of gross loans declined to 9.9% (FYE2018: 25%). Notwithstanding, we believe that loans in the stage 2 and stage 3 (watch list) buckets, which collectively accounted for 28% of gross loans and advances as at FYE2019 are vulnerable to further deterioration given the current macroeconomic headwinds. We expect palliatives from the CBN such as the restructuring of loans in affected sectors such as oil and gas, manufacturing and power to moderate the anticipated growth in NPL ratio in the near term.

In 2019, Union Bank’s capital adequacy ratio (CAR) strengthened to 19.73% on the back of a ₦30 billion 10-year tier II bond issued in June 2019. At this level, UBN’s CAR was higher than CBN’s minimum requirement of 15% for international commercial banks. While the Bank’s capital base provides some cushion to absorb losses that will arise from the COVID-19 pandemic, we believe that its large foreign currency loan portfolio and exposures to vulnerable economic sectors portend a further strain on the Bank’s capital base in the short term. Notwithstanding, we consider the capitalisation of the Bank to be adequate and we expect its capitalisation ratios to remain within acceptable levels in short term.

In response to the COVID-19 outbreak, Union Bank has ensured business continuity, employee productivity and safety and customer engagement. In view of the elevated business risk profile of the Industry particularly in terms of liquidity, the credit landscape and profitability, UBN adopts various mitigating actions to cushion the impact of the pandemic on its performance, which we view positively.

On the back of these, we maintain the “A-” rating of Union Bank of Nigeria Plc. A ‘negative’ outlook reflects the expected impact of the COVID-19 pandemic on the Bank’s performance in the near term. Agusto & Co. will continue to monitor unfolding events relating to the pandemic and review the outlook to reflect changes in the operating environment and UBN’s performance.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Strengths

•Good domestic franchise •Shareholders' support •Growing digital footprint •Experienced management team

Weaknesses

•Low profitability ratios compared to its peers •High level of stage 2 and stage 3 loans

Challenges

•The COVID-19 pandemic and its impact on the Nigerian economy and in turn the banking industry's performance. •Unfavorable regulatory policies

Table 1: Financial Data

December 2018 December 2019 Total Assets & Contingents ₦1,486.2 billion ₦1,897.1 billion Total Local Currency Deposits ₦660.8 billion ₦707.1 billion Net Earnings ₦90.1 billion ₦95.5 billion Return on Average Assets & Contingents (ROA) 1.3% 1.5% Return on Average Equity (ROE) 8.0% 12.4%

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

PROFILE

Union Bank of Nigeria Plc (“UBN”, “Union Bank” or “the Bank”) commenced operations in Nigeria in 1917 as a branch of Barclays Bank DCO (Dominion, Colonial Overseas) and was incorporated as a private company limited by shares in 1969. After the listing of its shares on the Nigerian Stock Exchange (NSE) in 1971 and the acquisition of shares driven by the Nigerian Enterprises Promotion Act, the Bank became a public limited company, wholly owned by Nigerians. Subsequently, the name was changed to Union Bank of Nigeria Plc to reflect the change in ownership structure.

After the 2009 Nigerian banking crisis, the Central Bank of Nigeria (CBN) through AMCON (Asset Management Company of Nigeria) acquired 85% of the Bank’s equity. In 2012, a recapitalisation exercise was executed with the injection of $500 million by a consortium of local and foreign investors called the Union Global Partners Limited1 (UGPL). As a result, the consortium acquired 65% of Union Bank’s equity from AMCON. In the last quarter of 2014, Atlas Mara Limited acquired the remaining 20% equity from AMCON. Atlas Mara has progressively increased its stake in the Bank and currently holds about 49% of equity through direct and indirect shareholdings.

Union Bank of Nigeria Plc operates an international commercial banking license and is principally involved in the provision of banking and related financial services to corporate and individual customers. Such services include the granting of loans and advances, acceptance of deposits and money market activities. The Bank’s operating model focuses solely on Nigeria and is structured into five business segments: Retail, Small and Medium Enterprises (SMEs), Commercial, Corporate and Treasury.

Prior to the 2019 financial year, Union Bank of Nigeria Plc had two subsidiaries - UBN Property Company Limited (a property development firm) and Union Bank United Kingdom (UK) Plc (a licensed UK Bank). In 2019, Union Bank, UK was reclassified as a discontinued operation following the Bank’s decision to divest of the subsidiary where it held 100% equity stake, in line with its strategy to geographically streamline its business operations to focus on opportunities in Nigeria. Following a bid process, MBU BidCo Limited (“MBU”), an acquisition vehicle wholly owned by MBU Capital Limited (“MBU Capital”) was selected as the preferred bidder for the sale of the subsidiary. The divestment is expected to conclude in 2020 subject to regulatory approvals in Nigeria and the United Kingdom. The Bank is also in the process of divesting of its second subsidiary, UBN Property Company Limited. Despite the divestments from its subsidiaries, UBN intends to maintain its international banking license.

1 UGPL comprises the following investors: Africa Capital Alliance, African Development Corporation (owned by Atlas Mara), Corsair Investments, FMO, PPF Holdings II Limited and Standard Chartered Private Equity

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Figure 1: Union Bank of Nigeria Plc's Operating Model as at 31 December 2019

Union Bank of Nigeria Plc

Divested subsidiaries in Business Segments progress

Retail, SME, Commercial, Union Property Company Corporate and Treasury Plc and Union Bank, UK

Source: UBN

Union Bank operates through its head office located at Stallion Plaza, 36 Marina Lagos and 239 other branches spread across Nigeria. The Bank has a customer base of 5.8 million and its digital footprint comprise 977 automated teller machines (ATMs) and 5,900 Points of Sale (Pos). UBN also has an agency-banking network of 3,500 agents across the country.

Information, Communication & Technology (ICT)

Union Bank uses the Flexcube Universal Banking System as its core banking application (CBA). Other centralised software deployed by the Bank are the Calypso Treasury Management System, Misys Trade Innovation Plus and Omni flow Business Process Management. Hardware solutions comprise Oracle supercluster infrastructure and DELL EMC converged infrastructure. For email correspondences, UBN uses Microsoft Office 365 while Cisco’s voice and video conferencing platforms assist for workforce collaboration and productivity as well as for extending internal telephony extension out of the physical office.

