Union Bank of Nigeria Plc, H1 2012 Facts Behind the Figures Funke Osibodu Group Managing Director/Chief Executive Outline 1 2 3 4 5 6 7 8 9 10 Overview of UBN The Group- Business Divisions & Subsidiaries Branch Footprint Rescue and Reposition Strategy Our Transformation Journey So far UBN Historical Performance UBN Ratios H1 2012 Results & Position Assessment New Core Investors, Board & Management Going Forward Strategy 2 Overview Of UBN Established as Colonial Bank in 1917; later acquired by and re-named to Barclays Bank in 1925; became Union Bank of Nigeria in 1979 Listed on the Nigeria Stock Exchange in 1971 Has the third largest branch network in Nigeria with 349 branches Key strengths Iconic, trusted household brand Low cost and stable deposit base Pan Nigerian branch network Banks most of the largest and prominent domestic corporates in Nigeria 3 Business Divisions UBN UBN Retail Retail Banking Banking
Asset Asset Management Management Treasury Treasury & & Investment Investment Banking Banking Insurance Insurance Corporate Corporate Banking Banking Other Other Group Group Companies Companies 88 Subsidiary Subsidiary Entities/4 Entities/4 Associated Associated Companies Companies 4 UBN Subsidiaries UBN subsidiaries include: S/N Subsidiary Nature of Business 1 Union Bank, UK Commercial Banking 2 Union Capital Markets Stock brokerage & Investment Banking
3 Union Homes Savings & Loans Mortgage Banking 4 Union Trustees Trusteeship & Asset Management 5 Union Assurance Company Insurance 6 UBN Property Company Real Estate Development & Facility Management 7 Union Registrars Registrars 8 Union Pensions Pension Custodian UBN has requested for regulatory forbearance with compliance with CBN Regulation 3 of 2010 that restricts the scope of banking activities This is to allow for the input of core investors given the ongoing ownership and board changes 5 UBN Branch Footprint Extensive Distribution/ Branch Footprint(1) Union Bank Branch Network UBNs far-reaching network of ~350(1) branches that caters for both rural and sub-urban regions in Nigeria gives it a competitive advantage The bank has a concentration of branches in the South West, the economic hub of Nigeria
With banking sector reform and current competition in the financial sector, the size of UBNs branch network will be difficult to replicate Note (1) Excludes branches associated with Union Homes, UBNs mortgage business 6 Outcomes Issues Union Bank Then (What went wrong?) Weak internal controls combined with poor financial controls Weak Corporate Governance and Absence of dynamic Management Weak Risk Management Framework & Systems Low contribution of Subsidiaries to Group Profitability Large Portfolio of Non-performing Loans High Cost to Income Ratio Un-reconciled GL balances Low Staff Productivity compared to Competitors Low Fee Income Compared to Competitors Declining Market Share in core areas of business
Over concentration of loan portfolio on downstream oil and gas companies Operational Losses Increasing Number of Loss Making Branches Manual processes and inadequate technology support Aging work force and decaying branch infrastructure CBN intervened on August 14 2009, replaced the Executive Management Team and appointed a fiveman team largely CBN Intervention made up of professionals with strong and versatile experience to stabilise and recapitalise the bank. The Central Bank of Nigerias made an initial $800mm cash injection (in the form of a 7-year, 6% note) into UBN in 2009 to stabilize the institution, and contain the liquidity crisis. This has since been repaid CBN guaranteed all inter-bank placements and foreign lines of credit to ensure continued confidence in the banking industry Engagement of independently KPMG to undertake diagnostic review of Union bank and all its subsidiaries to ascertain issues in the bank and set the context on identified lapses Management Team Funke Osibodu Group Managing Director Over 30 years experience in the banking sector Philip Ikeazor
