Grupo Unicaja Banco posts in 1H 2021 a net profit of €70 million, up 15% compared with June 2020, and despite the new extraordinary provisions booked due to the COVID-19, in a six-month period where the bank has strengthened its CET-1 solvency ratio by 3.3 percentage points (p.p.) up to 19.2%, and the total capital ratio by 3.7 p.p. up to 21.0%. This increase in the solvency ratio follows the reception, at the end of June, of the authorization from the supervisory authorities to use internal A-IRB models to determine the regulatory capital requirements.
This substantial increase in capital ratios, together with the €236 million of extraordinary provisions booked since the start of the pandemic, which have allowed the bank to increase coverage by 8.1 p.p., are a relevant part of the trajectory with which Unicaja Banco has faced a phase marked by the incidence of the health crisis and which can be summarized in a position of enormous strength to face the expected economic recovery and the integration of Liberbank.
In addition to the improvement in capital, the key highlights of Unicaja Banco results in the first half of the year have been: i) the improvement in core business profitability; ii) the growth in the business activity; iii) the ongoing decrease in operating expenses; iv) the decrease in non-productive assets, reinforcing the high coverage levels; and v) the high solvency and liquidity ratios.
Unicaja Banco has been able to improve its core income (net interest income + fees), which grows by 5.1% compared with the same period of the previous year. Both the net interest income (+2.8%) and fees (+10.6%) improve in this period. On the other hand, cost containment remains one of the pillars of the banks’ management, with a reduction in operating expenses of €8 million year-on-year (-2.7%). All of the above has made the bank to improve its core result (net interest income + fees – operating expenses) by 27.3% in year-on-year terms.
Unicaja Banco has continued to reduce its NPAs, while increasing the high level of coverage by 4.4 p.p. in twelve months. Likewise, the liquidity position continues to be comfortable and maintains high levels, with the Loan to Deposit (LTD) ratio standing at 64.2%. The application of the above mentioned models has increased the excess over SREP total capital requirements to €1,664.
The authorization granted by the supervisory authorities to Unicaja Banco to use A-IRB models responds to the request submitted by Unicaja Bancon in January 2020 for the calculation of the capital requirement related to the credit risk of certain portfolios (retail non-SMEs). It is also the first milestone of a road that will allow Unicaja Banco to apply for the extension of the application of internal model to other portfolios and risks, further optimizing its capital and risk management, and it reflects too the bank’s capacities in the development of internal models and their application to management. Finally, the use of the said models allows the Group a substantial increase in its capital ratios, which applying the authorized models, place the CET-1 ratio in 19.2% and the total capital ratio, in 21%, up 3.3 and 3.7 p.p. compared with the same period of 2020.
Improved business profitability
The profit in the first half of the year has improved by 15% compared to the same period of the previous year. The improved profit is driven by the contribution of the core business, the reduction in transformation costs and the reduced needs for impairments, although Unicaja Banco has continued to strengthen its solid starting position, booking new extraordinary provisions due to the COVID-19 (€11 million in the second quarter, reaching €36 million in 2021), aimed at providing additional coverage to the impacts that the final evolution of the pandemic may have on its lending portfolio. With all the above, the net profit of the first half of the year is up 15% to €70 million. Without the mentioned extraordinary provisions, it would have reached €95 million, involving a RoE of 4.9%.
The first factor behind those results is the improvement in the core income, up 5.1% compared with the same period of 2020.
In line with the above, the net interest income has grown by 2.8% year-on-year, with an improvement in funding costs both in retail and wholesale. It is worth to remark the improvement in customer spread in new lending in the second quarter.
Additionally, fees increase by 10.6% year-on-year, boosted by payment and collection services, as well as by brokerage and non-banking services, driven by the evolution of investment funds.
Another key topic in the management of the first half has been the containment and reduction of operating expenses, reinforced since the start of the pandemic and which has resulted in a y-o-y reduction of 2.7%. With all the above, the bank’s core result has grown by 27.3% year-on-year, from €102 million in 1H2020 to €130 million in the same period of 2021.
The third relevant factor has been the decrease in cost of risk, in line with the improvement in the general situation of the pandemic and the effort made in the previous exercise. However, Unicaja Banco continues to prudently increase the coverage levels of its lending portfolio, with a rigorous policy of reclassification of transactions to stage 2 and to underperforming for subjective reasons, as well as with the creation of extraordinary additional coverage that take into account the uncertainties related to the impacts of the pandemic. In that line, the net loan impairments made in 1H2021 involve a cost of risk of 54 basis points (bps), which, eliminating the effect of certain portfolio sales (45 bps without this effect) and the extraordinary provisions related to the pandemic, would leave the recurring cost of risk in 19 bps, slightly over that of 2020.
