UnionBank profit down on Citi integration cost

MANILA, Philippines — Union Bank of the Philippines slashed its earnings by 20 percent in the months to September this year after taking a P3.6-billion hit from the integration of the consumer business of global banking giant Citi.

Based on its financial statements submitted to the Philippine Stock Exchange, the Aboitiz-led bank booked a net income of P8.1 billion during the nine-month period, P2.02 billion lower than the P10.12 billion recorded in the same period last year.

However, UnionBank president and CEO Edwin Bautista said its diversified consumer business allowed it to cover for the one-time costs needed to recognize this year.

“If we exclude the impact of these non-recurring costs, our ROE (return on equity) would be in double digits. Our topline revenues remain strong. We are confident that once we complete the integration, we can show above-industry profitability we have been known to deliver,” Bautista said.

UnionBank incurred a P3.6-billion one-time expense  mainly coming from the integration of the Citi consumer business.

The bank spent P72 billion to acquire the local consumer banking business of the American financial giant. This was more than 30 percent more than the original estimate of P55 billion when the bank announced the acquisition.

Aside from the one-time expense, the bank said provisions for credit losses quadrupled to P9.33 billion from January to September this year versus last year’s P2.33 billion.

This translated to a 63.4 percent jump in operating expenses to P33.51 billion on account of the full-year impact of the acquired Citi consumer business and UnionDigital Bank that were only included as part of the banking group in the second half of 2022.

“Operating expenses were elevated due to one-time integration costs related to the Citi consumer business acquisition,” UnionBank said.

UnionBank chief financial officer Manuel Lozano said costs were higher in the third quarter mainly due to integration and other costs that are non-recurring.

“The integration costs increased since we allocated more time and resources to ensure smooth migration of the acquired Citi consumer business. We also spent on marketing and customer engagement programs to capitalize on the growing consumer segment,” Lozano said.

On the other hand, the bank’s net revenues surged by 48 percent to P52.8 billion as net interest income jumped by 34.3 percent to P37.31 billion, largely attributed to the 18 percent increase in loan portfolio.

UnionBank’s consumer lending grew faster at a pace of 22 percent year-on-year. It has one of the highest consumer loan proportions to total loans in the industry at 56 percent, resulting in the bank’s above-industry net interest margin of 5.3 percent.

Likewise, non-interest income almost doubled to P15.51 billion, largely due to recurring fee-based income on customer transactions.

UnionBank’s customer base has now reached over 13 million, averaging over two million new customers per year from 2019.

The bank’s loan book went up by 18 percent to P530.99 billion, while its deposit base inched up by six percent to P724.7 billion.

Total assets of the bank as of end-September climbed by eight percent to P1.14 trillion.