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June, 2020

DataPro Union Bank 2020 Corporate Rating UNION BANK OF PLC

This report is provided by DataPro subject to the terms & condition stipulated in our Terms of Engagement

CORPORATE RATING REPORT

References Abiodun Adeseyoju, FCA. Abimbola Adeseyoju OladeleAdeoye

EVALUATION VALID TILL: June, 2021

- DataPro Rating: A SUMMARY Short term Rating A2 - Previous Rating: A

Rating Outlook: Stable Trend: Even Currency: Naira  Rating : - EXECUTIVE SUMMARY

A 2019 2018 2017 2016 2015 N’M N’M N’M N’M N’M

 Report Type: Corporate Gross Earnings 159,861 140,066 157,566 126,471 118,366 Rating Profit Before Tax 24,746 18,660 11,576 16,053 18,455  Client: Shareholders' Funds 231,192 200,087 319,119 251,339 233,507 Union Bank of Deposit Liabilities 886,328 844,413 796,708 633,827 569,116 Nigeria Plc Net Loans & Advances 550,613 428,037 488,555 489,890 348,984  Date Compiled Total Assets 1,711,739 1,324,297 1,334,921 1,123,483 1,000,976

15-Jun-2020

RATING EXPLANATION

The Short term rating of A2 indicates Fair Credit Quality and Adequate Capacity for timely payment of financial commitments.

The long term rating of A- indicates Low Risk. It shows very good financial strength, operating performance and profile when compared to the standards established by DataPro. This bank, in our opinion, has a very strong ability to

meet its ongoing obligation. This report does not represent an offer to trade in securities. It is a reference source and not a substitute for your own 20 judgment. As far as we are aware, this report is based on reliable data and information, but we have not verified this or obtained an independent verification to this effect. We provide no guarantee with respect to accuracy or completeness of the data relied upon, and therefore the conclusions derived from the data. This report has been prepared at the request of, and for the purpose of, our client only and neither we nor any of our employees accept any responsibility on any ground whatsoever, including liability in negligence, to any other person. Finally, DataPro and its employees

accept no liability whatsoever for any direct or consequential loss of any kind arising from the use of this document in DataPro @20 any way whatsoever.

Union Bank of Nigeria Plc 2

DataPro Union Bank 2020 Corporate Rating RATING SYNOPSIS

The rating took into consideration all relevant qualitative and quantitative factors to arrive at the assigned risk indicator.

The qualitative information used was based on industry and market intelligence including public information.

The quantitative information was obtained from the company‟s audited and management accounts.

The risk factors were assessed using the company‟s Capitalization, SUMMARY Earnings Profile, Liquidity, Corporate Governance, Regulatory Risk

and Sustainability of subject‟s current healthy profile in the medium to long term period.

 Rating : Overall, the following were observed: - A Strengths:

 Report Type:  Diversified revenue base Corporate Rating  Experienced Management

 Good Profitability  Client: Union Bank of  Improved Cost Management Nigeria Plc

 Date Compiled 15-Jun-2020

Weaknesses:

 Concentration Risk

 Average Liquidity

 High Non-Performing Loan Ratio

20 DataPro DataPro @20

Union Bank of Nigeria Plc 3

DataPro Union Bank 2020 Corporate Rating BACKGROUND

Union Bank of Nigeria Plc (“The Bank”) was incorporated as a Private Limited Liability Company in Nigeria in the year 1969.

However, it began operation in the year 1917 as a branch of Bank Dominion Colonial Overseas (DCO). It became a quoted company in 1971 and Union Bank of Nigeria Plc in 1979.

The Bank offers products and services which include; Savings and Deposits Account, Funds Transfer and Foreign Currency Domiciliation. Others are: Loans, Overdrafts, Equipment Leasing and Trade Finance. SUMMARY

The Bank serves its customers via over 289 sales and service centres, over 977 ATMs and 2,362 staff across Nigeria. The electronic channels of the Bank include: online banking, mobile banking; debt cards and POS  Rating : terminals. As at December 31st 2019, the Bank had active 5,900 POS - machines, 1.3million mobile users and 443,000 online users. A Foreign transactions of the Bank are consummated through its  Report Type: correspondence banks. These are: Citibank, Deutsch Bank, Standard Corporate Chartered Bank, Oddo BHF & ABSA Barclays, Commerzbank, Rating Standard Bank and Union Bank UK to mention but a few.

