Grupo Unicaja Banco posts, as of the end of 1H 2020, a net profit of €61 million, after setting aside extraordinary provisions for €103 million to face, with high provisions, possible future impacts arising from the pandemic. Excluding the extraordinary provisions, the 1H results would have reached €133 million, up 14.8% compared to the same period of the year 2019. The main keys of Unicaja Banco in the first half have been the capacity to generate results –which allows to mitigate the impacts of the COVID-19-, the growth in the activity, the ongoing decrease in operating expenses and NPAs, as well as the high solvency and liquidity levels and the strengthening of the capital ratios, which confirm the strength of Unicaja Banco to continue facing the current situation, and to continue providing support to its customer in the said difficult context.
Unicaja Banco has been able to compensate –showing, once more, its capacity to generate results- the negative effects that the state of alarm had on its activity and on the core revenues of the quarter. The institution improved both the gross margin, up by 6.8%, and the pre provision profit, which is up by 24.3% thanks to an additional effort to control costs.
Unicaja Banco has continued reducing its NPAs, and it has reinforced its already sound solvency and liquidity positions, despite the slowdown in the activity. In this sense, at the end of the first half of the year, the CET-1 ratio stands at 15.8%, and the total capital, at 17.3%1, among the highest in the sector, with a surplus of €1,176 million above the SREP requirements.
In this new scenario, Unicaja Banco continues providing support and responding to the needs of individuals, businesses and the self-employed, and especially to the most vulnerable groups, by adopting flexible measures and solutions, participating in the Government and sectorial initiatives, and boosting several action protocols to ensure the service and to reinforce the safety of customers and employees. So far, the bank has approved more than 10,500 requests, from freelancers and business, for ICO-backed loans, for an approximate amount of €750 million, and it has processed more than 21,000 moratorium requests –both legal and sectorial for mortgage and personal loans- for an approximate amount of €840 million.
Results generation capacity
The difficult context of the first half of the year, due to the health crisis, has had a limited impact on the institution’s activity. However, on the basis of the high levels of result generation¸ Unicaja Banco has set aside insolvency funds for an amount of €103 million, to mitigate possible future impacts derived from the pandemic, making the net profit to stand at €61 million. This result, without the said extraordinary provisions, would have reached €133 million, with a y-o-y growth of 14.8% and a ROE (return on equity) of 6.8%. The key highlights behind those results are the improvement in the gross margin, the decrease in operating expenses within the framework of a policy to improve efficiency, and excluding the extraordinary provisions for COVID-19, needs for provisions and recurring impairments similar to those of the first half of 2019.
Income has been affected by the reduced activity resulting from the state of alarm, with a negative impact of 2.4% on the net interest income of the quarter, whereas net fees, despite being affected by the cancellations applied during this period, in the context of the pandemic, remain at levels similar to those of 1H19. Unicaja Banco has been able to compensate this transitional negative impact on its core revenues, posting a 6.8% increase in its gross margin compared to the first half of 2019. The said compensation has been due to i) the increase in the result of the trading income, due to the realization of capital gains in the fixed income portfolio, and ii) the net increase in other operating income and expenses, reinforced by the extraordinary profit related to the continuity of the agreement with Caser for the distribution of non-life insurance. This improvement in income has also made up for the evolution of the lower dividends and results of investees which, in general, are having this year as a consequence of the COVID-19.
Additionally, a significant effort has been made to control operating expenses during 1H20, which has resulted in a y-o-y reduction of 4.3%, as a consequence of the review and enhancement of the bank’s plans to limit costs. Finally, impairments and other results grow by €107 million compared with the same period of the previous year. With regard to that, it should be mentioned that, at it has been said before, extraordinary provisions of €103 million have been booked for possible insolvencies caused by the expected economic impact of the pandemic on asset quality. Excluding that effect, the provisions and impairments in the year would have been similar to those of the same period of 2019.
Focusing on the loan portfolio impairments, cost of risk reaches 89 bp, of which 17 bp correspond to ordinary impairments of the half year, an amount comparable and similar to that of 1H2019. This evolution of ordinary credit impairments reflects the positive evolution of NPAs in the first half of the year.
Boost to the commercial activity: growth in credit and customer funds
The Group’s commercial activity, although impacted by the declaration of the state of alarm, continues to grow. In this sense, the positive evolution of performing credit should be mentioned, up 2.7% in the year, underpinned by credit to public sector (+9.6%) and to corporates (+5.5%). This increase is due both to loan granting to corporates, boosted in recent months by the offering of special financing lines to mitigate the consequences of the pandemic, and to the higher use of credit account lines and other facilities available. Additionally, on-balance sheet customer funds also present a positive evolution, with a growth of 4.9% in the year, whereas off-balance sheet funds grow 2.9% in the second quarter, partially making up for the negative evolution of the first quarter, which responded mainly to the negative evolution of markets and its impact on the valuation of those instruments.
