Sound results generation capacity. Pre-provision profit is up 5.8%, reaching €402 million, underpinned by the 5.5% increase in net fees and by the 2.0% decrease in operating expenses, as well as by the results of the real estate business
Growth in the commercial activity. Performing loans grow by 0.7% y-o-y, whereas new loan production increases by 28% in the same period. Off-balance sheet customer funds grow by 2.2% y-o-y, and sight deposits are up 7.1%
Ongoing decrease in NPAs. The company continues reducing its NPAs, down by €1,117 million (-31.1%) in the year. The coverage ratio stands at 57.9%, improving by 0.6 p.p. in the year, and one of the highest in the sector
Increase of the payout percentage. The balance sheet quality and solvency levels, which improve in the year, allow the Company to consider a proposal to increase the percentage of results devoted to dividend payment to 45%, equivalent to €77 million, the highest dividend paid by the bank so far. This means an increase of 25% in the dividend per share, and a 5.6% dividend yield
New Strategic and Transformation Plan 2020-2022. The bank has approved the launch of a new three-year strategic plan, with the following axes: diversification of the business model, improvement of efficiency, prudent and agile risk management, enhancing data and analytics, and the adoption of new ways of working and cultural evolution, with transformation as a transversal axis and with focus on the customer.
Grupo Unicaja Banco posts, as of the end of the year 2019, a net profit of €172 million, a 12.9% year-on-year increase. The improvement in the result is driven by an increase in the gross margin, by the contribution of the real estate business and by the decrease in operating expenses, as well as by reduced needs for impairments of non-productive assets.
This increase in the result is especially remarkable as in 2019 the bank has booked €230 million to provisions in order to reinforce future profitability, within the framework of the new strategic plan, approved in 4Q 2019. This important effort has been possible thanks to the improvement in the pre provision profit and to the contribution of extraordinary capital gains, such as those generated by the sale of the stake in Ausol, announced in June.
In short, the main highlights of Unicaja Banco in 2019 have been the result generation capacity, maintaining leadership in its core regions (Andalusia and Castilla y Leon), the ongoing decrease of costs, the increase of future structural profitability, the comfortable positions of solvency, credit quality and liquidity, as well as the significant improvement in remuneration to shareholders.
Results generation capacity
In 2019, Grupo Unicaja Banco maintained high levels of result generation, which has enabled to reach a net profit of €172 million, with a year-on-year growth of 12.9%. The key drivers behind that high capacity to generate result are the improvement in the gross margin, the decrease in operating expenses –within the framework of a policy to improve efficiency-, and reduced needs for provisioning, due to both the fall in NPAs volume and to the existing high coverage levels.
The gross margin is up 1.0% compared to December 2018, due to the performance of net fees (up 5.5%), to the improved contribution of the real estate business (reflected in the section Other revenues/expenses), as well as by the increase of dividends, which have offset the lower contribution of the trading income.
Another relevant factor in the evolution of results is the decrease in operating expenses, down 2.0% compared to 2018. This makes the pre provision profit to grow by 5.8%, reaching €402 million at the end of December.
In the year 2019, Grupo Unicaja Banco has maintained reduced needs for impairments, taking into account that it has made extraordinary allocations, related to the approved strategic plan, for an amount of €230 million. The recurring cost of credit and impairments for foreclosed assets remain at low levels, due to the significant coverage levels and to the ongoing reduction of NPAs. At the end of December, the ROE (Return on Equity) stood at 4.4%, 0.4 p.p. higher than one year before.
Boost to the commercial activity: growth in credit and customer funds
The Group’s commercial activity continues to grow, with a sustainable and profitable improvement in the volumes of performing credit, as a consequence of the ongoing increase in new lending, and despite the increase, in the last quarter, of the early redemption of transaction, resulting in a growth lower than that derived from the increase in new lending developed over the year. On the other hand, the dynamism is also reflected in the growth of customer funds, especially in the sections of sight deposits and off-balance sheet funds.
Performing credit ex-repo is up 0.7% in the year, focused on the public sector, and with a slight decrease in the private sector, where the mentioned early redemptions have had an impact.