 Client: st Union Bank of As at 31 December 2019, the Bank has a shareholding unit of Nigeria Plc 29,212,936,538 of which 91% is allocated to Foreign Shareholders. The foreign interests are represented by and Union  Date Compiled Global Partners Limited. 15-Jun-2020

ANALYSIS OF SHAREHOLDING STRUCTURE

Other Individuals , 9.32

Atlas Mara

Limited, 25.58

20

Union Global partners Limited , 65.1

Source: Union Bank Audited Accounts DataPro @20

Union Bank of Nigeria Plc 4

DataPro Union Bank 2020 Corporate Rating KEY FINANCIAL INDICATORS

Item Gross Deposit Net Loan & Total PBT Equity Earning Labs Advances Assets N’M N’M Year N’M N’M N’M N’M 2019 159,861 24,746 231,192 886,328 550,613 1,711,739

2018 140,066 18,660 200,087 844,413 428,037 1,324,297

2017 157,566 11,576 319,119 796,708 488,555 1,334,921

2016 126,471 16,053 251,339 633,827 489,890 1,123,483

2015 118,366 18,455 233,507 569,116 348,984 1,000,976

Source: Union Bank Audited Accounts SUMMARY Union Bank recorded significant growth in all its Key Financial Indicators in the year 2019. This was due to the ability of the Bank to grow its

Earnings, Deposit liabilities and achieve cost efficiency. Gross Earnings,  Rating : Deposit Liabilities and Profit Before Tax grew during the year 2019 by - 14%, 5% and 33% respectively.

A Other key Financial Indicators such as Net Loans & Advances and Equity

also grew moderately during the year under review.  Report Type: Corporate Rating DIRECTORS PROFILE

 Client: Union Bank of The following served on the board during the year 2019; Beatrice Nigeria Plc Hamza Bassey, Emeka Emuwa, Omolola Cardoso, Joseph Mbulu,

 Date Compiled Emeka Okonkwo, Adekunle Sonola, Obafunke Alade-Adeyefa, 15-Jun-2020 Richard Burrett, Ian Clyne, Kenroy Dowers, Furera Isma Jumare, Taimoor Labib, Mark Patterson.

The profile of the bank directors are as stated:

1. Name: Beatrice Hamza Bassey Position: Acting Chair of the Board Education: LL.B - University of Maiduguri, Nigeria

BL - Nigerian Law School

LL.M - Harvard Law School. 20 Nigerian Bar New York Bar Year of Appointment:2019 DataPro @20 2. Name: Emeka Emuwa Position: CEO

Union Bank of Nigeria Plc 5

DataPro Union Bank 2020 Corporate Rating Education: B. Sc - University of Experience (Years.) 38years Year of Appointment:2012

3. Name: Omolola Cardoso Position: Executive Director Education:  B. Sc – Ohio University MBA – Ross School of Business, Michigan Experience (Years.) Year of Appointment:2020

4. Name: Joseph Mbulu SUMMARY Position: Executive Director/CFO Education:  B. Sc – University of Benin

MBA –Wharton School of Business, Pennsylvania

MSc – Lincoln University, Pennyslvania  Rating : Experience (Years.) 24 years - Year of Appointment: 2020 A 5. Name: Emeka Okonkwo

Position: Executive Director  Report Type: Corporate Education: B. Sc – University of Nigeria, NSUKA Rating M. Sc - University of Lagos MBA – Warwick Business School, UK  Client: Experience (Years.) 25 years Union Bank of Nigeria Plc Year of Appointment:2013

 Date Compiled 6. Name: Adekunle Sonola 15-Jun-2020 Position: Executive Director Education: LL.B – Obafemi Awolowo University, Ife MBA – Durham University Experience (Years.) 26 years Year of Appointment: 2015

7. Name: Obafunke Alade-Adeyefa Position: Independent Non-Executive Director

Education: B. Sc-Obafemi Awolowo University, Ile-Ife Institute of Chartered Accountants of 20 Nigeria (ICAN). Experience (Years.) 24 years

Year of Appointment:2017 DataPro DataPro @20

8. Name: Richard Burrett Position: Non-Executive Director Union Bank of Nigeria Plc 6

DataPro Union Bank 2020 Corporate Rating Education: MBA - Durham University Business School. Fellow - Cambridge University Programme for sustainability. Experience (Years.) 25 years Year of Appointment:2013

9. Name: Ian Clyne Position: Non-Executive Director Education: Curtin University of Technology, Perth, Australia. Experience (Years.) 35 years Year of Appointment:2014 SUMMARY 10. Name: Kenroy Dowers

Position: Non-Executive Director

Education: MBA – State University , New York  Rating : Ph.D – State University , New York - Experience (Years.) A Year of Appointment:2019

