Growth of the commercial activity. New loan production rises by 30%, and the balance of performing loans grows by 3.5% in the year. Off-balance sheet customer funds and private sector sight deposits grow by 2.7% and 2.2% year-to-date respectively.
Decrease in NPAs. The Company continues to reduce its non-performing assets, which are down €778 million, 18.9% year-on-year, with coverage standing at 56.6%, one of the highest rates in the sector. Additionally, the recently announced sale of portfolios, executed in July, implies an additional decrease of €830 million, with a positive P&L impact of around €17 million before tax, an increase of 40 bp in the CET1 capital ratio and a decrease in the NPL ratio to 4.7%.
High solvency levels and comfortable liquidity position. The CET1 ratio stands at 14.8%, and remains as one of the highest in the sector. This involves a surplus of €1,436 million over the EBC requirements within the SREP framework and reflects the institution’s high capitalization. Available liquid assets account for more than 21% of total assets.
Grupo Unicaja Banco posts a net profit of €116 million in 1H 2019, an 11.4% year-on-year increase. The improvement in the result is underpinned by an increase in the gross margin of -driven by a growth of 5.2% in net fee income-, by a decrease of 2.7% in operating expenses and by reduced needs for provisions.
Some of the highlights of this period are: i) new loan production; ii) increase in off-balance sheet funds; iii) decrease in NPAs, while maintaining high coverage ratios; iv) maintenance of high solvency levels; and iv) the high and comfortable liquidity position.
Results generation capacity
In 1H 2019, Grupo Unicaja Banco maintained high levels of results generation, which has enabled to reach a net profit of €116 million, a 11.4% year-on-year growth. The key drivers behind that high capacity to generate results are the improvement in the gross income, the decrease in operating expenses –within the framework of a policy to improve efficiency-, and the reduced needs for provisioning, due to both maintained fall in NPAs’ volume and to the existing high coverage levels.
The gross income is up 0.6% on June 2018, due to the boost of net fee income (+5.2%), dividends, results of entities accounted for using the equity method and other operating expenses and revenues. The net interest margin over total average assets improves to 1.05%.
Other significant factor in the evolution of profit is the decrease in operating expenses, down 2.7% year-on-year. This allows the pre-provision profit to be up 6.2%, reaching €192 million as at the end of June.
In 1H 2019, Grupo Unicaja Banco has maintained reduced needs for impairments. The company has allocated to this section €46 million during the semester, maintaining low levels in cost of risks, given the high coverage levels and the ongoing decrease in NPLs. The ROE stands at 6%.
Finally, at the end of the second quarter of 2019, the Company announced the sale of the share of 20% that Unicaja Banco held in Autopista del Sol (Ausol). The execution of the said sale is expected to result in a positive impact on P&L of €111.9 million.
Boost to the commercial activity: growth in lending and in customer funds
The Group’s commercial activity continues to grow in a sustained and profitable way, improving the volumes of both performing loans -boosted by the ongoing growth of new lending-, and of sight and off-balance sheet customer funds.
As for lending, new loan production grew by 30% year-on-year in 1H 2019, and stood at €2,352 million. In SMEs, a year-on-year growth of 12% has been recorded, whereas in individuals, the new lending grew by 19%, 9% in mortgages and 46% in consumer and other loans. This improvement in the volume of lending to individuals is accompanied by an increase in yield. Furthermore, in 1H 2019, new lending transactions to the public sector have reached €387 million (compared with €89 in June 2019).
All the above has resulted in a year-on-year growth of 0.5% in performing loans (excluding repos), and a year-to-date growth of 3.5%, with increases both in the public and private sector.
Customer funds managed by the Group (without valuation adjustments) reached €55,559 million, of which €49,896 correspond to retail customer funds. These have decreased by 1% year-to-date, with clearly differentiated trends: funds with lower costs and those with higher yields –such as sight deposits and off-balance sheet funds- improve (+2.2% and -2.7% y-t-d respectively), whereas the rest of on-balance sheet funds are down. The rise in off-balance sheet funds is underpinned mainly by the good evolution of savings insurances (+7%) and of pension plans (+2.2%) in the year.
Fall in NPAs and high coverage
It is important to remark the persistent decrease in NPAs (NPLs plus foreclosed real estate assets), which have fallen by €778 million (-18.9%) over the last 12 months, with decreases of €609 million in NPLs (-26.0%) and of €169 million in foreclosed assets (-9.5%). The balance of the Group’s NPLs at the end 1H 2019 decreased to €1,731 million, and that of foreclosed assets, to €1,604 million, improving the target for 2020. The fall in NPLs results in a decrease of 1.8 pp in the NPL ratio over the last 12 months, down to 5.9%.
Likewise, Grupo Unicaja Banco’s coverage ratios are among the highest in the sector. NPA coverage stood at 56.6% as at the end of June 2019; NPL coverage, at 52.1% and foreclosed assets coverage, at 61.5%.
The balance of NPAs, net of provisions, stood at €1,446 million, which represents 2.6% of the Group’s total assets as at the end of June 2019, compared to 2.9% at the end of June 2018, involving a 0.3 pp decrease.
In this section, the recently announced sale of loan and real estate portfolios, executed in July, must be mentioned. Should they have been executed as at 30 June, they would have implied an additional decrease of €830 million in NPAs. The mentioned sales would result in a positive P&L impact of around €17 million before tax, an increase of 40 bp in the CET1 capital ratio and a decrease in the NPL ratio to 4.7%
Strong solvency and comfortable liquidity position
In terms of solvency, as at the end of June 2019, Grupo Unicaja Banco had a CET1 ratio of 14.8%, and a total capital ratio of 15.0%, among the highest in the sector.
