Commercial activity growth. New loan production rises by 38% y-o-y, and the balance of performing loans grows by 3.3% year-to-date. Off-balance sheet customer funds and private sector sight accounts both grow by 3.2% year-to-date.
Ongoing decrease in NPAs. The Company continues to reduce its non-performing assets, which are down €1,378 million, 35.4% year-on-year, including the NPL portfolio sold and pending of closing for €200 million. Coverage stands at 57%.
High solvency levels and comfortable liquidity position. The CET1 ratio reaches 15.4%, and remains as one of the highest in the sector. This involves a surplus of €1,563 million over the EBC requirements within the SREP framework and reflects the company’s high capitalization. Available liquid assets account for more nearly 23% of total assets.
Grupo Unicaja Banco posts a net profit of €159 million in 9M2019, an 11.8% year-on-year increase. The improvement in the result is underpinned by an increase in the gross margin -driven by a growth of 5.1% in net fee income-, by a decrease of 2.5% in operating expenses and by reduced needs for provisions. Dividend income, financial operations income and other net operating income also improve.
Some of the highlights of this period are: i) increase in credit and new loan production; ii) increase in sight accounts and off-balance sheet funds; iii) decrease in NPAs, while maintaining high coverage ratios; iv) maintenance of high solvency levels; iv) maintenance of high solvency levels; and v) the high and comfortable liquidity position.
Results generation capacity
In 9M 2019, Grupo Unicaja Banco maintained high levels of results generation, which has enabled to reach a net profit of €159 million, a 11.8% 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 6.8% on September 2018, due to the boost of net fee income (+5.1%), dividend income, results of financial operations and other operating income.
Other significant factor in the evolution of profit is the decrease in operating expenses, down 2.5% year-on-year. This allows the pre-provision profit to be up 22.9%, reaching €331 million as at the end of September.
In the nine months to September 2019, Grupo Unicaja Banco has maintained reduced needs for impairments, taking into account that it has anticipated to 3Q2019 the pending restructuring costs for c. €40 million. The recurring cost of risk and foreclosed assets impairments remain at low levels, given the significant coverage levels and the ongoing reduction in NPLs. The ROE stands at 5.4% at the end of September.
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 manner, improving the volumes of both performing loans -boosted by the ongoing growth of new lending-, and of sight accounts and off-balance sheet customer funds.
Performing loans –excluding repos- grew by 3.5% y-o-y and 3.3% y-t-d, with growths in both the private and public sector.
A proof of this commercial boost is the fact that new loan production has increased by 38%, up to €3,490 million, in the nine months to September compared with the same period one year earlier. In the case of corporates and SMEs, the new lending has grown by 16%, whereas in the case of individuals, it has grown by 10%. In the latter group, new mortgages rise by 2% and consumer loans and others, by 34%. The improved volumes in loans to individuals are accompanied by an increase in yield. Furthermore, in 9M2019 new lending to public sector reached €716 million (compared with €89 million as at September 2018).
Customer funds managed by the Group (without valuation adjustments) reached €55,025 million, of which €50,258 million correspond to retail customer funds. These remain practically flat (-0.2% 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 (+3.2% y-t-d), 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 (+8.4%) and of pension plans (+3.2%) in the year.
Decrease in NPAs and high coverage
The persistent decrease in NPAs (NPLs plus foreclosed real estate assets) has allowed Unicaja Banco to exceed the NPA target for 2020. As at the end of September, NPAs, considering the €200 million of NPL portfolio sold and pending of closing, are down €1,378 million (-35.4%) year-on-year, with an NPL reduction of 38.2% and of 31.8% in foreclosed assets. NPLs at the end of period decreased to €1,573 million (1,373 million considering the portfolio sold and pending of closing), and foreclosed assets fell to €1,138 million. The fall in NPLs results in a decrease of 2.8 p.p. in the NPL ratio over the last 12 months, down to 4.7%.
Likewise, Grupo Unicaja Banco’s coverage ratios remain at high levels. NPA coverage stood at 57% as at the end of September 2019; NPL coverage, at 52% and foreclosed assets coverage, at 63%.
The balance of NPAs, net of provisions, stood at €1,177 million, representing 2.1% of the Group’s total assets as at the end of September 2019, compared to 2.8% one year earlier, and involving a decrease of 0.7 p.p.