11. Name: Mrs. Furera Isma Jumare  Report Type: Corporate Position: Independent Non-Executive Director Rating Education: B.Sc. - Ahmadu Bello University Central Bank of Nigeria (CBN)  Client: Chartered Institute of Personnel and Union Bank of Nigeria Plc Development (CIPD)‟s, UK Fellow - National Institute of Management  Date Compiled (NIM) 15-Jun-2020 Experience (Years.) 21 years Year of Appointment:2017

12. Name: Mr. Taimoor Labib Position: Non-Executive Director Education: B. Sc. Carnegie Mellon University Experience (Years.) 20 years

13. Name: Mark Patterson Position: Non-Executive Director 20 Education: Oxford University Experience (Years.) 33 years

Year of Appointment: 2019 DataPro DataPro @20

Union Bank of Nigeria Plc 7

DataPro Union Bank 2020 Corporate Rating CAPITAL ADEQUACY

Item 2019 2018 2017 Year N’M N’M N’M

Shareholders’ Funds 231,192 200,087 319,119

Total Assets 1,711,739 1,324,297 1,334,921

Fixed Assets 57,934 59,830 55,801

Net Loans & Advances 550,613 428,037 488,555

Equity/Total Assets (%) 13.51 15.11 23.91

Equity/Loan & Adv. (%) 41.99 46.75 65.32 SUMMARY Fixed Assets/Equity (%) 25.06 29.90 17.49

Source: Union Bank Audited Accounts

Union Bank grew it‟s shareholder‟s Fund by 16% in the year 2019. It  Rating : increased from N200b (Yr. 18) to N231b (Yr. 19). The growth was due to - the additional Issued and Fully Paid Shares of N46million made during the A year as well as an increase in Profit made during the year. Pre-Tax Profit grew from N18.7b (Yr. 18) to N24.7b during the year under review.

 Report Type: Corporate During the year 2019, the Bank obtained a court order and CBN Approval Rating to write-off an amount of N54.5b from General Reserve balance as at Dec. 2019 against the Share Premium. Consequently, Share Premium  Client: shrank from N187b (Yr. 18) to N133b (Yr. 19). Union Bank of Nigeria Plc The bank‟s total asset grew by 29% from N1.3t (Yr. 18) to N1.7t (Yr. 19).  Date Compiled The growth was due to the increase in all its components excluding Pledge 15-Jun-2020 asset, Investment in subsidiaries, Intangible assets and Defined benefit

assets.

COMPONENT OF TOTAL ASSETS Item 2019 2018

N’M % N’M % Year Liquid Assets 337,726 20 348,367 26 Net Loans & 550,613 32 428,037 32

Advances

Fixed Assets 57,934 3 59,830 5 20

Other Assets 765,466 45 488,063 37

TOTAL ASSETS 1,711,739 100 1,324,297 100

Source: Union Bank Audited Accounts DataPro @20

The Bank maintained the same risk outlook in the year 2018 and 2019. Net loans as a proportion of total asset remained relatively same at 32%.

Union Bank of Nigeria Plc 8

DataPro Union Bank 2020 Corporate Rating The fixed element of the total asset dropped from 5% (Yr. 18) to 3% (Yr. 19). This was due to the disposal and increase in depreciation charge made during the year under review.

COMPARISON OF SHAREHOLDERS’ FUNDS

Nm % 350 Equity Equity/Total Asset 30

300 25 23.9 250 20 200 15.1 15 13.5 SUMMARY 150 10 100

5 50  Rating : N231 N200.1 N319.1 0 0 A- 2019 2018 2017 Source: Union Bank Audited Accounts

 Report Type: Equity as a proportion of total asset dropped marginally from 15% (Yr. Corporate 18) to 14% (Yr. 19). This was due to the mismatch in the growth of Asset Rating and Equity. Similarly, Equity coverage for Loans & Advance dropped from

47% (Yr. 18) to 42% (Yr. 19).  Client: Union Bank of However, as at 31st Dec, 2019, the bank recorded a Capital Adequacy Nigeria Plc Ratio of 19.7% as against 16.4% recorded in the year 2018. This is above  Date Compiled the Central Bank of Nigeria minimum requirement of 15% for banks with 15-Jun-2020 international licenses.