Director Corporate, Investment Banking and Treasury Over 21 years experience in the banking sector Ibrahim Kwargana Director Commercial & Retail Banking, North Over 25 years experience in the banking sector Adekunle Adeosun Director Commercial & Retail Banking, South Over 23 years experience in the banking sector Internationally experienced team with extensive experience with various multinational corporates Excellent performance of the team over the last 3 years resulting in the Managing Director being ranked amongst the top 50 world business women by the Financial Times Review 8 Rescue and Repositioning Strategy Close the Tap Wind down the old bank in a safe & structured manner Jan 10 Dec10 Jan11 Dec 12 Reposition the Bank for Growth Turn Bank into profitability Commence medium term strategic renewal for sustainable growth Create a new bank that leverages the strengths of the old bank and create a merit-driven organization Union Bank Reloaded The New Union Bank Aug 09 Dec 09 Clean up the books
Repositioning the Bank for Growth Selling and Marketing Aggressive, structured and focused marketing and sales approach to a well segmented customer base Operation al Efficiency Leveraging scale, technology, superior business processes and cost to drive down the cost to income ratio Risk Manageme nt Reducing loan losses on a sustainable basis and deploying a robust enterprise risk framework Financial Strategy Producing accurate and reliable financial information and developing a more strategic approach to economic strategy and forecasting to improve revenue and profit Capacity Building Increase workforce productivity through improvements in employee skill set, deployment and attitude 10 Key Accomplishments During the Rescue & Reposition Phases (2010-2012) & Major Strategic Thrusts to Sustain Them In The Long Term Credit and Credit Infrastructure Centralization of Credit Review/Approval Cleansing of risk assets portfolio Rigorous credit documentation requirements Credit Risk Management transformation
Development of market risk and operational risks disciplines Started the implementation of Enterprise Risk Management Systems Performance Improvement Improved proportion of profitable branches from 66% in September 20102 to 76% as at July 2012 Improved mobilization of low cost deposits Enhanced branch leadership and accountability Adopted alternate channels to service customers (eg. ATMs Established 70 flagship branches Systems and MIS Infrastructure Plan to upgrade to Flexcube UBS Phased renovation of branch infrastructure; starting with flagship branches Significant reduction in number of reconciling items and unproofed GL accounts Implementation of cost management initiatives to drive operational efficiency and reduce cost to income ratio, including group shared services Process & Systems (cont) Tech investment:
infrastructure, real-time treasury, risk mgmt Maintained clean balance sheet; no off- balance-sheet credits Contractor rational-isation and spending moratorium Process & IT re- engineering Shifted back office to frontoffice from 60/40 to nearly 40/60 Human Capital (Culture and Key Hires) and People Management Strategic hiring in key areas Staffing realignment with emphases on business development and customer relationship management Merit-based performance management Rejuvenation of workforce. 1500 staff left and 600 joined the bank Senior Management engagement with Union The Brand Considered a first generation bank, UBN is one of Nigerias oldest and largest commercial banks by assets and size The New UBN Viewed as a national
asset/household name in Nigeria Strong brand recognition and a loyal customer base Customer base mostly made up of people who have grown and stayed with the bank Retained significant brand equity despite recent challenges In order to maintain and grow the customer loyalty and brand recognition enjoyed by the bank, a rebranding drive has been initiated to make the brand more visible Post the rebranding exercise, the internal transformation of the bank is also being evidenced externally 12 OUR NEW LOOK (Contd) 13 UBN Historical Performance 12 months 3/31/2009 Nmillion 129,182 9 months 12/31/2009 Nmillion 97,387 12 months 12/31/2011 Nmillion 66,492 Interest and similar income Interest and similar expense Net interest income 104,865 (37,565) 67,300 72,832 (45,331) 27,501 53,235 (31,264)
21,971 Fee and commission income 24,317 24,555 9,748 Net fee and commission income 24,317 24,555 9,748 Operating income 91,617 52,056 35,228 Operating expenses (64,288) (56,793) (71,976) Profit/(Loss) before provisions, prior year items & Exceptional Items 27,329 (4,737) (55,277) 2,421 (2,421) - (96,668) (66,918) (278,212) (285,370)
