Union Bank Limited (Union Bank) has been incorporated at Lahore on 9th October 1991 as a public limited company under the Companies Ordinance, 1984. Its shares are listed on all the stock exchanges of Pakistan. Union Bank is a fully accredited scheduled bank engaged in commercial banking activities, operating under the supervision of the State Bank of Pakistan. It operates 53 branches (2003: 42) in Pakistan and one branch (2003: 1) in Sri Lanka. In line with its strategy of enhancing geographical distribution 11 new branches were added during 2004 enlarging the network to the present level in 20 cities.
It has extensive branch network in Karachi and Lahore. The present review is that of annual accounts of Union Bank alone, and not of the annual accounts consolidated with its subsidiary. Union Bank holds about 66% (2003: about 64%) equity of Union Leasing Limited.
Union Bank share capital increased during the year under review from Rs 1.626 billion to Rs 1.967 billion, which was already above the minimum capital adequacy requirement of Rs 1.500 billion stipulated by the State Bank in 2004. Total shareholder equity increased to Rs 3.346 billion showing the commitment of the sponsors and their faith in Pakistan's economy. Dr Abdullah Basodan holds 51% equity of Union Bank (reduced to 49% subsequent to the year end).
Dr Abdullah Basodan and other directors/executives own over 56% equity of Union Bank. Other banks/DFIs hold 7% equity, corporate sector owns about 15% and the general public holding is over 22%. At end 2004 there were 8,780 shareholders.
Union Bank, at end of the year under review had total assets of Rs 77.7 billion as against Rs 67.3 billion at end of previous year. This increase is net result of movements in different assets. As percentage of Total Assets, Lending to Financial Institutions and the Investments decreased from 10 % and 14 % respectively during the previous year to 6 % and 8 % respectively at the close of the year under review.
As against, Cash with Banks and the Advances increased to 14% and 66% respectively in 2004 from earlier 10% and 60% respectively in 2003. The increase in total assets has been largely financed by increase in Deposits which as percentage of total assets increased from 75% at end 2003 to 81% at end 2004. This has been a prudent move by the bank management.
Union Bank completed the year 2004 with 24 % increase in Mark-up/Interest Income from Rs 3.464 billion for 2003 to Rs 4.295 billion. Net Markup/Interest Income for 2004 witnessed even a bigger increase of 61 % from Rs 1.770 billion for 2003 to Rs 2.853 billion. Non Mark-up Income for 2004 is Rs 1.605 billion (2003: Rs 1.694 billion). Despite increased Administration Expenses at Rs 2.567 billion for 2004 (2003: Rs 2,190 billion), Union Bank succeeded to have Pre tax profit of Rs 1.410 billion (2003: 0.566 billion) and After tax profit of Rs 0.829 billion (2003: Rs 0.428 billion).
Profit after tax as percentage of total Equity increased from 16.4% for 2003 to 24.8% during the year under review. Profitability is high and it could have been still higher if the management had properly controlled the Administration Expenses which as percentage of Total Assets are 3.3%, both for 2004 and 2003. This level of expenses is rather high and the bank must strive to bring it down.
Continuing in the strategic path adopted in 1999, Union Bank had 2004 as a remarkable year. For the first time it crossed the landmark figure of Rs 1 billion in pre tax profits. This performance was a mix of revenue from the core banking business which grew substantially, as well as income from non-fund based activities. Union Bank has rightly established itself as a premier medium sized bank in domestic banking.
Union Bank has maintained during 2004 the level of NPLs at 7% of Advances, the same as that of the previous year. NPLs have a tendency to grow as the banks/DFIs get old. Therefore, the management has to institute strict procedures now to keep NPLs within the acceptable level. The bank has provision against doubtful loans at 2% of Advances for 2004 (2003: 3%). The provision is said to be in excess of the prescribed requirement. However, as some doubtful loans stay under cover for quite sometime due to different reasons, as a prudent policy it would be better if the management makes higher general provision.
