UnionBank profit down 28 percent to P9.2 billion in 2023

MANILA, Philippines — The earnings of Union Bank of the Philippines dropped by 27.8 percent to P9.2 billion in 2023 from P12.74 billion in 2022, as the listed bank booked higher provisioning and integration costs from the takeover of the retail banking business of global banking giant Citi in the Philippines.

UnionBank chief financial officer Manuel Lozano said the bank’s overall profitability was affected by front-loaded costs incurred in the integration of new businesses.

“In a way, we are temporarily carrying the cost of running on two systems – we are paying Citi a fee to support the business on their platform while we develop and fully transition all ex-Citi retail customers to our own system. These investments are necessary to ensure the sustainability of our consumer business growth moving forward,” Lozano said.

The net revenues of the Aboitiz-led bank jumped by 36 percent to P71 billion in 2023, driven by a strong consumer business, higher margins, and customer transaction fees.

The bank’s net interest margin went up to 5.5 percent from 4.8 percent, translating to a 33.6-percent increase in net interest income to P51.98 billion from P38.9 billion.

According to UnionBank, the higher margin is attributable to the remarkable growth in consumer loans, which is diversified across credit cards, mortgage loans, personal/salary loans, and vehicle loans.

Likewise, non-interest income jumped by 41.4 percent to P18.8 billion in 2023 from P13.3 billion a year ago, with fee-based income higher by 54 percent to P10 billion amid growing customer transactions, such as bills payments, funds transfers, interchange and other card-related fees.

“The bank’s bottom line, however, was affected by integration costs related to the Citi consumer business acquisition,” UnionBank said in a disclosure to the Philippine Stock Exchange.

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

UnionBank ended up spending P72 billion to take over Citi’s consumer business in the Philippines. This was 30 percent more than the original estimate of P55 billion when the bank announced the acquisition.

The listed bank’s provision for credit losses amounted to P14.04 billion in 2023, 3.5 times the P4.07 billion allocated in 2022.

The bank reported a 43.2-percent jump in operating expenses to P44.89 billion in 2023 from P31.35 billion in 2022 on account of the full-year impact of the acquired Citi consumer business and UnionDigital Bank.

According to UnionBank, the new businesses were only included as part of the banking group in the second half of 2022.

At the same time, it added that it incurred one-time costs due to the integration of the acquired Citi consumer business.

UnionBank’s asset base inched up by 4.8 percent to P1.14 trillion from P1.09 trillion. Its loan book increased by 10 percent to P527 billion, while deposits remained stable at P713 billion.

“We have surpassed our customer growth targets. Our customer base is now close to 14 million. The strategic shift toward a more predictable, recurring income model has proven successful, reflected in our above-industry net interest margins and fees as a proportion of our balance sheet size,” Lozano said.