ASSET QUALITY

Item 2019 2018 2017

N’M N’M N’M Year Gross Loan & Adv 595,298 473,396 531,807

Classified Loan 34,760 38,496 110,685

Provisions 16,198 45,359 43,252 20 Classified Loans Prov./Classified 46.60 78.32 39.08 Loans (%)

Classified Loans/Equity (%) 15.04 19.24 34.68 DataPro DataPro @20 Classified Loans/Gross Loans (%) 5.84 7.75 20.81 Source: Union Bank Audited Accounts

Union Bank of Nigeria Plc 9

DataPro Union Bank 2020 Corporate Rating The Bank‟s Gross Loans & Advances was N595b in the year 2019. It recorded a 20% increase as against N497b (Yr. 18). The bank advanced loans in local and foreign currency. Loans and Advances in foreign currency constituted 49% of the Gross Loan and Advances.

LOAN & ADVANCES BASED ON CURRENCY TYPE (As at Dec, 2019)

US Dollar 46% Naira 53%

Pound SUMMARY Others Euro 0% 0% 1% Source: Union Bank Audited Accounts

 Rating : The Bank advanced loans to the retail market, SME, Corporate customers and high networth individuals. However, these loans were distributed - among 14 Sectors as presented A COMPOSITION OF LOAN PORTFOLIO (As at Dec, 2019)  Report Type: Corporate Real Estate & Other Public Transportation Construction Utility Rating Power 0% 6% 0% Agriculture 8% 3% Oil & Gas  Client: Govt 28% 2% Union Bank of Others Nigeria Plc 3%

 Date Compiled Manufacture Communicatio 15-Jun-2020 15% n 7% General Finance & Consumer Commerce Insurance Education Credit 14% 0% 6% 8% Source: Union Bank Audited Accounts

Oil & Gas sector accounted for 28% of the Bank‟s loan book in the year 2019. Other significant sectors in terms of loan concentration are

Manufacturing (15%) and General Commerce (14%). Aside the aforementioned, no other sector got up to 10% in the year 2019. 20

The bank secured it‟s loans and advances against Real Estate, Fixed and

Floating assets, Leased assets, Cash collateral and Other assets. Total DataPro DataPro @20 secured loans and advances accounted for 81% of the loan book. Loans and advances secured by fixed and floating assets accounted for 42% of the

Union Bank of Nigeria Plc 10

DataPro Union Bank 2020 Corporate Rating entire portfolio. However, the unsecured portion of the loans and advances was 19% (Yr. 19) as against 15% (Yr. 18).

DISTRIBUTION OF LOANS PORTFOLIO BY SECURITY (As at Dec, 2019) Real Estate 5% Unsecured 19%

Other Secured Assets 14% Fixed & Floating Assets 42% SUMMARY

Cash Collateral Leased Assets 20% 0%

Source: Union Bank Audited Accounts  Rating : - Total exposure of the top 20 borrowers of the bank was N50.3b in the year 2019 as against N117b (Yr. 18). This represented 9% of the total A loan book of the bank.

 Report Type: Impaired Loans and Advances reduced by 10% from N38.5b (Yr. 18) to Corporate Rating N34.8b (Yr. 19). This position improved the Bank‟s asset quality in the year under review. Classified portion of the Gross Loans and Advances  Client: went down from 8% (Yr. 18) to 6% (Yr. 19). Union Bank of Nigeria Plc Provision made during the year covered 47% of the delinquent Loans &  Date Compiled Advances. This was lower than the previous year attainment of 78% and 15-Jun-2020 below our benchmark of 100%. The net balance of the delinquent loans not

covered by the provision can impair the Bank‟s Equity by 8% in the year 2019.

LIQUIDITY

Item 2019 2018 2017

Year

Loan & Advances/Total Assets (%) 32.17 32.32 36.60 20

Liquid Assets/Total Assets (%) 19.73 26.31 24.94

Liquid Assets/Total Deposits (%) 38.10 41.26 4.78

Loans & Advances/Total Deposits (%) 62.12 50.69 61.32 DataPro DataPro @20 Source: Union Bank Audited Accounts

Union Bank of Nigeria Plc 11

DataPro Union Bank 2020 Corporate Rating Total deposits from customer grew by 5% from N844b (Yr. 18) to N886b (Yr. 19) with low cost deposits accounting for 74% of the total deposits. Low cost deposits increased by 8% from N610b (Yr. 18) to N657b (Yr. 19). The Bank‟s deposit is further categorized into local and foreign currency. Foreign elements of the Bank deposits were 20% (Yr. 19) as against 22% (Yr. 18)

COMPOSITION OF DEPOSITS BY CURRENCY (As at Dec, 2019)

Foreign 21%

SUMMARY

Local  Rating : 79% - Source: Union Bank A

The growth recorded in Total deposit was as a result of the increase in  Report Type: Corporate Savings and Current deposit. Savings and Current deposit grew by 17% Rating and 3% respectively while Term deposits reduced from N234b (Yr. 18) to N229b (Yr. 19)  Client: Union Bank of ANALYSIS OF DEPOSITS BASED ON TYPE Nigeria Plc

Item 2019 2018  Date Compiled % % N’M N’M 15-Jun-2020 Year

Current Account 392,529 44 382,905 45.35

Savings Account 264,638 30 227,124 26.90

Term Deposits 229,161 26 234,384 27.76

TOTAL 886,328 100 844,413 100 Source: Union Bank Audited Accounts

Current accounts continues to dominate the Bank‟s total customer deposit.