(59,712) (114,989) Gross earnings Prior year items Provision for losses on risks assets/employee benefits/others Profit/(Loss) before taxation UNION BANK-FUNDING & LIQUIDITY 120.00 LIQUIDITY RATIO 100.00 80.00 60.00 40.00 20.00 0.00 3/ 2 6/ 01 1 17 / 2 6/ 01 1 1/ 2 7/ 01 1 15 /
8/ 2 6/ 01 2 Benchmark The liquidity ratio has remained well above the regulatory requirement . Above is a graphical representation of UBNs Liquidity ratio trend between June 2011 and June 2012 Diversified Loan Portfolio % by Industry, FY2009, FY2011 and H1 2012 26% 33% 6% 10% 6% 12% 14% 15% 11% 3% 2009 2009 Communication Real Estate 10% 30% Others Agriculture General Commerce Manufacturing Consumer Credit Finance & Insurance Oil & Gas 23% 2011
JUNE 2012 2011 UBNs loan portfolio has become more diversified Oil & Gas, which made up a significant portion of loans in 2009 has declined from 30% to 10% at H1 2012 16 Rescue and Repositioning Strategy - Outcome Pre-Intervention Status Declining market share in core areas of the business Weak financial position: High NPL ratio > 40% Weak liquidity Capital deficiency with CAR of -9.51% Low level of branch profitability Huge number of un-reconciled GL balances High operational expense profile Weak internal controls Decaying branch infrastructure Weak corporate governance Poor risk management practices Aging workforce Poor financial control Subsidiaries not leveraging Group synergy to drive value creation Post-Intervention Status Quality growth in market share and profitability Strong financial position: Low NPL ratio @ 5% Strong liquidity Solid capitalization with CAR of 20.79% Increased number of profitable branches Books significantly reconciled Improved system of internal controls Significantly reduced cost profile Improved bank infrastructure Strengthened corporate governance Significantly improved risk management
practices Younger workforce emerging Improved financial accountability Accountable Subsidiaries Half Year 2012 Results Group Bank Group Bank Commentary Statements of Comprehensive Income In millions of Nigerian Naira Unaudited Results 6 months to 30/6/2012 Interest income 44,382 39,126 Interest expense (9,673) (7,903) Net Interest Income Net fee and commission inicome Net trading income Other operating income Underwritting Profits Net Premiums from insurance contracts Operating income Net impairment gain/(loss) on financial assets Personnel expenses Depreciation and amortisation Other operating expenses Profit/Loss before income tax Income Tax Profit/Loss for the Period 34,709 7,314 2,574
(61,577) 12,460 9,793 (61,577) 3,678 16,139 3,758 13,551 21,280 (40,297) Slight reduction in interest income is primarily due to lower yields on average earning assets following migration from 46,189 risk assets to government securities in 2012 Significant reduction in interest expense is due to exit from (15,544) expensive funding sources following recapitalization in 2011 30,645 5,324 1,426 6,704 13,454 44,099 Huge reduction in impairment charge reflects improved quality of risk assets portfolio following sale of NPLs to (45,369) AMCON (14,482) (2,414) Reduction in other operating expenses is due to a non(47,513) recurring other operational provisions of N37 bn in 2011 (65,679) (65,679) 21,669 (44,010) Current Position Assessment of UBN Rating Assessment Criteria C 1 Capital Adequacy 2 3 4
5 Rating Justification Capital Adequacy Ratio stood at 20.16% as at June 30, 2012 Asset quality is good post sale of NPLs A Asset Quality to AMCON M E L Management Quality Earnings Liquidity Strong management team, and will be augmented in several key areas. Earnings are positive and growing quarter on quarter on account of increased earning assets and better portfolio quality following sale of NPLs to AMCON The bank has been a net placer of funds in the interbank market since its recapitalization Key: 1 Excellent; 2 Good; 3 Satisfactory; 4 Poor; 5 Unsatisfactory 19