Boost to the commercial activity: growth in lending and customer funds
The Group’s commercial activity improves quarter by quarter since the eruption of the pandemic. In this line, it is important to remark the increase in this six-months period in new lending to the private sector, which has grown by 96%, both in individuals (where an increase of 55% leads to record high quarterly production levels in the last two years) and in corporates, up 149% growth compared with the figure of 2H2020. This increase in production has allowed the bank to post a net increase (2.3%) in performing loans of the private sector in comparison with the end of 2020. The total performing loans to customers has grown by 2.2% compared with the end of 2020.
Customer funds have grown by 2.1% in the second quarter of 2021, taking the year-on-year variation to 7.5%. The increases are registered both in on-balance sheet customer funds (1.8% in the quarter and 6.9% y-o-y) and in off-balance sheet funds and insurances (3.4% in the quarter and 9.5% y-o-y). By products, the following increases are to be mentioned: public Administrations (18.4% in the quarter and 39.3% y-o-y), private sector sight deposits (1.5% in the quarter and 11.0% y-o-y) and investment funds (4.1% in the quarter and 17.0% y-o-y).
Ongoing reduction in NPAs, with high coverage
The bank has been able to continue with a sustained reduction of NPAs (NPL plus foreclosed real estate assets). With a €173 million decrease in the first half of the year (-7.6%), the accumulated reduction over the last twelve months amounts to €363 million (-14.7%), with decreases of -19.8% in NPLs and of -8.8% in foreclosed assets. The Group’s balance of NPLs, at the end of 1H2021, stands at €1,058 million and that of foreclosed assets, at €1,041 million. The fall in NPLs results in a decrease in the NPL ratio of 0.8 p.p. in the last twelve months, down to 3.7%.
The substantial increase in the already high coverage levels is to be remarked. The NPA coverage ratio has increased by 4.4 p.p. year-on-year and by 0.8 p.p. year-to-date, standing at 66.0%. This is due mainly to the extraordinary provisions booked due to the COVID to anticipate the foreseeable negative consequences of the pandemic on asset quality, as well as to a prudent policy of identification of underperforming for subjective reasons and reclassifications to stage 2.
Consequently, the balance of NPAs, net of provisions, stood at €714 million, what represents only 1.1% of the Group’s assets as at the end of the first half of 2021, with a 0.5 p.p. decrease over the last 12 months.
Strong solvency levels and comfortable liquidity
In terms of solvency, as at the end of the first half of 2021, Grupo Unicaja Banco has substantially strengthened its position, following the implementation of A-IRB models (see page 2), having a CET-1 ratio of 19.2%, and a total capital ratio of 21.0%, both among the highest in the sector and with a year-on-year increase of 3.3 and 3.7 p.p. respectively. This involves an increase in the excess over the SREP total capital requirements up to of 1,664 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 17.7% and a total capital ratio of 19.6%. These represent a year-on-year increase of 3.3 and 3.7 p.p. respectively.
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 stood at the end of June 2021 at 40.2%, improving 4.9 p.p. in y-o-y terms.
Unicaja Banco maintains solid 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 €17,091 million as at the end of June 2021, representing 25.8% 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 64.2%. 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 2021 at 310%, equivalent to practically three times the regulatory limit, set in 100%.
The merger process, close to its completion
The process of merger with Liberbank has continued its development as per the schedule set. At the end of June, the compulsory regulatory authorizations have been received and the process is close to its completion, as the merger deed was executed on 26 July and the merger is expected to be completed by the end of this month with the registration in the Trade Register.
In this regard, the Extraordinary General Meetings of Shareholders of both institutions approved on 31 March the merger transaction under which Unicaja Banco will absorb Liberbank. Unicaja Banco General Meeting also gave the green light to the composition of the new Board of Directors post-merger, which will have 15 members. The support of both banks’ shareholders took place within the scheduled calendar and following the preparation of the Common Draft Terms of Merger by the Board of Directors of both banks on 29 December 2020.
With regard to the process calendar, after the approval by the general meetings of both banks, and once the conditions precedent have been met with the granting of the required regulatory authorizations, once the merger deed is registered, the exchange of Liberbank shares for Unicaja Banco shares will take place and the operational integration of both institutions will start.
Under this transaction, Liberbank shareholders will receive 1 newly issued ordinary share of Unicaja Banco for each 2.7705 Liberabank shares, as per the agreed exchange ratio set in the Draft Merger Terms and approved by both banks.
The merger will result in the creation of the fifth Spanish bank with an asset volume of c. €113,000 million, and more than 4.5 million customers, being the bank of reference in six Autonomous Communities and with a large and diversified presence throughout the country.
Boost to digital banking with focus on the customer
During 2Q2021, Unicaja Banco has continued to work in its transformation and commercial dynamism plans, designed with focus on the customer.
