Grupo Unicaja Banco posts in 3Q 2021 a net profit, in recurrent terms (and excluding the accounting impact of the badwill from Liberbank integration and other merger adjustments), of €156 million, 41% higher than one year earlier. The net profit including the badwill stood at €1,395 million. Unicaja Banco, once the merger with Liberbank was completed on 30 July, has strengthened its business momentum, and it has consolidated the positive evolution of balance sheet quality, both in terms of NPAs decrease (-7.0% in NPLs and foreclosed assets) and of coverage increase (72.1% in NPLs and 66.5% in the whole NPAs), among the highest in the sector.
In the nine months to September, the bank increased its business volume, with a y-o-y growth in customer funds of 9.7% (mutual funds increased by 27.2% y-o-y) and an increase in the performing loan book of 3.4%, driven by the mortgage activity, with a 56% increase in new mortgages and a rise of 4% in the loan book, exceeding €31,000 million.
After the integration, Unicaja Banco maintains a strong solvency position (the CET 1 fully loaded stood at 13.6%), with a diversified risk portfolio and core revenues recording a favourable evolution (+2.4% y-o-y).
Balance sheet
Unicaja Banco balance sheet’s after Liberbank integration stood at €109,144 million.
5.5% increase in customer funds
In recurrent and like-for-like basis, the balance sheet has maintained the positive trends of recent quarters, both in liabilities, with increasing customer funds, and in assets, especially in the mortgage portfolio. It is also noteworthy the growth in off-balance sheet products, namely mutual funds. Likewise, the trend to improve the balance sheet has been maintained, with an ongoing and sustained reduction of the NPAs portfolio, both NPLs and foreclosed assets.
Customer funds at the end of 3Q 2021 stood at €104,897 million, 5.5% more than one year earlier on a like-for-like basis. 90% of customer funds belong to retail customers, reaching €94,726 million and resulting in a y-o-y growth of 10.4%, of which €73,283 million correspond to balance sheet funds (+9,7% y-o-y) and €21,433 million to off-balance sheet funds (+12.9% y-o-y). Demand deposits maintained the trend of previous quarters, due to low interest rates, increasing by 10.1% y-o-y to €56,969 million, whereas term deposits continued to decrease, falling to €6,420 million.
Mutual funds grew by 27.2%, exceeding €11,800 million
The increase in off-balance sheet funds responds mainly to mutual funds, which posted a y-o-y growth of 27.2%, exceeding €11,800 million (€11,811 million), with a quarterly net inflow of €389 million. Likewise, pension funds evolved positively, reaching €4,005 million, 7.8% higher than one year earlier.
Total performing loan book grows 3.4%, boosted by mortgages
Lending maintained its trend of relevant growth in terms of performing loan book, driven mainly by the sustained increase in mortgage lending and loans to the public sector.
The performing loan book reached until 3Q 2021 €53,079 million, a 3.4% y-o-y increase. New lending maintained its strong pace, with a total of €9,531 million, of which €3,495 million correspond to mortgages, which post a 56% y-o-y increase. New mortgage lending represents a national market share of 10.6%, more than twice Unicaja Banco’s natural share in the Spanish banking sector.
This positive evolution makes the performing mortgage book to increase by 4% to €31,001 million. This sustained growth is achieved following a strategy of utmost prudence in risk management, with a Loan-to-Value (LTV) not exceeding 80% in 89% of cases. The mortgage book is composed of transactions to finance the acquisition of first residences (87% of the total book) and with a low NPL rate (2.9%), and new lending gathers in areas with a large economic and commercial dynamism, such as Madrid, with 22% of transactions.
Cosumer lending remain stable, with a balance of €2,728 million, -0.1% y-o-y.
Highly diversified loan book
The dynamism in mortgage lending has compensated for the foreseen reduction in new lending to the productive segment, after the end of the impact of ICO lending due to the COVID-19 pandemic. Loans to businesses stood at €13,435 million, -2.5% y-o-y.
Unicaja Banco’s performing loan book is highly diversified: 58.4% corresponds to mortgage loans, 23.6% to corporate loans, 11.1% to loans to the public sector and 6.8% to consumer and real estate developers.
The corporate loan book is highly diversified by activity sectors, with a limited exposure in those sectors with a higher COVID-19 estimated impact.
Improved balance sheet quality and increased coverages
Unicaja Banco has maintained its strategy of maximum solvency and ongoing improvement of the balance sheet quality. At the end of 3Q, the NPL ratio stood at 3.4%, among the best in the Spanish banking sector, after reducing by 0.5 p.p. y-o-y. The total volume of non-performing assets decreased by 10.4% in the last twelve months (€217 million drop). In parallel, the foreclosed assets portfolio continued to decrease, with a 4% y-o-y reduction, thanks to the outflow of non-current assets in sales, mostly finished housing (48%) and land (32%). All of the above has resulted in an improvement in the NPAs ratio of 0.7 p.p. in the last twelve months, standing at 7.3%.
At the same time, Unicaja Banco has increased its coverage ratios, both for NPL and for foreclosed assets, reaching a 72.1% NPL coverage ratio (up 10.6 p.p. y-o-y) and a 62.1% foreclosed assets coverage ratio (up 6.4 p.p. y-o-y), among the highest in the Spanish listed banks. The total NPA coverage (NPL and foreclosed assets) grew to 66.5%, among the best in class.
P&L account
Commercial momentum
In the nine months to September, the recurrent net interest income reached €793 million, with a 3.6% decrease in recurrent terms, due to the drop in interest rates, which suppresses the increase in income from a higher volume of loans. The customer spread stands at 1.4 p.p.