Recapitalisation through Core Investor led Strategy Due diligence by prospective investors commenced in early 2010: African Capital Alliance (ACA) investment consortium emerged as Preferred Core Investor Proposed capital injection was $500million Tier 1 and $250million Tier 2 ACA consortium - now Union Global Partners Ltd - holds controlling interest in UBN: African Capital Alliance Standard Chartered Private Equity ABC Holdings Group Corsair Capital FMO Netherlands Richard Chandler Corporation A newly reconstituted board, reflecting the change in ownership of the bank, has commenced charting a course for the new Union Bank that will build upon, and complement, the stabilizing actions taken after the intervention 20 Full recapitalization accomplished in December 2011 with an AMCON bridge Although UGPLs investment took place in 3 phases, full recapitalisation was achieved in December 2011 through AMCONs investment to: September, 2011 (USD200.5m) African Capital Alliance Corsair Capital Standard Chartered PE FMO Richard Chandler Corporation
Inter-Private Equity African Development Corporation Partner Re African Capital Alliance March, 2012 (USD397m) African Development Corporation July/September, 2012 (USD500m) bring net asset value to zero, & Provide equity bridge of $299.5m to UGPL, which was fully taken up by UGPL in July/September 2012 AMCON UGPL 20% 2) As promised to shareholders, Rights Issue was attempted (without success) by the Bank, but with no impact on full capitalisation Post recapitalization, the UBN Board was reconstituted Current Shareholders 65%(5year lock up) 15%
100.0% UBN Holding Company 100.0% UBN Other Subsidiaries/Associates 21 Consortium Members Consortium Member Brief Profile Private Equity Value Add Founded in 1997, ACA is a leading independent private equity firm investing in West Africa (principally in Nigeria and the Gulf of Guinea) Local presence and knowledge Broad local network Private equity arm of Standard Chartered Bank Plc USD4.2 bn principal investments to date Has invested USD400 mn in Africa since 2008 Access to know-how from one of Africas leading banks Significant risk management expertise which will be brought into UBN Financial services group focussing on the banking, insurance market and payment African financial services operational solutions in SSA. In addition, ADC is part of capability through ABC Holdings Limited the German ABL group of companies Experience in bank turnaround in SSA which has total AUM/administration of EURO6.8bln (US$8.5bln RCC Good partner for sponsoring shareholder group
A multi-billion dollar international investment group with Head office in Investor with significant experience in Singapore since 2005, with satellite offices developing economies in India, Indonesia, Kenya & Egypt Highlights the importance of building book value per share as a key performance metric 22 Consortium Members Committed Brief Profile Consortium Member One of the longest standing private equity firms focused exclusively on investing in the global financial services industry Corsair invests exclusively in financial services and has over $2.5b in assets under management Value Add International PE fund that is specialised in the financial services sector with rich banking industry expertise Excellent in turnaround strategy and operational efficiency capability Expertise in international governance, controls, Enterprise Risk Management FMO is a leading DFI in developing countries and is one of the largest bilateral Experienced using sustainable private sector development banks environmental, social and governance worldwide. FMO has a AAA rating from (ESG) practices to drive strong financial Standard and Poor's. results and long-term viability Highly regarded by regulators Committed Tier 2 Debt Provider Brief Profile Value Add OPIC is the U.S. Governments development finance institution. It is an independent agency of the United States Government that mobilizes U.S. private
sector investment in new and emerging markets in order to support sustainable economic development of those markets Since its establishment in 1971, OPIC has financed more than 4,000 projects providing USD188 billion of investment in emerging markets. OPIC commitment reflects confidence in Nigeria and the Consortium to successfully transform UBN OPIC is providing the USD250m Tier 2 loan investment in UBN OPIC performed significant due diligence and, based on that diligence, committed to the largest U.S. governmental agency loan in Nigeria 23 Current Board & Management Highly Experienced Grade Executive Directors Non Executive Directors Assistant General Managers, Deputy General Managers, & Number Cumulat ive Years of Experie nce Average Years of Experien ce Key Institutions Prior to Joining Union Bank 4 (new GMD and additional