For offsite backups, Union Bank deploys the tape backup infrastructure and has a similar set of infrastructure at one of the three CBN approved tier III datacenter sites in the country.

Correspondent Banks Union Bank of Nigeria Plc had correspondent banking relationships with the following banks in 2019: ABSA/Barclays Bank Citibank Zenith Bank UK Union Bank UK Access Bank UK Commerzbank FBN UK Byblos Bank Europe Bank of Beirut, UK Crown Agents Bank FCMB UK UBA, UK Oddo BHF Bank Deutsche Bank Mauritius Commercial Bank AFREXIM Bank Byblos Bank Lebanon Standard Chartered Bank Standard Bank SA BMCE Bank International UBA New York Rand Merchant Bank British Arab Commercial Bank (BACB)

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Track Record of Performance

Union Bank’s performance has steadily improved following the 2016 recession in Nigeria, reflecting its resilience and experience harnessed over a hundred years of operations in the Nigerian banking industry. As at 31 December 2019, UBN’s total assets and contingents stood at ₦1.9 trillion, representing a 27.6% growth over the prior year. As at the same date, tier 1 (core) capital stood at ₦211.2 billion and funded 11.1% of the Bank’s asset base while customer deposits of ₦886.3 billion funded 46.7%. UBN’s capital adequacy ratio (CAR) computed using the Basel II standards stood at 19.73%. During the year, UBN grew its loan portfolio by a marked 20% to ₦595.3 billion and recorded a non-performing loan to gross loans ratio of 5.8% as at FYE2019.

Net earnings in the period ended 31 December 2019 increased by 6% to ₦95.5 billion. Furthermore, the Bank’s cost-to-income ratio (CIR) improved to 74.1% from 79.3% in the prior year. Pre-tax return on average assets (ROA) and pre-tax return on average equity (ROE) stood at 1.5% and 12.4% respectively in 2019.

Table 2: Directors at Union Bank of Nigeria Plc

Directors Position/Designation Shareholding Mr. Cyril Odu* Chairman 0.00001% Mrs. Beatrice Hamza Bassey Acting Chairperson Nil Mr. Emeka Emuwa Group Managing Director/CEO 0.56987% Mr. Kandolo Kasongo Executive Director/Chief Risk Officer/Compliance Executive 0.01720% Mr. Emeka Okonkwo Executive Director, Corporate Banking 0.01927% Mr. Adekunle Sonola Executive Director, Commercial Banking 0.01853% Mr. Nath Ude Executive Director, Service & Technology 0.000003% Mrs. Obafunke Alade-Adeyefa Independent Non-Executive Director Nil Mr. John Botts** Non-Executive Director Nil Mr. Mark Patterson***** Non-Executive Director Nil Mr. Richard Burrett Non-Executive Director Nil Mr. Ian Clyne Non-Executive Director Nil Dr. Kenroy Dowers*** Non-Executive Director Nil Mr Richard Kramer**** Non-Executive Director Nil Mrs. Furera Isma Jumare Independent Non-Executive Director Nil Mr. Taimoor Labib Non-Executive Director Nil

*Demised- 17 September 2019 **Retired 19 March, 2019 ***Appointed 21 October 2019 ****Retired 16 September 2019 *****Appointed 17 April 2019

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

MANAGEMENT TEAM Mr. Emeka Emuwa is the Group Managing Director/Chief Executive Officer (CEO) of Union Bank of Nigeria Plc. Prior to his appointment, he worked at Citibank Nigeria Limited for 25 years where he rose from management associate in 1986 to Managing Director, Citibank Nigeria Limited and Citi Country Officer, Nigeria. During his tenure at Citibank, he served in various capacities including Country Officer in Cameroon, Tanzania, Gabon, Congo, Ghana and Niger Republic.

Mr. Emuwa has garnered extensive experience in credit risk management, strategy, negotiation, leadership and people management, treasury, corporate finance and cash management. He holds a Bachelor of Science (B.Sc.) degree in Finance from the University of Lagos and a Master’s Degree from the Krannert School of Management, Purdue University, U.S.A.

Other members of the senior management team are:

Mr. Emeka Okonkwo Head Corporate Banking Mr. Adekunle Sonola Head, Commercial Banking Mrs. Omolola Cardoso Head, Retail and Digital Banking Mr. Joseph Mbulu Chief Financial Officer (CFO) Mr. Chuka Emerole Treasurer Mr. Kandolo Kasongo Chief Risk Officer* Mrs. Jumoke Odulaja Chief Credit Officer* Mrs. Rosemary David-Etim Regional Executive- South Mr. Tetem Feyi-Waboso Head, Service and Technology Mrs. Ogochukwu Ekezie-Ekaidem Head, Corporate Communication and Marketing Mr. Miyen Swomen Head, Human Resources *Kandolo Kasongo retired end of April 2020 after which Jumoke Odulaja took on the role of Chief Risk Officer

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

ANALYSTS’ COMMENTS ASSET QUALITY

UBN’s asset base (including contingents) grew by 27.6% year-on-year to ₦1.9 trillion as at 31 December 2019, driven by a larger customer deposits base and additional borrowings during the review period. The Bank’s assets were predominantly in loans and advances, which rose by 20% to account for 31.4% of total assets and liquid assets, which increased by 58.1% to account for 29.8% of total assets and contingents as at FYE2019. A considerable 42.9% of the Bank’s liquid assets was invested in government securities, which offered favourable yields in the period under review.

UBN has a moderate risk appetite and targets large corporates in key economic sectors to create risk assets. The Bank also leverages opportunities in the ecosystem and value chain created by these corporate clients to grow the loan book. Over the last few years, UBN’s goal to be a leader in retail and transaction banking has led to increased activities in its retail-banking segment, supported by digitisation. As a result, SME and retail loans grew by 33% and 48% respectively to collectively account for 8% of gross loans and advances as at FYE2019 (FYE2018: 6.9%). Loans to the commercial segment accounted for 15%, (FYE2018: 13%) while the corporate segment remained the largest contributor to the Bank’s loan portfolio at 77% (FYE2018: 81%).