In fully loaded terms (once the transitional period of the solvency regulations has expired), Unicaja Banco has a CET1 ratio of 13.2% and a total capital ratio of 13.4%.
These ratios are well in excess of the requirements set by the ECB within the SREP framework for 2019, which places the CET1 ratio for Unicaja Banco in 8.75%, and the total capital in 12.25%. Therefore, the Group has a surplus of 602 bps above the CET1 requirements, equivalent to €1,436 million, and of 272 bps above the overall capital requirements, equivalent to €648 million, what reflects the high capitalization of the company.
The positive levels of coverage, solvency and balance sheet quality are also reflected in a new improvement of the Texas ratio (indicator measuring the percentage of NPAs and foreclosed assets over TBV plus NPL and foreclosed assets provisions). The ratio improved to 58.1%, with a year-on-year reduction of 7.8 p.p. and 3.1 p.p. year-to-date.
Unicaja Banco maintains solid and excellent liquidity positions, as well as a high degree of financial autonomy. The available liquid assets (public debt mainly) and discountable at the ECB, net of the used assets, amount to €11,937 million as at the end of June 2019, representing 21.3% of the Group’s total balance sheet. Likewise, customer funds with which the company finances itself exceed largely its lending, as reflected by the loan to deposit (LTD) ratio, which stands at 76.4%.
Digital Transformation and commercial dynamism plans
During 1H 2019 Unicaja Banco has continued with the development and implementation of its Business Plan 2017-2020, which includes, among others, digital transformation plans and plans for the boost of the commercial activity, designed with focus on the customer.
Within the framework of the digital transformation plan in force, the first half of 2019 has seen an increase in the number of digital customers, which represent 30.6% of the total. Currently, 68% of the total of financial transactions and customer consults are made through e-banking channels, 22% at branches and 10% in ATMs.
Likewise, Unicaja Banco continues advancing in its digitalization process with the boost to functionalities of online channels, developed with advanced technologies. In this line, the Company has continued with the process to renew ATMs, with a significant extension of their functionalities and with the goal of providing customers with a more agile and personalized operation. The Company has also reinforced the security systems of its Data Processing Center.
After the end of the first half of the year, the recent incorporations of Samsung Pay and Google Pay are to be mentioned. These mobile payment services enable users to make purchases with Samsung and Android devices, and they supplement the existing Apple Pay and Unipay App. With Unipay, Android users can pay in physical shops with their devices and they have access to Bizum, the interbank solution to make immediate payments between smartphones of individual users and payments to NGOs.
With regard to the commercial dynamism plan, this period has seen the launch of special products for young people (Young Rental Guarantee), for senior citizens, and specific actions for the agricultural sector.
Unicaja Banco has incorporated several technical upgrades in the process of management of loan transactions, and it has expanded its mortgages and consumer loans, offering competitive financial conditions adapted to different profiles and situations.
The Company has also implemented the adaptation to the provisions of the Spanish law on real estate loan contracts (Ley de Contratos de Crédito Inmobiliario), as well as improvements in the management of mortgage loans, with the focus on modelling and on the quality offered to the different groups of customers.
After the end of the first half of the year, Unicaja Banco reached an agreement with the fintech Ebury, specializing in foreign exchange. This agreement will allow businesses and freelancers which are customers of the bank to have access to the products and services related to international and currency transactions offered by Ebury. This is the first agreement in Spain between a financial institution and a fintech specializing in foreign currency and international transactions.
Other actions in 2019
The Board of Directors of Unicaja Banco resolved, on 28 June, to propose the appointment of Mr. Ángel Rodríguez de Gracia, currently General Director of Assets Recovery and Non-core Business at the bank, as CEO of Unicaja Banco, a nomination that sets the start of a new stage of reinforcement of the Business Plan. The appointment as executive director is to be put to a vote at the Extraordinary General Meeting of Shareholders convened to be held on 30 July. The effectiveness of the said appointment, as well as the nomination by the Board of Directors for the said position, are subject to obtaining the corresponding regulatory authorizations.
The Institution has continued to develop actions in the exercise of its Corporate Social Responsibility (CSR) during 1H 2019, such as:
(i) The maintenance of actions related to entrepreneurs and business owners through the offer of competitive financial products adapted to their needs, alliances with business and professional organizations, and the implementation of training sessions.
(ii) In relation to sustainable finance and responsible banking, an agreement has been reached with the Confederación de Empresarios de Andalucía (CEA), to collaborate in the launch of the Oficina Empresarial para el Cumplimiento de la Agenda 2030 (OECA).
iii) Within the actions related to financial education, the ‘10th Conferences on Financial Education for Young People’ have concluded, with the participation of more than 19,000 high school students from educational centres in Andalusia, Castilla y León, Castilla-La Mancha, Melilla and Madrid. The ‘10th Financial Olympics’ have reached a participation of more than 2,000 students registered. The launch of a new training line, Edufiagro –focused on the agricultural sector, circular economy and sustainable finances- must also be mentioned.
(iv) Unicaja Banco has joined the ‘Programa de Solidaridad en la Empresa’ of the Spanish Association Against Cancer (AECC), to raise awareness among its staff on the adoption of healthy habits for cancer prevention.