Union National Bank: Banking services in the UAE

In recent years, banking has not necessarily been associated with reliability and success, but Union National Bank is bucking the trend


Union National Bank, UNB is a UAE-based public joint stock company, established in 1982. UNB is one of the leading domestic banks in the UAE, and is headquartered in Abu Dhabi. Fifty percent of UNB’s shareholdings are owned by the government of Abu Dhabi, 10 percent by the government of Dubai, and the remaining 40 percent of the shares are publicly held. The board of directors consists of prominent business figures, headed by H.H. Sheikh Nahayan Mabarak Al Nahayan, UAE Minister of Higher Education and Scientific Research.

UNB offers a multitude of banking and financial products and services to individual and corporate clients, through a network of 54 branches and six corporate banking centres, besides a variety of alternate delivery channels such as call centres, internet banking and ATMs spread across the UAE. Drawing upon a rich experience of serving customers for more than 29 years, UNB has developed a strong presence in the UAE across all sectors of the economy, providing a range of services designed to be of assistance in various commercial endeavours. UNB has the right mix of talent and expertise, as well as the track record to provide aspiring entrepreneurs and businessmen with credit facilities to establish and expand their business in the UAE, besides offering multiple ways and means of making sound and safe investments with assured returns.

Subsidiary services
Union Brokerage Company is a UNB subsidiary which provides brokerage services for clients at the Abu Dhabi Securities Exchange, Dubai Financial Market. It is one of the oldest brokerage firms in the UAE and a leading player in the region. Besides its head office at Khalidiya in Abu Dhabi, it has a well diversified branch network.

Al Wifaq Finance Company is another subsidiary of UNB which has been established with the purpose of offering Sharia-compliant financial products and services to both organisations and individuals in compliance with the rules and principles of Islamic Sharia law.

A third subsidiary, INJAZ Marketing Management, provides marketing management related services, including the planning, execution and marketing of products and services for UNB through a dedicated team of professional sales and marketing representatives.

As part of the bank’s vision to be “a key player in the region,” UNB has a strong presence in the Egyptian banking sector through UNB-Egypt, with 27 fully fledged branches across the country. The bank also has a presence in Qatar, China and Kuwait, and is reviewing other geographic locations with a view to establishing a presence, or forming strategic alliances, to add to shareholder value.

Facts and figures
UNB’s operating income for the nine month period ending September 30 2011 was AED 2.2bn ($599m) – an increase of 11.4 percent over the same period from the previous year (AED 1.9bn, or $517m). This was led by an increase in net interest income and net income from Islamic financing, which was up by 21 percent to AED 1.8bn from AED 1.5bn ($481m from $398m).

The increase in net interest income and net income from Islamic financing was achieved by an expansion in the net interest margin, increase in loans and advances and optimisation of liquidity levels. The non-interest income for the period decreased by 14.9 percent from AED 534m to AED 454m ($145m to $123m), principally due a decrease in net fee and commission income which declined from AED 421m to AED 364m ($115m to $99m). The drop in fee and commission income was mainly due to the implementation of UAE Central Bank regulations regarding lending and other services offered to individual customers, which became effective in May 2011.

The loans and advances of AED 55.7bn ($15.1bn) as of September 30 2011 was up by 2.5 percent year-on-year. Customer deposits of AED 52.5bn ($14.3bn) were marginally lower (by 0.7 percent) year-on-year. The advances to stable resources ratio, computed in accordance with UAE Central Bank regulations, continued to remain well within the regulatory requirements.

The ratio of non-performing loans to gross loans and advances at the end of Q3 was up slightly to 1.7 percent from 1.5 percent at the end of 2010 Q3; loan loss coverage was 139.2 percent, up from 127.9 percent. The general provisions as a percentage of credit risk-weighted assets were 0.99 percent, reflecting an increase of over 50 percent compared to that for the prior year end.

Ongoing investment in key resources led to a marginal (2.4 percent) increase in operating expenses to AED 534m ($145m) by the end of 2011Q3, from AED 521m (£142m) at the same point in 2010. The efficiency ratio (cost to income) was 24.0 percent, down from the previous year’s 26.1 percent.

For the same period the annualised return on average equity, excluding the Tier 1 capital notes, was 17.7 percent (17.3 percent on an annualised basis for the same period 2010), with the annualised return on average assets being 2.3 percent (up from 2.1 percent).

Earnings per share were up 19 percent to AED 0.50 from AED 0.42 ($0.136 from $0.114). The overall Basel II capital adequacy ratio computed in accordance with the Central Bank of the UAE guidelines was strong at 22.7 percent at the end of 2011Q3, up from 20.1 percent 2010Q3. The Tier 1 Basel II capital adequacy ratio was further boosted by 210 basis points to 17.3 percent as of 30 September 2011 (15.2 percent as of year end 2010) after the payout of the cash dividend (AED 227m; $62m) and the interest on Tier 1 capital notes (AED 120m; $33m).

UNB has consistent ratings from three key agencies: Moody’s A1 long term and P-1 short term; Fitch A+ long term and F1 short term; and Capital Intelligence A+ long term and A1 short term. Together these consider the bank to have a “stable outlook.”

Bond success
In its first new bond issuance since 2005, UNB in November 2011 priced a successful $400m five-year bond due November 2016 under its $3bn Euro Medium Term Note Programme; with Citigroup, Deutsche Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank acting as joint-lead managers and joint-book runners, and Commerzbank AG acting as co-lead manager. The transaction was priced at a coupon of 3.875 percent with a spread of +287.5 basis points over the US dollar five-year mid swaps.

UNB’s credit story appealed to a high-quality investor base resulting in a well-diversified order book across geographies and investor types. The geographical distribution of the issue was 62 percent in the Middle East, 27 percent in Europe and 11 percent in Asia. Banks subscribed to 69 percent of the issue while the remaining distribution by investor type was private banks (15 percent), fund managers (14 percent) and insurance companies (two percent).

UNB successfully completed a well-received transaction amid turbulent market conditions, demonstrating the strength of its credit. The transaction achieved competitive pricing and delivered UNB’s primary aim of diversifying and lengthening the average maturity of its funding sources.