Figure 2: Loans by Business Segment (FYE2017-FYE2019)

80% 77% 72%

23% 13% 15% 8% 5% 7%

2017 2018 2019

Corporates Commercial Retail

As at 31 December 2019, Union Bank’s loan portfolio stood at ₦595.3 billion and reflected a 20% growth year on year2. This was in contrast to a 6.6% decline in the prior year when the Bank wrote off some impaired exposures as it sterilised the loan book of legacy credits. In terms of currency allocation, approximately 49% (FYE2018: 45.4%) of UBN’s gross loans and advances were foreign currency denominated while 51% (FYE2018: 54.6%) were in the domestic currency as at FYE2019. The recent 5.3% naira devaluation to ₦380/$ would translate to a 2% growth in the Bank’s loan book based on its 2019 financial statements.

2 In 2018, UBN wrote off an impaired loan of ₦23.2 billion. In 2019, the loan and its corresponding impairment were reinstated, resulting in a restatement of the financial statements (gross loans and impairments)

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Union Bank allocated approximately 28% of its loan portfolio to obligors in the oil and gas sector as at FYE2019, down from 38% in the prior year. The marked decline in the sector’s contribution was due to repayments in the downstream subsector and significant growth in exposures to some sectors. UBN’s oil and gas loan book comprised loans to the upstream subsector (52%), downstream subsector (19%) and services (29%) as at FYE2019. Given the vulnerability of the oil and gas sector due to the drop in crude oil prices and drop in demand due to lockdown in most countries on account of the COVID-19 pandemic, we expect UBN’s asset quality to come under pressure in the short term. However, CBN’s forbearance, which allows banks to restructure loans to businesses that are adversely impacted by the COVID-19 pandemic such as the oil and gas upstream and services, will moderate our anticipated level of deterioration in the short term.

Figure 3: UBN's Loan Book by Sector (FYE2019)

Communication Agriculture 7% 3% Others 3% Power Oil & gas 8% 28% Government 2% Finance & Insurance 6%

General commerce 14% Consumer Credit 8% Real estate & construction Manufacturing 6% 15%

UBN’s second-largest sectorial exposure was to the manufacturing sector which accounted for 15% (FYE2018: 16%) of the loan book and comprised credits to various industries such as food & beverages, breweries and fast-moving consumer goods (FMCG). We expect the performance of obligors in the manufacturing sector to dampen in the short term on the back of disruptions in the global supply chain particularly as most inputs are imported. Rising inflation rates will also increase production costs, while revenues will be subdued by a low purchasing power. As at 31 December 2019, UBN was also exposed to other troubled sectors such as the general commerce (14%), power and energy (8%) and real estate and construction (6%).

During the year under review, UBN granted additional loans to obligors in the finance and insurance, communication, general commerce, power, retail, manufacturing, real estate, and construction sectors while exposures to other sectors contracted largely because of repayments and write-offs3 to a lesser extent. The 202% year on year growth in credits to the communication sector was driven by an additional facility to the country’s largest telecommunications operator during the period. Power sector credits also rose by 73% to ₦45

3 UBN wrote off a total of ₦15 billion in 2019

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

billion due to the declassification of a previously written off impaired exposure, which was brought back on the Bank’s loan book. The power sector is plagued with cash flow issues, which has impaired performance over the years. As a result, the Bank has maintained a cautious stance towards growing power credits.

Figure 4: Loan Book Growth by Sector (FYE2019)

Finance & Insurance 746% Communication 202% Others 143% General commerce 74% Power 73% Consumer Credit 51% Manufacturing 11% Real estate & construction 4% Oil & gas -3% Government -12% Agriculture -28% Transportation -35% Education -63%

There was an improvement in UBN’s non-performing loans ratio year on year. According to the IFRS 9 accounting standards, approximately 67% of the Bank’s gross loans were in the stage 1 category as at 31 December 2019, up from 52% in the prior year while stage 2 loans accounted for 24% (FYE2018: 23%). Stage 3 loans, which made up 10% of the loan book was unevenly split between watch list (4%) and impaired (6%) loans. The improvement in UBN’s loan book was largely caused by the re-classification of about ₦58 billion of stage 3 loans to stage 2 and stage 1 categories based on the syndicate-wide industry classifications of the affected loans and improvements in the performance of some obligors. The Bank also wrote off impaired loans worth ₦15 billion in 2019. Thus, there was a 52.3% decline in the volume of stage 3 loans year on year.

Figure 5: UBN Credit Quality Analysis (FYE2018 and FYE2019) 67%

52%

23% 24% 17% 8% 4% 6%

Stage 1 Stage 2 Stage 3 (Watchlist) Stage 3 (Impaired)

FYE2018 FYE2019

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Although the Bank declared a non-performing loans (NPL) ratio of 6% in 2019 (higher than its peers: Fidelity Bank Plc, 3.3% and StanbicIBTC Bank Plc, 3.9%), stage 3 loans as a percentage of gross loans stood higher at 10%, above the regulatory guidance of 5%. Stage 2 and stage 3 (watch list) loans collectively accounted for 28% (FYE2018: 40%) of gross loans, which is a rating concern given that these exposures are most vulnerable to current macroeconomic headwinds. Agusto & Co is of the opinion that the Bank’s loan portfolio requires careful monitoring, particularly in a period of heightened risks, to forestall an adverse impact on future earnings and capitalisation.

The power and energy sector accounted for the largest portion of impaired loans at 47% and had the highest NPL ratio of 36.3% as at FYE2019, though better than 44.3% recorded in the prior year because of the declassification of a major exposure. The general commerce and retail sectors contributed 20% and 13% to total delinquent loans respectively and recorded NPL ratios of 9.2% and 10% respectively. UBN’s coverage ratio4 on its impaired loans strengthened to 128.6% (FYE2018: 117.8%), excluding regulatory risk reserves. However, the Bank’s coverage ratio for Stage 3 loans stood lower at 76% (FYE2018: 36.8%). When we factored in risk reserves of ₦3.3 billion, the stage 3 coverage ratio increased to 81.7%.