The number of digital customers (web and app) represented 54.3% of the total as at the end of the first half of 2021. With regard to the channels used by customers, of the total of financial transactions and consults made, the highest weight corresponded to digital transactions, both via web and app (61% of the total), 19% were made through PoSTs, 15% at branches and 5% at ATMs.
At the end of June, the total connections of customers via digital channels increased by 22% compared with the same period of 2020. The total of transactions grew by 44% compared with the same period of 2020, with the mobile channel recording the largest growth (61%). The total amount of transactions over digital channels experienced a 7% growth in y-o-y terms, with a 52% increase in mobile transactions.
Furthermore, as at the end of June, the bank’s figure of Bizum users grew by 92% y-o-y, with a 173% increase in transactions and 187% in transactioned amounts.
The bank has implemented additional functional improvements in the new Digital Banking, both in the app and on the web, as well as the plan for customer migration to the new platform, incorporating mechanisms such as the Customer Voice programme to facilitate the said migration.
First sustainable pension plan
In terms of the commercial offering for customers, Unicaja Banco and Santalucia have launched their first sustainable pension plan, Uniplan Futuro Sostenible. Following ESG (Environmental, Social and Governance) criteria, this plan constitutes a mid and long-term financial investment alternative whose profitability targets are aligned with sustainable, environmental and social values. The plan, managed by Unicorp Vida (insurance company held by Unicaja Banco and Santalucía at 50%) and sold by Unimediación, S.L. through the bank’s network, invests mainly, in a direct or indirect manner, in assets that promote sustainable investments and seek to achieve the Sustainable Development Goals (SDGs).
Additionally, during the second quarter, Unicaja Banco has strengthened in its commercial network the discretionary portfolio management service, with the goal of providing professional assistance to customers to make decisions in the purchase and sale of assets, maximizing the tax profitability, within targets set according to the risk profile and investment goals. This way, customers have access to a flexible and active management and to a wide variety of financial assets, while benefiting from the tax advantages of investment funds.
More specifically, the portfolios offered by Unicaja Banco to its customers respond to different risk profiles: Conservative, Moderate, Dynamic and Aggressive. The portfolios are managed by Unicorp Patrimonio SV, Grupo Unicaja Banco’s private banking, with a proven record and more than 20 years of experience and whose work has been recognized with several awards.
Support to individuals, freelancers and businesses to face the COVID-19
Since the outbreak of the COVID-19 pandemic, Unicaja Banco has implemented a set of actions to reactivate the economy and to provide support to families and businesses. Along those lines, during the second quarter of 2021 the bank has continued to take part in the measures to provide liquidity and funding with the guarantee of the State.
So far, the bank has approved more than 13,000 applications from freelancers and businesses for ICO-backed loans, for an approximate amount of €1,004 million, and more than 19,000 moratorium applications for mortgage and personal loans, both legal and sectorial, have been processed, for an approximate amount of €835 million, of which only c.€84 million maintain the moratorium in force.
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 pensions and unemployment benefits, and the holders of life and accident insurances have the possibility to split the payment of insurance premiums at no cost.
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 2021, such as:
- The above mentioned launch by Unicaja Banco and Santalucía of the first sustainable pension plan, Uniplan Futuro Sostenible.
- The United Nations Institute for Professional Training and Research (Unitar) has recognized Unicaja Banco’s commitment to sustainable finances and its support to the dissemination of the Sustainable Development Goals (SDGs) and 2030 Agenda.
- Unicaja Banco, as participating company of the United Nations Global Compact, has started its participation in the training programme ‘Climate Ambition Accelerator’, an initiative launched by the said body so that companies can gain further knowledge and skills to contribute to the reduction by 50% of global emissions in 2030 and reach net-zero in 2050.
- The Board of Directors of Unicaja Banco has reviewed the ‘Action Plan on Sustainable Finances’, to incorporate specific plans to fully align the bank’s practices with the 13 ECB supervisory expectations included in the ‘Guide on climate-related and environmental risk’ published in November 2020.
- The Board of Directors has also approved the ‘Policy on due diligence related to the main adverse incidences on sustainability factors in investment decisions’, according to the provisions of the European authorities on disclosure of information related to sustainability in the sector of financial services.
- The Edufinet Project on financial education has been awarded the first prize in the Area of Financial Education, in the category of adults, of the 2019-2020 CECA Prizes of Welfare Proejcts and Financial Education. This award recognizes the contribution made to improve the knowledge of its trainers in the area of economics and finances.
Likewise, Edufinet has continued developing its activities online. The 12th Financial Olympics have concluded, with a participation in the final of 10 students from high schools in Almeria, Cordoba, Granada, Malaga, Sevilla and Valladolid, selected from a total of 1,050 registered participants.