EDs expected) 118 29.5 NAL Merchant Bank Ltd, Continental Merchant Bank Ltd (Former Chase Merchant Bank), Nigeria Intl Bank Ltd (Citibank) MBC Intl Bank Ltd, Ecobank Nigeria Ltd Ecobank Transnational Inc, FBN Merchant Bankers Ltd First Bank of Nigeria Plc, Nigerian-American Bank Ltd United Bank of Africa Plc, Ecobank Kenya Ltd Bankers Trust Company New York, National Bank of Nigeria Ltd 5 (more additions expected) 187 37.4 Arthur Anderson & Co., African Capital Alliance Ministry of Industry (Minister), Nigeria Economic Summit Group Nigeria Industrial Development Bank (now Bank of Industry) National Insurance Corporation of Nigeria, Nigerian National Petroleum Corporation, Kaduna Refining & Petrochemical Co. Nigerian Reinsurance Corporation, Goldman Sachs Virgin Management Ltd, Virgin Nigeria Airways Standard Chartered Private Equity UBA, FIRST BANK, SPDC, ECOBANK, MBC INTBANK, CITIBANK, STANBIC IBTC BANK PLC, GTB, BRITISH AMERICAN TOBACCO, PHILLIPS CONSULTING, ZENITH BANK, KPMG, FITC, FCMB, ACCESS BANK 24 Current New Non-Executive Directors Dick Kramer(OFR) Chairman Chairman of African Capital Alliance. Came to Nigeria 34 years ago to launch Arthur Andersen & Company as Managing Partner. He trained in Accountancy and earned an MBA from Harvard Business School before joining Arthur Andersen in 1958. Mr. Kramer continued in Nigeria to consult, invest and continue community service activities including at the Nigeria Economic Summit Group (NESG); the Harvard Business School Association of Nigeria (HBSAN); the Lagos Business School; and the American Business Council. He has been honoured with many prestigious awards, including the national merit award of Officer of the Order of the Federal Republic (OFR); the Zik Prize in Leadership; and Institute of Directors award for Entrepreneurship. Dr. Yemi Osindero is the Head of West Africa Private Equity of S tandard Chartered Private Equity. He co-founded Virgin Nigeria Airways in 2005 and was Chief Operating Officer and member of its Board of Directors. His experience spans investment banking, financial advisory, M&A initiatives, and strategy at global firms like Goldman Sachs, Virgin Group, Hawkpoint Partners Limited , etc. He holds a B.Eng. (First Class Honours) in Chemical and Bioprocess Engineering from University of Bath, UK; and a Ph.D in Chemical Engineering from the same university. He has played a number of leadership roles,
including at the Board of Airline Representatives (BAR) in Nigeria and the Presidential Committee on Ticket Pricing, among others. Dickie Agumba Ulu is a management expert with over 30 years of professional/industrial experience. He trained at various times in the UK in Marketing/Insurance; Risk Management; Human Resource Management and Organisational Designs. He was General Manager, UK, Nigeria Reinsurance Corporation, London; Managing Partner at DKU Associates, London; and Special Assistant to the Presidential Adviser on National Orientation and Public Affairs, among others. He had also undertaken many national assignments, including Chairman, Presidential Review Committee on Streamlining the Functions of Nigerian Film Corporation and the National Films & Video Censors Board; Chief Dr. (Mrs.) Akande (OON) studied Accountancy at the University of North London. Completed her postgraduate programme at the Harvard Business School, Boston, USA and also attended management courses at both Oxford University, United Kingdom, and Institute for Management Development in Lausanne, Switzerland. She was the first woman honourable minister of industry in the Federal Government of Nigeria in December, 1997. At various times, Chief Mrs. Akande was a director of both the National Insurance Corporation of Nigeria, (NICON), and Nigeria Industrial Development Bank (NIDB). She was bestowed with the national honour of Officer of the Order of the Niger (OON) in 2003. She was appointed to the board of