Figure 6: NPL Ratio (Peer Comparison)

20.8%

8.1% 5.8% 3.3% 3.9%

Union 2017 Union 2018 Union 2019 Fidelity 2019 Stanbic IBTC 2019

In our opinion, Union Bank’s asset quality requires further improvement. We also believe that the risk management framework of the Bank requires fortification to forestall deterioration of new credits particularly in a period of global economic turmoil caused by the COVID-19 pandemic. Management projects an NPL ratio of less than 6% by the end of the 2020 financial year, which may be difficult given adverse changes in the global and domestic economies. The Bank’s aggressive stance on recovery which yielded a total of ₦8.8 billion in 2019 (FY2018: ₦4 billion) may also be tapered by weaknesses in the domestic economy. In 2020, UBN projects a 15-20% growth in its loan book, targeted at resilient economic sectors such as education, SME and agriculture on the back of the CBN’s intervention funds to economic sectors affected by the pandemic. We consider UBN’s loan growth projection to be somewhat ambitious; however, we acknowledge that a further devaluation of the domestic currency will bloat the Bank’s FCY loan book.

4 CBN Prudential guidelines

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

RISK MANAGEMENT

Union Bank of Nigeria Plc adopts a moderate risk appetite to ensure sustainable growth in shareholder value. The Bank operates a centralised risk management function headed by the Chief Risk Officer (CRO), who reports to the Managing Director/CEO with a dotted reporting line to the Board of Directors. In 2020, the Bank’s CRO retired effective April and was replaced internally. UBN’s risk management team is divided into six departments for efficiency: credit risk management, operational risk management, market and liquidity risk management, business support and recovery, compliance and legal.

In assessing credit risk, UBN adopts an obligor risk rating (ORR) model for corporate and commercial clients and scorecards for retail risk management. As at FYE2019, approximately 67% of the loan book was in the stage 1 category, up from 52% in the preceding year. Furthermore, 62% of gross loans and advances was granted to investment grade obligors as at the same date. As part of its credit risk management practice, UBN’s exposures are secured by fixed & floating assets as well as real estates, leased assets, cash, quoted shares and other acceptable securities by the Bank, with a loan to collateral ratio of 35% as at 31 December 2019 (FYE2018: 72%). Approximately 90% of these collaterals were in fixed and floating assets.

Figure 7: Loan Book Credit Rating (FYE2019)

CC C AAA 2% 3% 2% CCC AA 1% 7% B 20% A 20%

BB 12%

BBB 33%

Union Bank uses the Basel II standardised approach for market risk capital estimation. Internal models such as Value at Risk (VAR), Economic Value of Equity (EVE), Sensitivity Analysis and Price Value per basis point are used to compute market risks. The Bank’s portfolio is also sensitised monthly for significant adverse movements in market risk factors.

Union Bank stressed its loan book as at FYE2019 based on a worst case scenario of crude oil prices averaging $15 per barrel and the naira weakening to ₦500/$. The impact on the Bank’s statement of comprehensive income showed a ₦6.6 billion loss, factoring in the restructurings of exposures to affected sectors in line with

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

CBN’s forbearance and expected revaluation gains. This estimated loss represents approximately 4% of shareholders’ funds, which we consider moderate.

UBN uses the Basic Indicator Approach (BIA) to measure operational risk while tools such as risk and control self-assessment, key risk indicators, loss data collection and business continuity & disaster recovery management, amongst others are used to manage these risks. During FY 2019, penalties of ₦124.3 million were paid by the Bank (FY2018: ₦27.95 million) for regulatory infractions related to AML/CFT, foreign exchange transactions and the rendition of suspicious transaction report on several split deposits.

We consider UBN’s risk management framework to be adequate for its current business risks. However, current macroeconomic and operating uncertainties necessitate a fortification and closer monitoring of its credit risk particularly to forestall losses in the future.

EARNINGS

During the financial year ended 31 December 2019, UBN’s net earnings improved by 6% to ₦95.5 billion, underpinned by a larger loan portfolio, loan recoveries and a higher non-interest income. The Bank’s interest income amounted to ₦116.5 billion and reflected an 11.2% increase year on year, with growth largely from money market placements. Despite the 20% expansion of UBN’s loan portfolio, interest income from loans and advances inched up by a marginal 1.5% due to a lower interest rate environment elicited by the CBN’s heterodox monetary policies aimed at driving down interest rates. Thus, the yield on UBN’s loan portfolio declined by 70 basis points to 14% in 2019. We believe that the average yield on the Bank’s book could improve with an increased focus on commercial and retail loans. Credits extended to large corporate entities are usually characterised by relatively lower returns.

In 2019, UBN’s interest expense also increased, but by a higher 20.4% year on year due to additional borrowings and a larger customer deposits base. The Bank’s effective cash reserve requirements (CRR) which stood above 40% also pressured funding costs. As a result, Union Bank’s Net Interest Spread5 (NIS) moderated to 44.4% (FY2018: 48.6%) and was its lowest in the last decade. UBN’s NIS compared less favourably with Fidelity Bank Plc’s 45.5% and Stanbic IBTC Bank Plc’s 61.8%. Due to major reclassifications in the loan book (from the stage 3 category to stage 2 and stage 1), Union Bank’s loan loss expense in 2019 was low at ₦184 million given that charges on previously classified stage 3 loans were reversed.

5 Net Interest Spread is net interest income expressed as a percentage of interest income

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Figure 8: Net Interest Spread (NIS) 63.8% 61.8%

48.6%

45.3% 45.5% 44.4%

Union Bank Stanbic IBTC Bank Fidelity Bank

FY2018 FY2019

Supporting Union Bank’s earnings during the period was non-interest income earned from auxiliary activities including electronic banking services, currency and securities trading, account maintenance, commission on letters of credit (LCs) and invisible trades and guarantees which collectively amounted to ₦44 billion in 2019 (FY2018: ₦35.3 billion). The 24.6% year on year growth in non-interest income was predominantly driven by the Bank’s net electronic banking income (which rose by 79% y/y), loan recoveries (which made up a considerable 20% of non-interest income) and fair value gains on its derivatives portfolio. We consider UBN’s auxiliary income to be sustainable, given its headway in digitisation, which drives income from the usage of electronic banking platforms, particularly during the COVID-19 induced lockdown period. The downward review of bank charges by the CBN and an expected decline in international trade transactions would moderate non-interest income in 2020, in our view. However, we recognize that UBN’s complete divestment of its UK subsidiary would support income in 2020.