Additionally, the net fee income posts a significant increase, reaching €355, up 19.1% y-o-y (21.6% in recurrent terms), due mainly to the boost in savings, insurance and mutual funds. This increase allows for a 2.4% y-o-y growth in the core margin (net interest income plus fee income).
Continuing with the cost optimization strategy, the administrative expenses remained stable, standing at a total of €640 million, nearly 3% less than one year earlier. The major part of integration synergies are still to be incorporated. As for D&A, they grew by 10%. This way, the operating margin reached €490 million, and the operating activity margin was €210 million, slightly lower than that of the same period one year earlier. Provisioning needs have declined, and loan loss provisions stood at €214 million, 31% lower y-o-y. The cost of risk stood at 41 pbs, with the recurrent cost being 29 pbs.
Pre-tax profit grew by 50%, up to €204 million, and net profit (in recurrent terms, excluding the impact of badwill and charges and provisions related to the merger) reached €156 million, up 41% y-o-y.
Solvency and liquidity
CET 1 fully loaded ratio of 13.6%
After the merger, Unicaja Banco maintains strong solvency levels. As at 30 September 2021, it had a CET 1 ratio of 14.1%, a Tier 1 capital ratio of 15.0% and a Total Capital ratio of 16.6%, well above the ratios required to the Bank of 6.9 p.p. in CET 1 and 4.3 p.p. in Total Capital.
In the same period, in fully loaded terms, the bank had a CET 1 ratio of 13.6%, a Tier 1 ratio of 13.7% and a Total Capital ratio of 15.4%.
The bank maintains a sound liquidity position, reflected in the Loan to Deposit ratio, which stood at 75.0%, in the LCR ratio (300%) and in the NSFR of 140%.
Integration advances and badwill
After the registration in the Trade Register of the merger deed of Unicaja Banco by absorption of Liberbank on 30 July, with accounting effects as at 31 July, the exchange of shares took place (Liberbank’s shareholders received 1 newly-issued ordinary share of Unicaja Banco for each 2.7705 Liberbank shares), the composition of the Board of Directors was adapted and the process for the operational and commercial integration started, with milestones in different areas, such as the configuration of the first management level.
During this quarter, the process of operational and commercial integration has started, and synergies start to crystallize. The bank has begun the workforce restructuring negotiation, covering also the branch network restructuring. In this line, cost synergies are expected to exceed €200 million, improving the initial estimates.
In this process, the bank continues, after having become the fifth largest bank in the Spanish market, with the effort to contain and reduce expenses arising from the business model transformation, automation and process simplification. The bank keeps on working on the quality service and in the creation of value proposals to cover customers’ needs.
After the total net adjustments, the transaction has generated a badwill of €1,301 million.
Completion of the legal merger
The legal and formal merger of Liberbank into Unicaja Banco has been completed in the third quarter of the year. This event took place with no impact in customers’ transactions and maintaining the conditions of the contracts that Liberbank had with its customers, both for credits and loans and for savings and investment. The current and savings accounts, for the time being, will not change their numbering and there will be no change in the direct debit and credit of receipts or transfers. As for the means of payments, Liberbank customers can currently operate with their cards, without operational changes. The total of 4.5 million of Unicaja Banco’s customers has now a larger ATM network, with a total network of around 2,700 ATMs.
The Board of Directors, after the legal merger, is composed of 15 members, 2 of which are executive directors, 7 are proprietary directors and 6 independent directors. Unicaja Banco’s management body continues to comply with the corporate governance standards regarding the presence of independent directors (40% of the total of members) and of women directors (one third of the Board), thus following the CNMV’s Good Governance Code of listed companies.
Commercial momentum and digital transformation
The operational integration process in which Unicaja Banco is immersed is boosting the digital transformation strategy and the joint commercial and business capabilities.
In the business and commercial area, it is worth to mention the agreement with Real Madrid, under which Unicaja Banco, as the club’s official bank, is promoting the commercial relationship with the community of Real Madrid fans and is developing new solutions for their financial needs.
Another area of ongoing improvement is that of means of payment Unicaja Banco, through Sistema de Tarjetas y Medios de Pago, where it is a partner, provides, since September, its customers with a new solution of payment in instalments (Plazox), which allows customers to choose how to repay their purchases immediately and with no additional paperwork, both online and in stores. With this new service, Unicaja Banco strengthens its broad range of products and services, especially those related to means of payment. The service is initially available for customers from Unicaja Banco’s network, and will be extended soon to customers from Liberbank.
Likewise, during the third quarter of 2021, Unicaja Banco has continued to develop its digital transformation strategy, both from the area of operational and functionality improvements and to boost the open-banking model and collaboration agreements with companies that are leaders in different fields and which will extend in the coming months to all the bank’s customers.
The bank is working intensely to advance in the process of incorporating the best digital functionalities and online service provision and remote management for all its customers, as well as in the possibility of digital subscription of mortgages, expanding the products and services, given its commitment to provide a competitive offering.
Sustainable finance
Unicaja Banco has continued to develop actions of Corporate Social Responsibility (CSR) and sustainable and responsible banking throughout 3Q 2021, such as:
i. Within the framework of the integration process of Unicaja and Liberbank, sustainability governance has been strengthened, with the creation of the ESG Business Department and of the Sustainability and CSR Department.
ii. Regarding financial products, after the launch of the first sustainable pension plan, Uniplan Futuro Sostenible, in June, the bank’s portfolio has increased after the corporate transaction, including, as a new product, green mortgages.
iii. The Edufinet Project of financial education has continued to develop its activities, in person and online, to teach about sustainable finance and how to make responsible economic and financial decisions. It has organized workshops on circular economy, blue economy, salary equality or business governance, for instance.