Current Deposit to total deposit was 44%, 45% and 43% in the years 20 2019, 2018 and 2017 respectively. The total balance relating to the Top 20 depositors of the Bank was N143.7b in the year 2019. This accounted for 16% of the entire depositors‟ funds.

DataPro @20

Union Bank of Nigeria Plc 12

DataPro Union Bank 2020 Corporate Rating ANALYSIS OF DEPOSITS BASED ON MATURITY

2019 Months % N’M Less than 3 months 812,909 91.72 3 - 6 months 38,960 4.40 6 - 12 months 8,286 0.93 1 - 5 years 15,619 1.76 Over 5 years 10,554 1.19 Gross Total 886,328 100 Source: Union Bank Audited Accounts

The maturity profile of the Bank‟s deposit are significantly in short-term. SUMMARY A total sum of N813b will be maturing for payment within 3 months. This

represented 92% of total deposit liabilities in the year 2019. This will increase to 97% within a 12 month period. However, the bank was able to attract long tenured funds during the year under review. The total value of  Rating : fund maturing after one (1) year was N26.2b representing 3% of the - entire deposits. A ANALYSIS OF LOANS AND ADVANCES BASED ON MATURITY

 Report Type: 2019 Months % Corporate N’M Rating Less than 3 months 228,792 41.48

 Client: 3 - 6 months 44,831 8.13 Union Bank of 6 - 12 months 72,936 13.22 Nigeria Plc 1 - 5 years 185,668 33.66

 Date Compiled Overs 5 years 19,409 3.52 15-Jun-2020 Gross Total 551,636 100

Source: Union Bank Audited Accounts

Loans & Advances maturing for payments within a year was N347b. This accounted for 63% of total loans in the year 2019. The balance of 37% will be maturing for payment after one year period.

20 DataPro DataPro @20

Union Bank of Nigeria Plc 13

DataPro Union Bank 2020 Corporate Rating LIQUIDITY GAP ANALYSIS

2019 2019 Net Year Loans & Deposit Liquidity Advances Liabilities Gap N’M N’M N’M Liquid Assets 337,726 - 337,726

Less than 3 months 228,792 812,909 (246,391)

3 - 6 Months 44,831 38,960 (240,520)

6 - 12 Months 72,936 8,286 (175,870)

1 - 5 Years 185,668 15,619 (5,821)

More than 5 years 19,409 10,554 3,034 SUMMARY Source: Union Bank Audited Accounts

There exists a short-term liquidity gap of N663b in the year 2019. This was as a result of the mismatch between the maturity profile of the Bank‟s  Rating : deposit and Loans and Advances for the period. Available liquid asset was - not sufficient to cushion the effect within a year and between the period A of 1 – 5years.

The Bank‟s assets was more liquid in the year 2019 as against 2018. Liquid  Report Type: Corporate element of its total assets was 20% (Yr. 19) as against 13% (Yr. 18). Liquid Rating asset covered 38% (Yr. 18) of the total deposit as against 21% (Yr. 18). The Bank took more risk in the year 2019. Loans to deposits ratio was  Client: higher at 62% (Yr. 19) compared to 51% (Yr. 18). However, this is within Union Bank of Nigeria Plc the regulatory requirement of 65%. The liquidity ratio of the Bank as at year-end 2019 was 51% an improvement compared with 38% (Yr. 18) and  Date Compiled better than regulatory requirement of 30%. 15-Jun-2020

PROFITABILITY

Interest Earnings grew by 11% in the year 2019. It went up from N105b (Yr. 18) to N117b (Yr. 19). The sources of the interest earnings were Cash and cash equivalents, Loans and Advances and Investment securities. However, Loans & Advances generated the highest interest income of 66%

in the year 2019. 20

DataPro DataPro @20

Union Bank of Nigeria Plc 14

DataPro Union Bank 2020 Corporate Rating DISTRIBUTION OF INTEREST INCOME (As at Dec, 2019)