Figure 9: Breakdown of Non-interest income (FY2019)

Cash Recoveries Other fees and 20% commission 26%

Other Income 14% Net Trading Income 18% FX Revaluation Gains Dividends Net Income from Other 2% 4% Financial Instruments at FVTPL 16%

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

In 2019, UBN’s operating expenses (OPEX) declined marginally to ₦70.8 billion and translated to a cost-to- income ratio (CIR) of 74.1%, lower than 79.3% in the preceding year. The Bank’s Long Term Efficiency Acceleration Program (LEAP), introduced in March 2019 to drive cost optimisation, saved the Bank recurring expenses of over ₦2.4 billion during the year. Specific cost reduction drivers were accommodation and travels, fleet management, repairs and maintenance and power costs. However, non-discretionary regulatory expenses (NDIC premiums and AMCON charges) grew by 4.9% due to the growth in the asset base and customer deposits respectively to account for a considerable 16.7% of total OPEX. While we acknowledge positively the Bank's cost containment strategies, UBN’s CIR remained above the Industry’s estimated average of 65.9% and was higher than Fidelity Bank’s CIR of 73% and Stanbic IBTC Bank’s 55.9%.

Overall, UBN’s pre-tax profits (PBT) rose by 32.6% to ₦24.7 billion and translated to a pre-tax return on average assets (ROA) of 1.5% (FY2018: 1.3%) and pre-tax return on average equity (ROE) of 12.4% (FY2018: 8%). The treasury business segment remained the largest contributor to the Bank’s pre-tax profits with a PBT of ₦16 billion, followed by the corporate segment with a PBT of ₦12.3 billion. UBN’s retail segment maintained a loss position of ₦8.7billion, similar to 2018. Although interest income from retail loans grew year on year, the segment’s performance remained weak because of the high operating costs allocated to the segment. In addition to the direct operating expenses, which are largely technology related, other centrally incurred expenses, largely from the cash reserve requirement (CRR), weakened the segment’s profitability. Concerted efforts to moderate these costs over time through branch optimisation and leveraging digitisation are ongoing.

Figure 10: Profitability Ratios (FY2019)

30.7%

14.9% 12.4%

2.9% 1.5% 1.3%

ROA ROE

Union Bank Stanbic IBTC Bank Fidelity Bank

Although Union Bank’s profitability improved in 2019, it remained lower than its industry peers - Fidelity Bank Plc (ROA: 1.3%, ROE: 14.9%) and Stanbic IBTC Bank Plc (ROA: 2.9%, ROE: 30.7%). In the short term, we expect the Bank’s profits to moderate owing to the COVID-19 pandemic and the attendant impact on the country’s macroeconomic fundamentals and regulatory constraints in terms of the limitation on bank charges and implementation of the cash reserve ratio (CRR). However, the complete divestment of its UK subsidiary should support the Bank’s earnings in 2020.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

CAPITAL ADEQUACY

In 2019, UBN’s shareholders’ funds (core capital or tier I capital) grew by 13.1% to ₦211.2 billion as at 31 December 2019, supported by good earnings. The composition of the Bank’s core capital changed during the review year following a major capital restructuring exercise, the second in the last four years. The restructuring involved a ₦54.5 billion write off from the Bank’s negative revenue reserve balance as at 31 December 2019 against the share premium account. Thus, the negative position of the revenue reserves reversed while share premium reserves declined year on year. Also, in 2019, 174.6 million units of the Bank’s unissued ordinary shares were awarded to key management personnel under its share-based incentive scheme approved in 2014, resulting in a marginal increase in paid-up share-capital (excluding share premium reserves). Union Bank’s core capital accounted for 70.1% (FYE2018: 96.9%) of total adjusted capital, below the regulatory minimum of 75% due to a growth in tier II capital.

Union Bank’s tier II capital more than doubled to ₦49 billion as at 31 December 2019 (FYE2018: ₦13.3 billion) on account of a successful ₦30 billion long term bond issuance in June 2019. The 10-year bond, which was fully subscribed, has a semi-annual coupon payment of 16.2% per annum and matures in June 2029 with a bullet repayment of the principal. The bond is listed on the Nigerian Stock Exchange (NSE) and the Financial Market Dealers Quote (FMDQ) platform. UBN’s tier II capital also comprised fair value reserves of ₦19.96 billion.

The Bank’s Basel II capital adequacy ratio (CAR) computed using the IFRS 9 transitional arrangement prescribed by the CBN strengthened to 19.73% in 2019 from 16.4% in 2018. Considering the full impact of IFRS 9, Union Bank’s CAR stood at 15.91% in 2019, slightly above the minimum of 15% for commercial banks with an international authorisation. UBN’s CAR was higher than Fidelity Bank Plc’s 18.3% and Stanbic IBTC Bank Plc’s 19.4% as at the same date.

Figure 11: UBN’s Capital Adequacy Ratio (2017 to 2019)

19.7% 17.8% 16.4%

2017 2018 2019

Capital Adequacy Ratio Benchmark (15%)

We consider UBN’s capitalisation to be sufficient for its current risk profile. However, the Bank’s large foreign currency loan portfolio heightens its susceptibility to lower capitalisation ratios given that Nigeria is a soft currency zone, with a domestic currency that is subject to a devaluation. However, we expect UBN’s capitalisation ratios to remain within acceptable levels.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

LIQUIDITY AND LIABILITY GENERATION

Union Bank of Nigeria Plc has good brand equity as one of the oldest commercial banks in Nigeria, with operations spanning over a century. In its years of existence, the Bank has expanded its physical and digital footprint across the country with 240 branches and cash centres, 977 Automated Teller Machines (ATM) and 5,900 POS terminals as at FYE2019. The Bank has 5.8 million customers; 2.3 million of whom are registered on its mobile application while 1.3 million are online services users. Through its extensive branch network and electronic banking platforms, UBN generates deposits from retail, commercial and corporate clients across various economic sectors. Figure 12: Customer Deposits by Source (FYE2019)

Government 1%

Corporate 24%

Commercial Retail 18% 57%

As at 31 December 2019, UBN’s customer deposits stood at ₦886.3 billion and reflected a 5% growth year on year, largely from the local currency (LCY) deposits. The mix of LCY deposits improved as low-cost current and savings deposits accounted for 67.6% of total LCY deposits, up from 64.5% in 2018. However, foreign currency (FCY) deposits declined by 2.4% to ₦179.2 billion and were not sufficient to fund the Bank’s FCY loan book of ₦290.4 billion. UBN’s FCY deposits to loans ratio of 67% in 2019 (factoring the previously written off loan that was brought back to the books) was lower than 85.4% recorded in 2018. However, when we consider the Bank's FCY borrowings, the coverage ratio increases to about 96.1%, which we view positively. UBN also has access to FCY funding from other Nigerian banks.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Figure 13: Customer Deposits by Type (FYE2019) 270 20%