A proof of the said commercial momentum is the fact that new loan production has increased by 28%, reaching €4,155 million in 2019, and the fact that a growth is seen in all the segments. In companies, a year-on-year growth of 11% has been recorded, whereas in individuals, the new lending has reached 9%, with growths of 3% in mortgagees and 23% in consumer and other loans. This improvement in lending to individuals is accompanied by an increase in its yield. Furthermore, in 2019, new lending transactions to public administrations have reached €723 million (versus €125 million in 2018).
The volume of customer funds managed by the Group (without valuation adjustments) reached €55,558 million at the end of 2019, of which €50,898 million are retail customer funds. These funds grow in the year (+1%), with a clearly differentiated behavior: an improvement is seen in those funds with lower costs and in those which generate higher yield -such as sight deposits and off balance sheet funds, which increase by 7.1% and 2.2%, respectively-, whereas the rest of balance sheet funds post decreases. Off-balance sheet funds have been boosted mainly by the good performance of savings insurances (+3.8%) and pension plans (+3.3%).
Fall in NPAs and high coverage
The sustained reduction of NPA (NPL plus foreclosed real estate assets) has allowed Unicaja Banco to reduce it gross exposure by €1,117 million (-31.1%) over the last twelve months, with decreases of 29.9% in NPLs and of 32.6% in foreclosed assets. The Group’s balance of NPLs, at the end of 4Q, fell to €1,351 million and that of foreclosed assets, to €1,120 million. The fall in NPLs results in a decrease in the NPL ratio of 1.9 p.p. in the last twelve months, down to 4.8%.
It is important to remark that these volumes of decrease in NPAs have not had a negative impact on the coverage levels, but have reinforced them in 0.2 p.p. in the year, reaching 57.9%, one of the highest in the sector. NPA coverage stood as at the end of December 2019, at 54% in the case of non-performing loans and at 63% in the case of foreclosed assets.
So, the balance of NPAs, net of provisions, stood at €1,040 million, what represents 1.8% of the Group’s total assets as at the end of December 2019, vis-à-vis the 2.7% of the end of December 2018, involving a 0.8 p.p. decrease.
Strong solvency levels and comfortable liquidity position
In terms of solvency, as at the end of December 2019, Grupo Unicaja Banco has improved its solvency, having a CET1 ratio of 15.6%, and a total capital ratio of 17.1%, among the highest in the sector and with a year-on-year increase of 0.2 p.p. and 1.5 p.p. respectively.
In fully loaded terms (once the transitional period of the solvency regulations has expired), Unicaja Banco has a CET1 ratio of 14.0% and a total capital ratio of 15.5%. This represents a year-on-year increase of 0.5 p.p. in the CET1 ratio and of 1.8 p.p. in the total capital ratio.
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 total capital in 12.25%. Therefore, the Group has a surplus of 487 bps above the overall capital requirements, equivalent to €1,121 million, what reflects the high capitalization of the company.
The balance sheet quality and solvency, improving every year, allow to consider the submission for approval at the next Annual General Meeting of Shareholders, of a proposal for a cash payout of 45% of the Group’s net profit. This will result in the distribution to shareholders of a total dividend cash payout of €77 million, vis-à-vis the €61 million distributed in the year 2018, representing an increase of 25% in the dividend per share and a dividend yield of 5.6%.
The positive levels of coverage, solvency and balance sheet quality are also reflected in a further improvement of the Texas ratio (indicator measuring the percentage of NPLs and foreclosed assets over TBV plus NPL and foreclosed assets provisions). This ratio improved to 46.7%, after a y-o-y decrease of 14.5 p.p.
The positive impact on solvency that the transaction of change of control in Caser may have, in the year 2020, in Unicaja Banco capital, estimated in 35 bps, due to the room for accounting revaluation of the stake in the insurance company (which is maintained in 9.9%), as well as the income of €46.87 million arising from the non-termination of the agreement for the distribution of general insurances with the insurance, following Unicaja Banco waiver to exercise its right to terminate the said agreement.
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 €14,011 million as at the end of December 2019, representing 25% 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 71.4%.