Union Bank's staff forms the back bone of its business. Initiatives in training and human resource development have been key part of its strategy. It has also initiated the Management Associate Programme for fresh MBAs, which is designed to induct and train high potential candidates. Number of personnel employed at end 2004 was 1,413 (2003: 1,319). The bank operates an approved Provident Fund Scheme for all its permanent employees. Equal monthly contributions are made, both by the bank and its employees to the Fund @ 8.33% of basic salary of the employees. The bank also operates an approved funded Gratuity Scheme for all its permanent employees. Motivated employees perform much better.
The balance sheet of Union Bank now has a certain depth and the size of the bank makes it a significant player in the market. The management team has to maintain focus on innovative products and superior service to all its customers and stakeholders.
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Performance Statistics (Million Rupees)
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Balance sheet (As on December 31)
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2004 2003
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Total Assets: 77,711 67,328
Cash, Balances With Banks: 10,694 6,681
Investments-Net: 6,572 9,287
Advances-Net: 51,075 40,409
Deposits, Other Accounts: 62,955 50,452
Total Liabilities: 74,365 64,720
Share Capital: 1,967 1,626
Reserves, Retained Earnings: 1,369 881
Surplus on Revaluation of Assets: 10 101
Total Equity: 3,346 2,608
Subordinated Loan: 1,486 1,308
Equity and Sub. Loans: 4,832 3,916
Contingencies and Commitments: 23,327 17,805
Ratios:
Cash and bank/Total Assets: 14% 10%
Investments/Total Assets: 8% 14%
Advance/Total Assets: 66% 60%
NPLs/Advances: 7% 7%
Provisions/Advances: 2% 3%
Deposits/Total Assets: 81% 75%
Total Liabilities/Total Assets: 96% 96%
Total Equity/Total Assets: 4.3% 3.9%
Equity and Sub. Loans/Total Asset: 6.2% 5.8%
Deposits/(Equity + S Loans) (times): 13.0 12.9
Advances/Deposits: 81% 80%
Investments/Deposits: 10% 18%
Contingent/(Equity + SL) - (times): 4.83 4.55
Share Price Rs (24-3-05): 39.00 -
Book Value Per Share: 17.01 16.04
Price/Book Value ratio: 2.29 -
Income Statement (Y end Dec 31): 2004 2003
Markup/Interest Earned: 4,295 3,464
Markup/Interest Expensed: 1,442 1,694
Net Markup/Interest Income: 2,853 1,770
Total Non-mark-up Income: 1,605 1,694
Admin Expenses: 2,567 2,190
Profit Before Taxation: 1,410 566
Profit After taxation: 829 428
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Ratios:
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Net Mark-up Income/Total Assets: 3.7% 2.6%
Non-Markup Income/Total Assets: 2.1% 2.5%
Admin expenses/Total Assets: 3.3% 3.3%
Profit before Taxation/Total Assets: 1.8% 0.8%
Profit After Taxation/Total Assets: 1.1% 0.6%
Profit After Tax/Total Equity: 24.8% 16.4%
EPS-After Tax Rs: 4.21 2.63
Cash Dividend: 10.0% 10.0%
Dividend Payout Ratio: 24% 38%
Stock Dividend: 25% 10%
Price/Earning Ratio: 9.25 -
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COMPANY INFORMATION: Chairman: Choudhri Mueen Afzal H.I.; President and Group CEO: Shaukat Tarin; Director: Dr Abdullah Mohammad Abdullah Basodan; Chief Operating Officer (I.O.): Muneer Kamal; Company Secretary: Syed Liaquat Ali
Registered Office: Union Bank Limited, P-69, Kotwali Road, Faisalabad. Main Office: Union Bank Limited, 5th Floor, New Jubilee Insurance House, I.I. Chundrigar Road, Karachi Auditors: Taseer Hadi Khalid & Co, Chartered Accountants Legal Advisors: M/s Cornelius, Lane & Mufti, Advocates & Solicitors
Web Address: Not reported.