250 15%

230 10%

210 5% % Growth %

In billions of Naira of billions In 190 0%

170 -5% LCY Demand LCY Savings LCY Term FCY Deposits Deposits Deposits Deposits

2019 2018 % Growth

Union Bank’s operations were also funded by borrowings from multilateral financial institutions- including on- lending facilities from the Central Bank of Nigeria (CBN) and the Bank of Industry (BOI) and bond issuances under its debt issuance programme which collectively stood at ₦123.9 billion as at FYE2019 (13.8% growth yoy). The outstanding balance on the Bank’s 3-year Series 1 and 7-year Series 2 bond issuances under its Debt Issuance Program stood at ₦13.9 billion6 . In addition, Union Bank had trade finance facilities from multilateral financial institutions and other FCY borrowings from African Export-Import Bank (AFREXIM). During the year under review, UBN, in partnership with Atlas Mara, secured a $200 million funding from the US Development Finance Corporation (DFC) formerly called OPIC, for investments over the next ten years in digitisation, on- lending to SMEs and funding of UBN’s αlpher initiative, a banking proposition for women.

Against the backdrop of an improved deposit mix and a lower interest rate environment, UBN’s weighted average cost of funds (WACF) declined by 30 basis points to 5.6% in 2019, and stood higher than the Industry’s estimated average WACF of 4.9%. We expect the Bank’s WACF to increase on the back of an expected rise in interest rates in the second half of 2020 as the government increases domestic borrowings to fund its budget deficit.

Figure 14: Weighted Average Cost of Funds (FY2019)

5.6% 5.7%

4.9% 3.9%

U N I O N B A N K STANBIC IBTC FIDELITY BANK I N D U S T R Y BANK AVERAGE

6 UBN also issued a 10-year ₦30 billion bond (Series 3) in June 2019. This bond is classified as Tier 2 capital.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

In 2019, UBN’s liquidity profile strengthened with liquid assets accounting for 79.9% of total LCY deposits, higher than the prior year’s position of 54.1% and well above the regulatory minimum of 30%. The Bank’s liquidity profile was upheld by a considerable investment in money market securities, which grew by 73% year on year.

An assessment of the maturity profile of the Bank’s loans and advances against deposits and borrowings as at FYE2019 showed gaps. Given our expectations that interest rates will rise in the short term, we believe that UBN is exposed to re-pricing risks, particularly in the ‘less than three months’ and ‘five years’ maturity buckets. The Bank measures this risk using the re-pricing gap schedule and adopts pre-approved limits for repricing bands to manage the risks. The Economic value of equity model is also used to manage re-pricing risks inherent in the balance sheet.

Figure 15: Interest Rate Re-pricing gap (Loans versus deposits and borrowings) 721.8

307.4 173.4 82 58.8 52.4 48.5 60.3

In billions of naira of billions In 25.6 16.6

Less than 3 6 months 12 months 5 years More than 5 months years

Loans and advances Deposits and borrowings

In our opinion, Union Bank of Nigeria Plc has a good liquidity profile and its ability to refinance is acceptable upheld by its age and domestic brand equity.

OWNERSHIP, MANAGEMENT & STAFF

Listed on the Nigerian Stock Exchange (NSE), Union Bank of Nigeria Plc had total shares of circa 29.2 billion owned by 453,708 individuals and institutions as at 31 December 2019. Foreign investors held approximately 90.68% of the Bank’s equity at the same date. According to the register of members, no shareholder, other than the under-listed held more than 5% of the Bank’s issued share capital as at 31 December 2019.

Table 3: Significant Shareholders as at 31 December 2019 Shareholders Shareholding % Holding Atlas Mara Limited 7,471,752,753 25.58%7 Union Global Partners Limited 19,017,923,071 65.10% Total 26,489,675,826 90.68%

7 Direct holdings

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

Atlas Mara Limited is the Bank’s largest shareholder through its direct holdings of 25.58% and indirect holdings of 24.42% through Africa Development Corporation (which is part of the Union Global Partners Limited). Union Global Partners Limited is a consortium of local and foreign investors including Africa Capital Alliance, African Development Corporation (owned by Atlas Mara), Corsair Investments, FMO, PPF Holdings II Limited and Standard Chartered Private Equity.

Atlas Mara is an Africa focused financial services holding company, founded in November 2013 by the former Group Chief Executive Officer of Barclays Plc, Bob Diamond. Atlas Mara has an asset base of over $2.6 billion with operations in sub-Saharan Africa. Mrs Beatrice Hamza Bassey represents Atlas Mara on the Board of Union Bank of Nigeria Plc.

A 15-member Board of Directors comprising nine Non-Executive Directors (two of whom are Independent Non- Executive Directors) and six Executive Directors governs Union Bank of Nigeria Plc. Mr Cyril Odu, who passed away in September 2019, formerly chaired the Board. Subsequently, Mrs. Beatrice Hamza Bassey was appointed as the acting Board Chairperson. Mr. Emeka Emuwa oversees the management of the Bank as the Group Managing Director/Chief Executive Officer and is supported by 34 management staff. During the 2019 financial year, Mr. Botts John and Mr. Kramer Richard, both Non-Executive Directors retired from the Board effective 19 March 2019 and 16 September 2019 respectively while Mr Mark Patterson and Dr Kenroy Dowers were appointed to the Board as Non-Executive Directors effective April 2019 and October 2019 respectively. Subsequent to the 2019 financial year-end, two Executive Directors - Mr Nath Ude and Mr Kandolo Kasongo retired from the Board of Directors, effective 31 March 2020 and 30 April 2020 respectively. Subsequently, the Bank appointed Mrs. Lola Cardoso and Mr. Joseph Mbulu as Executive Directors.

Mr. Mark Patterson is a senior international banker and lawyer with a 32-year career in leading positions with multinational banks, including Deutshe Bank and ANZ Bank.