Strong solvency and comfortable liquidity position
In terms of solvency, as at the end of September 2019, Grupo Unicaja Banco had a CET1 ratio of 15.4%, and an overall capital ratio of 15.6%, 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 13.8% and an overall capital ratio of 14.0%.
These ratios are well in excess of the requirements set by the ECB within the SREP (Supervisory Review and Evaluation Process) framework for 2019, which places the CET1 ratio for Unicaja Banco in 8.75%, and the overall capital in 12.25%. Therefore, the Group has a surplus of 665 bps above the CET1 requirements, equivalent to €1,563 million, and of 335 bps above the overall capital requirements, equivalent to €788 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 NPLs and foreclosed assets over TBV plus NPL and foreclosed assets provisions). The ratio improved to 49.9%, with a year-on-year reduction of 13.4 p.p. and 11.8 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 €12,767 million as at the end of September 2019, representing 22.9% 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 75.2%.
Digital Transformation and plan for the boost of the commercial activity
During 3Q2019 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 nine months of 2019 have seen an increase in the number of digital customers, which represent 39% of the total. Currently, 72% of the total of financial transactions and customer consults are made through e-banking channels, 21% at branches and 7% 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, updating their operating system and including a more agile and customized navigation, as well as replacing terminals with the installation of state-of-the-art devices. This plan for the progressive renewal of ATMs, which started last year and is expected to end in 2020, allows Unicaja Banco to offer its customers new services and features, an improved user experience and increased security in transactions. Currently, the bank has a network of nearly 1,500 ATMs, of which more than 1,100 (around 75%) are running the new operating system.
Also in relation to the plan for the digitalization of payment methods, Unicaja Banco supports the most used mobile payment solutions, as in July it incorporated Samsung Pay and Google Pay, mobile payment services that enable users to make purchases with Samsung and Android devices. These supplement the existing Apple Pay and Unipay App. Unicaja Banco users of Unipay, can make payments with their mobile phones and can also make payments with Bizum.
With regard to the plan for the boost to the commercial activity, this period has seen the launch of a new campaign of consumer loans, both pre-approved and not pre-approved, as well as several campaigns related to insurances, within the framework of the advantages of the Uni Insurance Plan, which allows customers to split the payment of the premiums over 12 installments at no cost. Other actions carried out include special products for young people, a priority segment for Unicaja Banco, and initiatives to increase the customer loyalty.
Other actions in 2019
Unicaja Banco held an Extraordinary General Meeting of Shareholders on 30 July. At the meeting, the appointment of Ángel Rodríguez de Gracia as executive director was approved, for his later appointment as CEO of Unicaja Banco, approved on 28 June by the Board of Director, and already effective as the corresponding regulatory authorizations have been received. The General Meeting of Shareholders also approved the novation of the agreement under which the Board of Directors was authorized for treasury stocks operations for a better adaptation to market conditions.
During 3Q2019, the company has completed its adaptation to two regulations of special significance for its activities: the payment directive PSD2 and the Spanish Law on Real Estate Credit Contracts (LCCI).
With regard to the adaptation to PSD2, the introduction of new identification security elements for access to digital banking, in compliance with the reinforced customer identification, strengthens the security in the access to Unicaja Banco digital systems, which already had strict security measures, and it also improves usability and navigation.
The company has continued to develop actions in the exercise of its Corporate Social Responsibility (CSR) during 3Q2019, such as:
- With regard to financial education, for the second year in a row, a collaboration agreement has been signed with Funcas, within the framework of the Program to Promote Financial Education (Funcas Educa), aimed at improving the financial literacy of citizens. The company has also participated in the organization of different events in Andalusia and Castilla y Leon to commemorate the Financial Education Day and Week, in coordination with the Bank of Spain and the CNMV, and with other institutions.
- In relation to sustainable finance and responsible banking, the bank has joined the communication campaign #aliadosdelosODS, of the Global Compact Network Spain, to promote the dissemination of the 17 Sustainable Development Goals (SDG) included in the 2030 Agenda, adopted by the General Assembly of the United Nations.
- It has also started its activities in the Observatorio Empresarial para el Cumplimiento de la Agenda 2030 (OECA), promoted by the Confederación de Empresarios de Andalucía (CEA) and Unicaja Banco, to coordinate actions for the private sector to comply with the Sustnaible Development Goals.