The evolution of new loan production has been affected by the lockdown. Loans to individuals have been affected, both in terms of mortgage loans, where the production in the first two quarters of the year has been 35% lower than in the same period of 2019, and of consumer or other loans, with a 45% decrease in production. This lower production has been partially compensated by a significant decrease in the volume of early repayments in both segments. On the contrary, loans to companies, both SMEs and corporates, post a slight increase in the half year compared to the same period of 2019.
The volume of customer funds managed by the Group (without valuation adjustments) reached €58,257 million at the end of 1H2020, of which €52,175 million are retail customer funds, which are up 4.1% in the quarter (2.5% in the year). Of those, on-balance sheet funds reach €39,905 million and grow in the year (+4.9%), boosted, one more quarter, by the growth in sight deposits (+7.1% and +6.5% in the quarter) and by the positive contribution of the public sector (+2.8%). Off-balance sheet funds grew by 2.9% in the quarter, although they have been affected by the COVID-19 crisis and fall by 4.6% in the year, still reflecting the fall seen in the product valuation during the first quarter of the year, which has not totally been recovered as at June.
Ongoing fall in NPAs, with high coverage
The sustained reduction of NPAs (NPL plus foreclosed real estate assets) has allowed Unicaja Banco to reduce it gross exposure by €873 million (-26.2%) over the last twelve months, with decreases of 23.8% in NPLs and of 28.8% in foreclosed assets. The Group’s balance of NPLs, at the end of 1H, fell to €1,320 million and that of foreclosed assets reached €1,142 million. The fall in NPLs results in a decrease in the NPL ratio of 1.4 p.p. in the last twelve months, down to 4.5%.
Also in the quarter, and despite the adverse scenario, NPAs fall by 0.1%.
It is important to remark that, in this difficult context, the coverage levels of those assets have increased by 3.7 p.p. in the year. The said increase is due mainly to the extraordinary provisions made to cover the foreseeable negative consequences of the pandemic on asset quality which at Unicaja Banco, so far, have not been observed.
The balance of NPAs, net of provisions, stood at €946 million, what represents 1.5% of the Group’s total assets as at the end of the first half of 2020, with a 1.1 p.p. decreased over the last 12 months.
Strong solvency levels and comfortable liquidity
The existing capital and liquidity excess place Unicaja Banco in an advantageous position to play a significant role in the attention to the financing needs that the economic situation caused by the pandemic is requiring
In terms of solvency, despite the current economic context, Grupo Unicaja Banco has strengthened its position, as at the end of 1H2020, having a CET-1 ratio of 15.8%, and a total capital ratio of 17.32%, among the highest in the sector and with a year-on-year increase of 1.1 p.p. and 2.4 p.p. respectively. These capital ratios involve an excess of the SREP overall capital requirements of €1,176 million.
In fully loaded terms (according to the calculation once the transitional period of the solvency regulations has expired), Unicaja Banco has a CET-1 ratio of 14.4% and a total capital ratio of 15.9%. This represents a year-on-year increase of 1.3 p.p. in the CET-1 ratio and of 2.6 p.p. in the total capital ratio.
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 45.1%, after a y-o-y decrease of 13.0 p.p.
Unicaja Banco maintains solid and excellent liquidity positions, as well as a high degree of financial autonomy. In this sense, the available liquid assets (public debt mainly) and discountable at the ECB, net of the used assets, amount to €15,095 million as at the end of June 2020, representing 24.0% 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 69.7%. Finally, the regulatory LCR ratio, which measures the volume of available liquid assets over net cash outflows over a 30-days period, stands in June at 346%, equivalent to more than three times the regulatory limit, set in 100%.
Boost to digital banking
During 2Q2020 Unicaja Banco has continued working in the development and implementation of its Strategic and Transformation Plan 2020-2022, which includes, inter alia, transformation and commercial dynamism plans designed with focus on the customer.
Within the framework of the transformation plan in force, at the end of the second quarter of 2020, the number of digital customers (web and app) represented 52% of the total. In that period, with regard to the channels used by customers, of the total of financial transactions and customer consults, in addition to digital channels (57%), 18% were made through PoSTs, 20% at branches and 5% at ATMs, with a higher weight of digital transactions, both via web and app, driven by state of alarm derived from the COVID-19.
