UNIONBANK of the Philippines, Inc. booked a lower net income last year on increased loan loss provisions due to the pandemic. — FACEBOOK/UBP.UNIONBANK.PLAZA

UNIONBANK of the Philippines, Inc. saw its net profit drop in 2020 despite higher net interest income, as it ramped up its loan loss provisions to safeguard asset quality amid the coronavirus pandemic.

The Aboitiz-led lender’s net earnings declined 17.4% to P11.561 billion last year from P14 billion in 2019, it said in a disclosure to the local bourse on Monday.

This was equivalent to a return on equity of 11.9%.

UnionBank’s loan loss reserves reached P8.7 billion in 2020, surging from the P1.9 billion it set aside in the previous year. The bank’s nonperforming loan ratio picked up to 5.1% from 3.1%.

“I am pleased with the bank’s 2020 performance despite a challenging year. The pandemic became the inflection point that affirmed our digital strategy,” UnionBank President and Chief Executive Officer Edwin R. Bautista said in a statement.

The bank’s net interest income stood at P28.73 billion last year, increasing by 28.6% from the P22.336 billion logged in 2019.

“Net interest income growth was attributed to higher margins, which increased by 76 basis points to 4.7% due to: robust CASA (current account, savings account) growth; reduced funding cost given the low interest rate environment; and shift to high-yielding loans (i.e. consumer, small and medium enterprises, and commercial) as demand for corporate loans declined,” UnionBank said.

Meanwhile, the lender’s revenues reached an all-time high of P42.1 billion, supported by trading gains worth P8.9 billion.

Interest income inched up 0.58% to P38.578 billion in 2020 from P38.355 billion the prior year. On the other hand, interest expense dropped 38.6% to P9.847 billion from P16.019 billion.

Operating expenses, however, rose 4% to P21.15 billion last year from P20.32 billion in 2019.

“Growth in operating expenses was kept at a single-digit despite robust business growth due to efficiencies from digitization,” UnionBank said.

The bank’s assets stood at P774.5 billion as of end-December. Its capital adequacy ratio was at 17%, while its common equity Tier 1 ratio was at 15%, both beyond the regulatory minimum.

“We enter 2021 cautiously optimistic with a strong focus on balance sheet management and credit underwriting. We expect to sustain customer revenue growth as we continue to achieve operating efficiencies,” UnionBank Treasurer and Chief Financial Officer Jose Emmanuel U. Hilado said.

“As we line up new features in our digital channels and Tech Up especially more of our underbanked and unbanked countrymen, we aim to ramp up digital customer engagement to sustain our momentum in 2021,” Mr. Bautista added.

UnionBank Senior Executive Vice-President and Chief Technology and Operations Officer Henry Rhoel R. Aguda last month said they are interested in joining the online-only banking landscape following the central bank’s issuance of a framework that sets this type of bank apart from traditional lenders.

The bank in December raised P9 billion through its sale of three- and 5.25-year bonds. The proceeds will be used to boost UnionBank’s funding capacity and to expand its business operations.

Meanwhile, in a separate filing, the lender said it has created its Sustainable Finance Framework in accordance with Circular 1085 of the Bangko Sentral ng Pilipinas.

UnionBank tapped Citigroup, Inc. to be structuring advisor for the framework.

“The Sustainable Finance Framework reinforces the bank’s commitment to sustainable development, focusing on people, planet, and purpose,” the bank said.

Shares in UnionBank closed at P74.85 apiece on Monday, climbing by P3.50 or 4.91% from its previous finish. — L.W.T. Noble