Dr Kenroy Dowers is the Group Managing Director, Strategy and Investments at Atlas Mara, Dubai, the United Arab Emirates where he is responsible for fund raising, investor relations, mergers and acquisitions and nurturing relationships with Development Finance Institutions (DFIs).

Mrs Lola Cardoso currently serves as Union Bank’s Head, Retail and Digital Banking. She has over 22 years of experience in commercial banking, investment banking and consulting. Mrs Cardoso joined Union Bank in 2013 as the Head Strategy and Innovation, thereafter appointed Chief Digital Officer. Mrs. Cardoso has an MBA from the Ross School of Business, University of Michigan, and a Bachelor of Business Administration in Finance and Business Economics (Summa Cum Laude) from Ohio University.

Mr Joseph Mbulu is Union Bank’s Chief Financial officer (CFO) and has 26 years of experience in banking, financial management & analysis, organisational transformation and project management. He joined Union Bank as the Transformation Director in 2016. Mr. Mbulu holds an MBA from the Wharton School of Business, Pennsylvania, an MSc in Finance from Lincoln University, Pennsylvania, and BSc in Agricultural Economics from the University of Benin.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

In 2019, UBN employed an average of 2,362 persons, down from 2,593 employees in the prior year. Management staff accounted for 1.4% of staff strength while non-management staff made up the balance of 98.6%. Despite the 8.9% decline in staff numbers, staff costs remained almost at par with the prior year, increasing staff cost per employee by 12.9% year on year. Staff productivity, depicted by net earnings per staff increased by 16.4% to ₦40.4 million and covered staff cost per employee 2.9 times (FY2018: 2.8 times), lower than our expectation and the Industry’s average of 4.5 times. Compared to its industry peers, (Fidelity Bank Plc: 4.7 times, Stanbic IBTC Bank Plc: 4.3 times), UBN’s staff productivity requires improvement.

We consider Union Bank’s management team to be experienced and stable with a good succession plan, particularly at the senior management level. However, staff productivity is below its Industry peers.

MARKET SHARE Union Bank is one of the Nigeria’s oldest banks and the ninth largest by total assets and contingents as at 31 December 2019. The Bank has capitalised on its age and experience to hold a considerable portion of the Industry’s resources. In addition, UBN’s brand equity endears it to investors in the domestic and international markets. Nonetheless, lingering asset quality challenges have constrained the Bank’s profitability and capital, moderating its market share over the years, compared to its contemporaries.

During the 2019 financial year, UBN’s share of the Industry’s resources improved across a number of financial indicators. Specifically, the Bank held 4.3% (FYE2018: 3.7%) of the Industry’s total assets and contingents, 3.5% (FYE2018: 3%) of net loans and advances, 3.5% (FY2018: 3.3%) of net earnings and 2.7% (FY2018: 1.7%) of pre- tax profits. The Bank’s stronger capital base also translated to a market share of 4.6%, up from 3.9% in the prior year. However, UBN’s contribution to the Industry’s local currency deposits declined to 3.7% from 4.1% in 2018 as the Bank moderated its deposit mobilisation on the back of CBN’s LDR directive.

We consider UBN’s market share and industry position to be satisfactory, though unreflective of its years of existence. The Bank has a good domestic brand in the Nigerian market and a short to medium term strategy that is focused on solidifying its footing in the Nigerian banking industry. However, Agusto & Co. is of the opinion that consistent growth in the Bank’s market share is largely hinged on its ability to maintain a good asset quality and preserve its capital base.

OUTLOOK The outlook of the Nigerian economy and the banking industry has weakened owing to the COVID-19 pandemic. Therefore, we anticipate increased pressure on the Industry’s asset quality, earnings and capitalisation in the short term. Given the sectorial composition of Union Bank’s loan portfolio and the high level of stage 2 and stage 3 loans, we foresee a rise in impairments in the short term. However, this will be somewhat moderated by palliatives offered to banks by the CBN to cushion the impact of the pandemic on affected sectors. In addition to the COVID-19 pandemic, which would moderate the Bank’s earnings, a tighter monetary policy stance adopted by the CBN to control macroeconomic indices such as inflation and exchange

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

rates would also dampen the Industry’s earnings. Effective 01 January 2020, the apex bank restricted potential non-interest revenue for the banking industry through a downward review of bank charges. Given expected changes in the Industry’s asset quality and earnings, we expect capitalisation ratios to moderate in the short term, especially as the FCY loan book bloats on account of a further devaluation of the domestic currency. However, UBN’s capital adequacy ratio will remain within acceptable levels. The complete sale of the Bank’s UK subsidiary would support income in 2020.

UBN has adjusted its business and operating model in response to the COVID-19 pandemic to ensure business continuity, employee productivity and safety and customer engagement. In terms of the heightened business risks particularly liquidity risks, credit risks and profitability risks, the Bank has a number of mitigants to cushion the impact of the pandemic on its performance, which we view positively. UBN’s strong shareholders’ support and good domestic franchise evidenced by the oversubscription of its bond issuances are also positive rating factors. We expect these factors to support the Bank through this pandemic era and ensure continuity post COVID-19.

However, based on our expectations that the banking industry’s performance will weaken in the short term due to the outbreak of the novel COVID-19 pandemic and the attendant effect on the Nigerian economy, we hereby attach a ‘negative’ outlook to the rating of Union Bank of Nigeria Plc. Agusto & Co. will continue to monitor unfolding events relating to the pandemic and review the outlook to reflect changes in the operating environment and UBN’s performance.