Transformation and commercial dynamism plans
During 4Q2019 Unicaja Banco has continued with the development and implementation of its Business Plan 2017-2020, which includes, among others, transformation plans and plans for the boost of the commercial activity, designed with focus on the customer.
Within the framework of the transformation plan in force, at the end of 2019, the number of digital customers represents nearly 48% 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.
Since October 2019, Unicaja Banco customers can pay through Bizum in those e-shops featuring that modality as payment method. The number of products that can be subscribed over the Internet and mobile has also increased, with the incorporation of the accident insurance.
With regard to the commercial dynamism plan, during the last quarter of 2019, several commercial actions were launched, focused on investment funds, pension plans, salaries and specialized insurance, such as agricultural protection (Agrocaser).
Other actions in 2019
In the last quarter of 2019, Unicaja Banco successfully placed an issue of subordinated debt (Tier 2), for an amount of €300 million, oversubscribed by more than three times and in a short time period. This transaction allows the institution to advance in the compliance with the MREL regulatory requirements.
Unicaja Banco has continued to develop actions in the exercise of its Corporate Social Responsibility (CSR), such as:
(i) The renewal of its participation in the Social Housing Fund (Fondo Social de Viviendas), to which Unicaja Banco has provided 375 dwellings.
(ii) In terms of sustainable finance and responsible banking:
· The inclusion of sustainable finance as one of the axis of the strategic and transformation Plan 2020-2022, what will facilitate the progressive implementation and management of sustainability, as well as setting goals, metrics and indicators.
· On the occasion of the UN Conference of Climate Change (COP25), celebrated in Madrid in December, Unicaja Banco signed, together with more than 20 Spanish financial institutions, a collective agreement on climate change, under which the bank undertakes, inter alia, to reduce the carbon footprint of its credit portfolio, in line with the goals set in the Paris Agreement.
(iii) The organization in November of the Edufinet II Congress on Financial Education, with the title ‘Financial education for a society in transformation’, where thirty experts from different areas analyzed the future of this subject.
Finally, it should be mentioned that Unicaja Banco creates value for the different stakeholders and contributes economically and socially to the communities where it is present through the payment of taxes. In this sense, the contribution to public revenues paid in 2019 by the institution has reached a total of €172 million, equivalent to its net profit.
New Strategic and Transformation Plan 2020-2022
Unicaja Banco has approved the launch of a new three-year strategic plan, for the period 2020-2022, based on five axes: 1) growth and diversification of the business model with focus on the customer and profitability; 2) improvement of efficiency, processes and systems, accelerating digitalization; 3) prudent and agile risk management; 4) enhancing data and analytics as the key for business and efficiency, and 5) adoption of new ways of working and cultural evolution. Transformation is included as a transversal axis for the institution.
The Strategic Plan 2020-2022 intends to reinforce the generation of recurring income and to improve efficiency to achieve a sustainable profitability, while maintaining a comfortable liquidity position. The new plan is built upon Unicaja Banco’s values and ethical commitments, such as social commitment, proximity, sustainability, responsibility, transparency and financial education, with the goal of being the leading financial institution in its core markets (mainly Andalusia and Castilla y Leon), reference in quality, proximity and trust in the service to customers and committed to society, sustainable finance and value creation.
With regard to each of the axes of the Strategic Plan, the business axis focuses on the adequacy of services to the specific needs of the different customer groups, on specialized business and on the transformation of the distribution model covering the users’ needs; the efficiency and processes axis boosts productivity and digitalization with the objective of continuing with the reduction of the base of costs in the future, whereas the risk axis has as a priority to improve the customer experience, maintaining an low cost of risk. The analytics and data axis aims to improve data availability and advanced data exploitation throughout the organization, and the talent and culture axis intends to adapt the workforce to the new business needs, fostering an agile and multidisciplinary work culture.
The new strategic plan of Unicaja Banco envisages from 2020 to 2022 a gradual improvement of income and efficiency, with a continuation in the NPA reduction trend, maintaining a comfortable liquidity position. All these components will contribute to an improvement in structural profitability which allows the bank to set an objective of annual growth of profit of 10% during the next three years, and of pay-out over 50%.