Cash & Cash Equivalents 18%

Investment Securities 16%

Loans & Advances 66%

SUMMARY Source: Union Bank Audited Accounts

The Bank earned its interest income in both local and foreign currencies. The foreign component of the interest income was 31% (Yr. 19) as against 24% (Yr. 18). The naira value of the interest income grew marginally from  Rating : N79.9b (Yr. 18) to N80b (Yr. 19) - A DISTRIBUTION OF INTEREST INCOME BY CURRENCY (As at Dec, 2019)

Foreign  Report Type: 20% Corporate Rating

 Client: Union Bank of Nigeria Plc

 Date Compiled 15-Jun-2020 Local 80%

Source: Union Bank Audited Accounts

Interest expenses grew by 20% from N53.9b (Yr. 18) to N64.8b (Yr. 19). The growth was attributable to the significant increase of all its components. Interest expenses on deposits from customers remained the major interest expenses incurred in the year 2019 and 2018. It

constituted 65% (Yr. 19) of Bank‟s total interest expenses and 69% (Yr.

18). 20

In view of the mismatch in interest revenue and expenses growth, Net interest Margin dwindled from 49% (Yr. 18) to 44% (Yr. 19).

DataPro @20 Non interest earning increased by 23% from N35b (Yr. 18) to N43b (Yr. 19). It comprises of Fee & commission income, Trading income, Cash

Union Bank of Nigeria Plc 15

DataPro Union Bank 2020 Corporate Rating recoveries, Income from financial instrument and Other operating income. The major component of the non-interest income was fee & commission based earnings. The Bank earned 9% of its gross earnings from this source.

DISTRIBUTION OF NON-INTEREST INCOME (As at Dec, 2019)

Other Fee & operating Commission income 32% 17% Financial instrument 15%

SUMMARY Cash Trading recoveries income 17% 19% Source: Union Bank Audited Accounts

 Rating : The appreciable growth recorded in interest and non-interest income - enhanced gross earnings in the year under review. Gross earnings went up A from N140b (Yr. 18) to N160b (Yr. 19).

 Report Type: Total expenses declined marginally by 0.4% from N71b (Yr. 18) to N70.8b Corporate (Yr. 19). The minimal reduction was due to the 7% decline in other Rating operating expenses. It went down from N32b (Yr. 18) to N30b (Yr. 19).

 Client: Other components of Total Expense recorded an increase in the year Union Bank of under review with Personnel Expenses representing 46% of the total Nigeria Plc expenses.

PROFITABILITY INDICES (As at Dec, 2019)  Date Compiled 15-Jun-2020 % 20 15 15 13.32 11 9.33 10 Profit 7 Margin ROE 4.13 5 1.45 1.41 0.99

0 2019 2018 2017 20 Source: Union Bank Audited Accounts

Operating income grew by a better margin of 6% compared to the

increase of 0.4% in operating expenses in the year under review. DataPro @20 Consequently, Cost to Income ratio went down from 79% (Yr. 18) to 75% (Yr. 19).

Union Bank of Nigeria Plc 16

DataPro Union Bank 2020 Corporate Rating

In view of the improved cost position, Profit before Tax increased from N19b (Yr. 18) to N25b (Yr. 19). Consequently, all profitability indices improved during the year under review.

GOVERNANCE, RISK AND COMPLIANCE

Union Bank continues to conduct its affairs through the use of relevant committees. These committees include: Board Credit Committee, Board Finance & General Purpose Committee, Board Risk Management Committee, Board Nomination & Remuneration Sub-Committee, Board Audit Committee, Board Governance Committee and Independent SUMMARY Statutory Audit Committee.

Based on our review, the Bank demonstrated understanding of the risks to its operations. Document reviewed by us also indicated how the Bank  Rating : addresses and mitigates the identified risks. - A Our review of the risks is as follows:

 Report Type:  REGULATORY RISK Corporate Rating Regulatory Risk is the risk that a Bank may cease to operate due to its  Client: inability to meet regulatory requirements of its primary regulator Union Bank of (Central Bank of Nigeria). Nigeria Plc

The major requirement for the Bank is to maintain a Capital Adequacy  Date Compiled 15-Jun-2020 Ratio of 15%.

During our review, we observed that the Bank maintained a CAR of 19.7% (Yr. 19).

 CONCENTRATION RISK

Concentration Risk is the risk of loss to income as a result of significant

exposure to an individual, connected entity or a particular sector.

20 Based on our review, Union Bank Plc is significantly exposed to Oil & Gas, Manufacturing and General Commerce sector.

We therefore consider that adverse changes in the highlighted sector DataPro @20 may have negative impact on the Bank‟s earnings.

