Union National Bank announces record profit for 2012 of Dhs1.6bn, up by 6.8%

The profit for the fourth quarter of 2012 after recognizing provisions of Dhs352m (Q4-2011: Dhs292m) was Dhs136m (Q4-2011: Dhs125m), an increase of 8.6% compared to the corresponding quarter of 2011.

Commenting on the results, His Highness Sheikh Nahayan Mabarak Al Nahayan, Chairman, Union National Bank, said, "The Group maintained a positive momentum to achieve record profit for the year 2012. In addition to the solid and consistent financial performance it is heartening to note that the Bank continues to be recognized by leading international, regional and local bodies in the industry for its attainment in the field of Quality and Service Excellence which should propel the Bank to offer truly best in class products and services to its customers."

Commenting on the results posted by the Group, Mr. Mohammad Nasr Abdeen, Chief Executive Officer, Union National Bank, said, "In 2012, the focus for the Group has been to buttress the solid financial position while steadfastly delivering quality products and service to our customers. The year saw steady increase in profits, high liquidity and strong capitalization levels. The asset quality has been stabilizing although the operating environment continues to remain uncertain."

The operating profit for the year ended 31 December 2012 was Dhs2,304m (2011: Dhs2,109m), an increase of 9.2% compared to the preceding year. The operating income for 2012 was Dhs3,091m (2011: Dhs2,838m) an increase of 8.9% driven by a growth both in net interest income and net income from Islamic financing which was up by 6.2% in 2012 to Dhs2,539m (2011: Dhs2,389m) and an increase in non-interest income which rose to Dhs552m (2011: Dhs448m), up by 23.2% over the prior year. The basic and diluted earnings per share for 2012 was Dhs0.59 (2011: Dhs0.56).

An increase in average interest earning assets and improved net interest margin resulted in an enhanced level of net interest income and net income from Islamic financing. The net interest margin rose by 12 bps from 3.08% in 2011 to 3.20% in 2012 as the Group focussed on yield improvement and curtailment of funding costs by mobilising low cost deposits. The non-interest income increased strongly by 23.2% in 2012 to reach Dhs552m (2011: Dhs448m) principally due to an increase in income from dealing in foreign currencies and trading and non-trading financial instruments which increased over four fold in 2012 to Dhs133m (2011: Dhs33m). The lower fee and commission income of Dhs437m for 2012 (2011: Dhs467m) due to the implementation in 2011 of the Central Bank of the UAE guidelines on lending to individuals was fully offset due to increased income from trading and non-trading financial instruments and the lower fair value loss recognized on the investment properties.

The cautious and measured approach adopted by the Group to grow its franchise resulted in a marginal decline in the net loans and advances to Dhs57.3bn as at 31 December 2012 (31 December 2011: Dhs57.6bn). The customers' deposits recorded a growth of 5.2% reaching Dhs63.4bn as at 31 December 2012 (31 December 2011: Dhs60.3bn). The credit to deposit ratio improved significantly to 90.4% as at 31 December 2012 (31 December 2011: 95.5%). The Group buoyed its liquidity position with liquid assets reaching 23.0% of the total assets as at 31 December 2012 (31 December 2011:19.8%). Similarly, the advances to stable resources ratio mandated by the Central Bank of the UAE strengthened to circa 78% as at 31 December 2012 (31 December 2011: 86.0%) against the regulatory requirement of less than 100%. In 2012, the Bank continued to diversify its funding profile raising $300m of medium term financing in the last quarter of the year. The consolidated assets demonstrated healthy growth of 5.7% to reach Dhs87.1bn as at 31 December 2012 (31 December 2011: Dhs82.5bn).

The Group expanded its international footprint by opening a full service branch in Kuwait which would further augment the presence of the UNB Group which now operates through over 90 branches and office in the United Arab Emirates, China, Egypt, Kuwait and Qatar. The UNB Group continued to invest in its human capital, technology and other enabling infrastructure initiatives to consistently grow its franchise. This resulted in an increase in operating expenses by 8% for 2012 to Dhs787m (2011: Dhs729m). The efficiency ratio improved by 20 bps to 25.5% for 2012 (2011: 25.7%) continuing to be amongst the best in the UAE banking sector.

The ratio of non-performing loans and advances to gross loans and advances at the 2012 year-end was stable at 4.7% (31 December 2011: 3.7%) and was unchanged from 30 September 2012. The past due but not impaired loans and advances as at 31 December 2012 reduced significantly compared to the previous year end. The loan loss coverage was 78.6% as at 31 December 2012 (31 December 2011: 74.7%) with the loan loss provision being taken in accordance with the International Financial Reporting Standards and the guidelines of the Central Bank of the UAE . The general provision was enhanced by 27.1% in 2012 to reach Dhs995m as at 31 December 2012 (31 December 2011: Dhs783m). The general provision constituted 1.4% of credit risk weighted assets as at 31 December 2012 (31 December 2011: 1.07%), against a requirement of 1.5% set by the Central Bank of the UAE to be met by 31 December 2014.

The return on average equity, excluding the Tier 1 capital notes, for 2012 was 14.0% (2011: 14.6%) with return on average assets for 2012 being 1.9% (2011: 1.8%). Capital adequacy continued to remain strong with overall Basel II Capital Adequacy ratio being 23.2% as at 31 December 2012 (31 December 2011: 21.9%) and the Basel II Tier 1 Capital Adequacy ratio being 18.5% as at 31 December 2012 (31 December 2011: 16.7%), well above the Central Bank of the UAE requirement of overall and Tier 1 capital adequacy ratio of 12.0% and 8.0% respectively.

The Board of Directors has recommended a dividend distribution of 10% cash dividend and 5% bonus shares subject to the approval by the regulators and the shareholders.

Awards and Recognition

In 2012, Union National Bank has been bestowed various accolades, internationally, regionally and locally in a wide spectrum of areas covering Quality and Service Excellence, Leadership and Product innovation.

Some of the prominent awards conferred on the Bank during the year are listed below.

• Sheikh Khalifa Excellence Award - Diamond Category 2012
• UNB recognized as a Superbrand in 2012 by the UAE Superbrand Council
• International Socrates Award for the "Best Enterprise" from the Europe Business Assembly in the United Kingdom
• Best Savings Product for the UNB Smart Account Product at the Banker Middle East Product Awards 2012
• Best SME Product for the UNB Medic Loan at the Banker Middle East Product Awards 2012
• The "European Award for Best Practices 2012 in the Gold Category" from the European Society for Quality Research at an Award ceremony held in Amsterdam, Netherlands
• Mohammad Bin Rashid Al Maktoum Business Award 2011 in the finance category for the second time, having earlier received this honour for the 2008 cycle
• Inaugural UNB Sustainability Report rated Level A+ by Global Reporting Initiative (GRI)
• International Diamond Prize for Customer Satisfaction 2012, presented by the European Society for Quality Research in Rome, Italy
• 2012 Golden Europe Award for Quality and Commercial Prestige, presented by OMAC - Otherways Management Association Club, Paris
• Best Banking Group in the UAE at the World Finance Banking Awards 2012
• Asia's Most Preferred Brand in Banking & Financial Sector and Lifetime Achievement Award to the CEO, UNB at the 2nd Asian Leadership Awards
• International European Quality Award from the Europe Business Assembly in Oxford, United Kingdom
• Global Award for Perfection, Quality & Ideal Performance organized by Otherways International Research & Consultants at an award ceremony held in Italy
• International Diamond prize for Excellence in Quality 2012 in Platinum Category by European Society for Quality Research at an award ceremony held in Belgium
• Leadership Programme Award at Middle East HR Excellence Awards