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

FINANCIAL SUMMARY

UNION BANK OF NIGERIA PLC BALANCE SHEET AS AT 31-Dec-19 31-Dec-18 31-Dec-17 N'000 N'000 N'000

ASSETS

1 Cash & equivalents 136,806,000 7.2% 108,913,000 7.3% 89,957,000 6.2% 2 Government securities 242,218,000 12.8% 196,290,000 13.2% 218,262,000 15.0% 3 Stabilisation securities 184,178,000 9.7% 50,115,000 3.4% 47,540,000 3.3% 4 Quoted investments 1,976,000 0.1% 2,195,000 0.1% 2,195,000 0.2% 5 Placements with discount houses 6 LIQUID ASSETS 565,178,000 29.8% 357,513,000 24.1% 357,954,000 24.6%

7 BALANCES WITH NIGERIAN BANKS 83,000 0.0% 8 BALANCES WITH BANKS OUTSIDE NIGERIA

9 Direct loans and advances - Gross 595,298,000 31.4% 473,396,000 31.9% 531,807,000 36.5% 10 Less: Cumulative loan loss provision (44,685,000) -2.4% (45,359,000) -3.1% (43,252,000) -3.0% 11 Direct loans & advances - net 550,613,000 29.0% 428,037,000 28.8% 488,555,000 33.6% 12 Advances under finance leases - net 13 TOTAL LOANS & LEASES - NET 550,613,000 29.0% 428,037,000 28.8% 488,555,000 33.6%

14 INTEREST RECEIVABLE 15 OTHER ASSETS 74,450,000 3.9% 44,774,000 3.0% 40,090,000 2.8% 16 DEFERRED LOSSES 95,875,000 5.1% 95,875,000 6.5% 95,875,000 6.6% 17 RESTRICTED FUNDS 296,043,000 15.6% 281,868,000 19.0% 251,293,000 17.3% 18 UNCONSOLIDATED SUBSIDIARIES & ASSOCIATES 2,195,000 0.1% 10,567,000 0.7% 10,567,000 0.7% 19 OTHER LONG-TERM INVESTMENTS 64,070,000 3.4% 40,205,000 2.7% 30,754,000 2.1% 20 FIXED ASSETS & INTANGIBLES 63,315,000 3.3% 65,458,000 4.4% 59,750,000 4.1%

21 TOTAL ASSETS 1,711,739,000 90.2% 1,324,297,000 89.1% 1,334,921,000 91.7%

22 TOTAL CONTINGENT ASSETS 185,327,000 9.8% 161,936,000 10.9% 120,119,000 8.3%

23 TOTAL ASSETS & CONTINGENTS 1,897,066,000 100.0% 1,486,233,000 100% 1,455,040,000 100%

CAPITAL & LIABILITIES

24 TIER 1 CAPITAL (CORE CAPITAL) 211,232,000 11.1% 186,752,000 12.6% 280,254,000 19.3% 25 TIER 2 CAPITAL 49,064,000 2.6% 13,335,000 0.9% 38,865,000 2.7%

26 Medium to Long Term Borrowings 123,871,000 6.5% 108,835,000 7.3% 95,736,000 6.6%

27 Demand deposits 213,269,000 11.2% 199,284,000 13.4% 234,336,000 16.1% 28 Savings deposits 264,638,000 13.9% 227,124,000 15.3% 187,406,000 12.9% 29 Time deposits 229,161,000 12.1% 234,384,000 15.8% 265,274,000 18.2% 30 Inter-bank takings 10,686,000 0.7% 31 TOTAL DEPOSIT LIABILITIES - LCY 707,068,000 37.3% 660,792,000 44.5% 697,702,000 48.0% 32 Customers' foreign currency balances 179,260,000 9.4% 183,621,000 12.4% 109,692,000 7.5% 33 TOTAL DEPOSIT LIABILITIES 1,010,199,000 53.3% 953,248,000 64.1% 903,130,000 62.1%

34 INTEREST PAYABLE 35 OTHER LIABILITIES 441,244,000 23.3% 170,962,000 11.5% 112,672,000 7.7%

36 TOTAL CAPITAL & LIABILITIES 1,711,739,000 90.2% 1,324,297,000 89.1% 1,334,921,000 91.7%

37 TOTAL CONTINGENT LIABILITIES 185,327,000 9.8% 161,936,000 10.9% 120,119,000 8.3%

38 TOTAL CAPITAL, LIABILITIES & CONTINGENTS 1,897,066,000 100.0% 1,486,233,000 100% 1,455,040,000 100% Proof

BREAKDOWN OF CONTINGENTS 39 Acceptances & direct credit substitutes 109,710,000 5.8% 89,515,000 6.0% 64,321,000 4.4% 40 Guarantees, bonds etc.. 75,617,000 4.0% 72,421,000 4.9% 55,798,000 3.8% 41 Short-term self liquidating contingencies

2020 Credit Rating Union Bank of NigeriaThe Bank Plc of Industry

RATING DEFINITIONS Aaa A financial institution of impeccable financial condition and overwhelming capacity to meet obligations as and when they fall due. Adverse changes in the environment (macro-economic, political and regulatory) are unlikely to lead to deterioration in financial condition or an impairment of the ability to meet its obligations as and when they fall due. In our opinion, regulatory and/or shareholder support will be obtained, if required. Aa A financial institution of very good financial condition and strong capacity to meet its obligations as and when they fall due. Adverse changes in the environment (macro-economic, political and regulatory) will result in a slight increase the risk attributable to an exposure to this financial institution. However, financial condition and ability to meet obligations as and when they fall due should remain strong. Although regulatory support is not assured, shareholder support will be obtained, if required. A A financial institution of good financial condition and strong capacity to meet its obligations. Adverse changes in the environment (macro-economic, political and regulatory) will result in a medium increase in the risk attributable to an exposure to this financial institution. However, financial condition and ability to meet obligations as and when they fall due should remain largely unchanged. In our opinion, shareholder support should be obtainable, if required. Bbb A financial institution of satisfactory financial condition and adequate capacity to meet its obligations as and when they fall due. It may have one major weakness which, if addressed, should not impair its ability to meet obligations as and when due. Adverse changes in the environment (macro-economic, political and regulatory) will result in a medium increase in the risk attributable to an exposure to this financial institution.

Bb Financial condition is satisfactory and ability to meet obligations as and when they fall due exists. May have one or more major weaknesses. Adverse changes in the environment (macro-economic, political and regulatory) will increase risk significantly.

B Financial condition is weak but obligations are still being met as and when they fall due. Has more than one major weakness and may require external support, which, in our opinion, is not assured. Adverse changes in the environment (macro-economic, political and regulatory) will increase risk significantly.

C Financial condition is very weak. Net worth is likely to be negative and obligations may already be in default.

D In default.

Rating Category Modifiers A "+" (plus) or "-" (minus) sign may be assigned to ratings from ‘Aa’ to ‘C’ to reflect comparative position within the rating category. Therefore, a rating with + (plus) attached to it is a notch higher than a rating without the + (plus) sign and two notches higher than a rating with the - (minus) sign.

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