Union Bank of Nigeria Plc 17

DataPro Union Bank 2020 Corporate Rating  FOREIGN CURRENCY RISK

Foreign Currency Risk is the risk arising from adverse movements in exchange rates.

Based on our review, we observed that the foreign currency element of the Bank total deposit was 21% (Yr. 19) translating to N179.3b (Yr. 19). This is against foreign currency Loans and Advances of N290b (Yr. 19).

Foreign currency loans to deposits ratio for the year 2018 was at a high point of 162%, while the foreign currency loans as a portion of total loans as at December 31, 2018 was 49%. SUMMARY Consequently, the Bank may be affected in the event of adverse movement in exchange rates. However, our review revealed that the Bank

maintained some of its assets in foreign currencies.  Rating : -  LEGAL RISK

A Legal risk is the risk arising from unfavourable judgment against an entity

which might lead to significant financial losses.  Report Type: Corporate Rating The Bank is currently involved in a number of legal action as defendant with possible liabilities of N6.95trillion as at December 2019.  Client: Union Bank of The cases are at various levels of appeal. We opined that adverse Nigeria Plc judgment from any of the cases may affect the Bank  Date Compiled 15-Jun-2020 CONCLUSION

The rating of Union Bank is supported by its diversified revenue base, experienced management, and good profitability.

However, the rating is constrained by the Bank‟s exposure to concentration risk and high non performing ratio.

-

Consequently, we assign a rating of A . 20

DataPro DataPro @20

Union Bank of Nigeria Plc 18

DataPro Union Bank 2020 Corporate Rating

FINANCES

Financial Position as at

Dec, 2019 Dec, 2018 Dec, 2017 N’000 % N’000 % N’000

ASSETS Cash and cash equivalent 320,707 101.67 159,028 15.66 137,497 Non-pledged trading assets 23,322 63.42 14,271 (28.92) 20,076 Pledged assets 20,150 (58.74) 48,839 (9.69) 54,079 Derivative assets held for risk management 7,081 588.14 1,029 (20.66) 1,297 SUMMARY Loans and advances to customers 550,613 28.64 428,037 (12.39) 488,555 Investments in equity- accounted investee Investment securities 253,633 44.88 175,068 (0.15) 175,329 Assets classified as held for Rating :  sale 8,372 2,476.00 325 - 325 - Trading properties 187 - 187 (63.55) 513 A Investment in subsidiaries 2,195 (79.23) 10,567 - 10,567 Property and equipment 57,934 (3.17) 59,830 7.22 55,801

Intangible assets 5,381 (4.39) 5,628 42.52 3,949 Report Type:  Right of use Assets 2,921 Corporate Deferred tax assets 95,875 - 95,875 - 95,875 Rating Other assets 361,973 11.72 324,003 11.45 290,706 Defined benefit assets  Client: 1,395 (13.35) 1,610 357.39 352 Union Bank of 1,711,739 29.26 1,324,297 (0.80) 1,334,921 Nigeria Plc LIABILITIES  Date Compiled Share Capital 14,607 0.32 14,561 - 14,561 15-Jun-2020 Share premium 133,235 (28.79) 187,091 - 187,091 Reserves 83,350 (1,565) (101.33) 117,467 Derivative financial 2,111 88.99 1,117 14.92 972 instrument Deposits from banks - 10,686 Deposits from customers 886,328 4.96 844,413 5.99 796,708 Current tax liabilities 380 63.79 232 (14.39) 271 Deferred tax liabilities Other liabilities 436,262 158.41 168,827 52.61 110,628 Lease liabilities 1,651

Retirement benefit 840 6.87 786 (1.87) 801

Debtobligations securities issued 13,947 0.63 13,860 20 Long term surbordinated 29,104 bond Other borrowed funds 109,924 15.74 94,975 (0.79) 95,736 1,711,739 29.26 1,324,297 (0.80) 1,334,921

DataPro DataPro @20

Union Bank of Nigeria Plc 19

DataPro Union Bank 2020 Corporate Rating

Signed: Name: Oladele Adeoye Designation: Chief Rating Officer Date: 15th June, 2020

For and on behalf of: DataPro Limited Ground Floor, Foresight House By Marina Water Front 163/165 Broad Street, , Lagos. Tel: 234-1-4605395, 4605396 Cell: 0805-530-3677 Email: [email protected],[email protected] Website: www.datapronigeria.net

SUMMARY © DataPro 2020

All right reserved. This report is provided for your internal business use only and may not be reproduced or re-distributed in any manner whether mechanical or without the permission of  Rating : DataPro. Whilst DataPro attempts to ensure that the information provided is accurate and - complete, however due to the immense quantity of detailed matter used in compiling A the information and the fact that some of the data are supplied from sources not controlled by DataPro, we will not be responsible for any omission therefrom.