Union Bank in 2008 Engineer Mansur Ahmed holds a first degree in Mechanical Engineering from Nottigham University and a Masters degree in Industrial Engineering and Administration from Cranfield University. He also holds a postgraduate certificate in Investment Appraisal and Management of the Harvard Institute of International Development. He started his working career as a Research Assistant with Epsom Research Laboratories, UK and later returned to Nigeria where he joined the Ahmadu Bello University as an Assistant Lecturer in the Department of Mechanical Engineering. He has worked in the Manufacturing industry in companies such as Dunlop Nigeria Industries Limited, Bgauda and Kaduna Textiles Limited. He is currently the Director General of the Nigeria Economic Summit Group (NESG). He joined the Board of the Bank as Non- Executive Director in 2007. 25 Going Forward The next phase of transformation is under the incoming Group Managing Director - Emeka Emuwa This is a going forward journey, building upon the successes thus far delivered and based upon the core principles of: Creating a client-driven institution serving customers through competitive and innovative products supported by positive customer experiences Investing in top-tier people, efficient processes and scalable systems and infrastructure Instituting holistic risk management strategies supported by underlying infrastructure to enable prudent growth New Executive Management Team- November 2012 Emeka Emuwa Group Managing Director Designate Philip Ikeazor Director Corporate, Investment Banking and Treasury Over 21 years experience in the banking sector Ibrahim Kwargana Director Commercial & Retail Banking, North Over 25 years experience
in the banking sector Adekunle Adeosun Director Commercial & Retail Banking, South Over 23 years experience in the banking sector 27 Near-term and Long-term Strategy Near Term strategy Quality growth of risk asset portfolio Focus on priority sectors of the economy Adopt best credit risk management practices Strengthen Nigerian Franchise Build capacity in key areas Increase wallet share of customers business to grow fee-based income Optimize branch network architecture and enhance group synergy Deepen customer relationships Extend product offerings Near Term Strategy Continue reengineering of operational processes for improved efficiencies Utilize Shared Services, where appropriate, to reduce operating cost Reinforce operational risk management practices Upgrade IT and physical infrastructures, including branches to improve customer service delivery Accelerate rollout of i Union strategic initiatives Leverage cashless and financial inclusion policies to deploy mobile banking products to the unbanked Deepen awareness of banks suite of eBusiness products to enhance banks capacity to serve existing customers via alternative channels Long-Term Strategy Become top 5 most profitable financial institution group in Nigeria Leverage group synergy to transform strategic subsidiaries Improve customer service delivery by adopting best practices and upgrade
infrastructure Increase share of wallet of existing customers to boost fee-based income Leverage technology and e-Business platform to improve cost/income ratio Conclusion New executive management installed by the CBN were successful over past three years in Rescuing & Repositioning the bank through: addressing the issues that led to CBN intervention in the bank redirecting the credit infrastructure and operational infrastructure, rebranding the bank improving the customer service and customer base rejuvenating existing work force whilst also injecting a new breed of talent. Amcon provided the facility to clean up the banks toxic assets and bridge the capital formation system At the same time, working alongside the Central Bank capitalization plan for the bank, Union Global Partners Limited, a consortium of strategically aligned group of investors, completed its USD$500m recapitalization in September 2012. Union Bank Group is now back in profit and progressing well The new journey of transformation going forward will result in an institution that will create lasting value for all key stakeholders OUR REALITY 30 Thank You
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