This growth trend in the use of Unicaja Banco digital banking (app and web), especially in the second quarter of the year and coinciding with the mentioned situation, has been clearly reflected in the number of average daily connections, which increased by 14% in comparison with the months before the coronavirus crisis, and with the mobile app being the digital channel that customers have used the most, representing up to 78% of the total of connections to digital banking during this period. A 23% increase in the average monthly access per customer has also been observed, with 24 logs in per user in June. The average number of transactions made in the period grew by 7%, and the number of Unicaja Banco customers which registered at Bizum went up 27% compared to the period before the lockdown. This trend has also been observed in the number of monthly transactions, which increased by an average of 18%, as well as donations to NGOs through this service, whose average monthly transactions multiplied by 30.
The progress made in the new design of the digital banking services should also be mentioned. Currently, it is in a first phase of use by the bank’s employees. The implemented changes will provide enhanced functionality and ease of use, contributing to improve the user experience, with options to customize and configure the service to adapt it to their preferences.
Support to individuals, freelancers and business to face the COVID-19
Due to the crisis generated by the coronavirus pandemic, Unicaja Banco has implemented, since it started in March, a set of actions to provide support to families, businesses and the self-employed and to contribute to mitigate its effects and to reactivate the economy. In fact, during these months, it has focused its efforts on the launch of flexible payment and financing solutions for its customers, among other measures, especially for those in a situation of vulnerability, while maintaining safety and prevention protocols to protect employees and customers.
In that sense, the bank takes part in the measures to provide liquidity and funding with the guarantee of the State, of the Junta de Andalucía or of specialized companies like Garántia or Iberaval, for companies and freelancers, and in the moratorium for mortgages and other loans. It also offers flexible payment and financing solutions and measures and it applies other measures such as exemptions or deferrals in the payment of rents for those in a situation of vulnerability. So far, the bank has approved more than 10,500 applications from freelancers and businesses for ICO-backed loans, for an approximate amount of €750 million, and more than 21,000 moratorium requests for mortgage and personal loans have been processed, for an approximate amount of €840 million.
In order to help those in a situation of vulnerability and to adapt to the needs of customers, Unicaja Banco has brought forward the payment of unemployment benefits and pensions, it has allowed debit withdrawal with no extra cost at any ATM from any bank, and it has increased, from 20 to 50 euros, the limit of contactless payment in contactless cards and devices. Holders of life and accident insurances also have the possibility to split the payment of insurance premiums at no cost.
Unicaja Banco supports shops with measures such as the temporary waiver of the maintenance fee for point-of-sale terminals (PoST) and facilities for telematic processing.
The bank has also shown its support to farmers, a sector considered as strategic during the state of alarm, through the processing of the CAP dossiers (whose term was extended because of the pandemic) and through two pre-approved loan facilities for an amount of €900 million.
Finally, the bank has informed its customers about recommendations on cybersecurity, due to the increase in cybercrime from the declaration of the state of alarm
Other actions in 2020
Unicaja Banco held on 29 April its Annual General Meeting of Shareholders, where the 2019 annual accounts and the Board of Directors’ management were approved. In his speech, the Chairman informed of the measures adopted in the current situation of health crisis.
Unicaja Banco has continued to develop actions in the exercise of its Corporate Social Responsibility (CSR) and sustainable and responsible banking in the second quarter of 2020, in addition to initiatives launched due to the COVID-19, such as:
(i) The bank approved, at the end of June, an “Action Plan on Sustainable Finances”, integrated by 21 measures, to guide the transition of Unicaja Banco towards a model including topics related to sustainability in four areas: business models and strategy, governance, risk management and dissemination of information.
(ii) Participation in different webinars on sustainability and sustainable finances, such as the one organized by the UN agency UNITAR and CIFAL Málaga, or the one organized by the Observatorio Empresarial para la Consecución de la Agenda 2030 (OECA), within the framework of the collaboration of Unicaja Banco with the Confederación de Empresarios de Andalucía (CEA).
(iii) Unicaja Banco, through its management company Unigest, has launched its first socially responsible investment fund¸ called Unifond Sostenible Mixto Renta Variable, FI, with the assets for the portfolio being selected based on environmental, social or governance (ESG) criteria. In this line, the bank has currently other sustainable products, such as the CAP advance or the Univerde Card, to be reinforced with new sustainable products in the area of lending.
(iv) The Edufinet Project on financial education has continued developing its activities online since the pandemic outbreak. Those initiatives include the final of the 11th Financial Olympics, which put an end to the 11th Conferences on Financial Education for Young People, or the encounter ‘Financial Education (2005-2020): end of a cycle and expectations after the health crisis’, which had the participation of institutions such as the Bank of Spain, Comisión Nacional del Mercado de Valores (CNMV), CECA, Funcas, Unicaja Banco and Fundación Unicaja.