 Report Type: Corporate Rating

 Client: Union Bank of Nigeria Plc

 Date Compiled 15-Jun-2020

20 DataPro DataPro @20

Union Bank of Nigeria Plc 20

DataPro Union Bank 2020 Corporate Rating

USER GUIDE

DataPro’scredit rating is an opinion of an issuer‟s/issues overall creditworthiness and its capacity to meet its financial commitment.

Our short-term ratings have a time horizon of less than 12 months in line with industry standards reflecting risk characteristics. The ratings place greater emphasis on the liquidity to meet financial commitment in a timely manner.

The long-term risk indicator is divided into 8 bands ranging from AAA(f) through DD(f). Each band could be modified by + or –. With + representing slightly less risk than –. Such suffixes are not added to the „AAA‟ long –term rating category and to categories below „CCC‟. Or to short-term rating older than A1+.

SUMMARY LONG-TERM RATING

Investment Grade

 Rating : Indicator Meaning Explanation

- AAA Lowest Risk (Superior) Assigned to banks which have superior A financial strength, operating performances and profile when compared to the standards established by DataPro Limited. These banks, in  Report Type: our opinion, have a strong ability to meet their Corporate ongoing obligations. Rating

AA Lower Risk (Excellent) Assigned to bank which have excellent  Client: financial strength, operating performance and Union Bank of profile when compared to the standards Nigeria Plc established by DataPro Limited. These banks, in  Date Compiled our opinion, have a very strong ability to meet 15-Jun-2020 their ongoing obligations.

A Low Risk (Very Good) Assigned to banks which have very good financial strength, operating performance and profile when compared to the standards established by DataPro Limited. These banks, in our opinion, have a strong ability to meet their ongoing obligation.

BBB Slight Risk (Fair) Assigned to bank which have fair financial

strength, operating performance and profile when

compared to the standards established by 20 DataPro Limited. These banks, in our opinion, have an ability to meet their current obligations, but their financial strength is vulnerable to adverse changes in economic conditions.

DataPro @20

Union Bank of Nigeria Plc 21

DataPro Union Bank 2020 Corporate Rating

Non-Investment Grade

Indicator Meaning Explanation

BB Moderate Risk (Marginal) Assigned to bank which have, marginal financial strength, operating performance and profile when compared to the standards established by DataPro Limited. These banks, in our opinion have an ability to meet their current obligation, but their financial strength is vulnerable to adverse changes in economic conditions.

B High Risk (Weak) Assigned to banks which have, weak

SUMMARY financial strength, operating performance and profile when compared to the standard established

by DataPro Limited. These banks, in our opinion

have an ability to meet their current obligation, but their financial strength is vulnerable to adverse changes in economic conditions.  Rating :

- CCC Higher Risk (Poor) Assigned to banks, which have poor financial A strength, operating performance and profile when compared to the standards established DataPro Limited. These banks, in our opinion may not have  Report Type: an ability to meet their current obligation and Corporate their financial strength is extremely vulnerable to Rating adverse changes in economic conditions.

 Client: DD Highest Risk (Very Poor) Assigned to banks, which have very Union Bank of poor financial strength, operating performance and Nigeria Plc profile when compared to the standards

established by DataPro Limited. These banks, in Date Compiled  our opinion may not have an ability to meet their 15-Jun-2020 current obligation and their financial strength is

extremely vulnerable to adverse changes in economic conditions. SHORT-TERM RATING

Indicator Meaning Explanation

A1+ Highest credit quality Indicates the strongest capacity for timely payment of financial commitments. May have an

added “+” to denote any exceptionally strong

credit feature. 20

A1 Good credit quality A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.

DataPro @20 A2 Fair credit quality The capacity for timely payment of financial

Union Bank of Nigeria Plc 22

DataPro Union Bank 2020 Corporate Rating

commitments is adequate. However, near term adverse changes could result in reduction to non investment grade.

B Speculative Minimal capacity for timely payment of financial commitments, plus vulnerability to near term adverse changes in financial and economic conditions.

C High default risk Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.

D Indicates an entity that has defaulted on all its SUMMARY financial obligations.

 Rating : A-

 Report Type: Corporate Rating

 Client: Union Bank of Nigeria Plc

 Date Compiled 15-Jun-2020

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Union Bank of Nigeria Plc 23