Grupo Unicaja Banco posts in the first half of 2022 a net profit of €165 million, up 62% compared to the same period of 2021. The Group’s results stand on the recovery of the NII in 2Q (up 13.8% q-o-q), on the consolidation of the contribution of net fee income (up 12.8% y-o-y), the decrease in operating expenses (down 9% y-o-w), following the materialization of the first synergies arising from the restructuring plans, and on the decrease in the needs for loan loss provision (43.6% y-o-y). Banking fees (NII + fees – OPEX) increased by 7.9% y-o-y. The gross margin grew by 0.8%; and the pre-provision profit, by 14.5%.
The growth in earnings from the purely banking activity responds to the maintenance of the commercial activity momentum. In the first half of 2022 more than €5,300 million were granted in new loans and credit. Performing mortgage-backed loans to individuals increased by 1.8% y-o-y, reaching €31,528 million. Additionally, customer funds grew by 2.1% over the previous quarter. Although the economic and financial background is not favourable to savings, due to high uncertainty and inflation and high volatility in financial markets, net subscription of mutual funds reaches €379 million in the year, totaling €11,759 million, a 2.7% y-o-y increase.
The positive evolution of earnings is accompanied by the consolidation of the improvement in asset quality and the maintenance of strong solvency levels. The NPL rate stands stable at 3.5%, below the sector average (close to 4%). Non-performing Assets (NPAs) decreased by €222 million y-o-y (-5.4%), due to the good performance of sales, with gross outflows of foreclosed assets reaching €315 million. Giving continuity to the traditional prudent approach and in view of potential impairment of the background conditions, high coverage levels are maintained. The NPA coverage rate reached 64%, one of the highest among the Spanish banks, and NPL coverage stood at 65%, above the sector average.
Unicaja Banco maintains a strong solvency position, with a CET 1 fully loaded ratio standing at 12.8% and a capital excess over regulatory requirements of €1,583 million.
The technological and operational integration of Liberbank into Unicaja Banco was completed at the end of May, as scheduled and in less than one year, reaching full integration from a technological, commercial and operational point of view.
Balance sheet
2.1% q-o-q increase in customer funds
The main items of the balance sheet have recorded in the second quarter of the year -a period in which the IT and operational integration has been completed- a favourable performance.
Although the macroeconomic context is not very favourable for savings, due to high uncertainty and inflation levels, and high volatility in the financial markets, customer funds increased by 2.1% compared with the previous quarter, and by 0.9% in the case of retail funds. Demand deposits followed the trend of recent quarters, increasing by 2.6% y-o-y to €58,105 million, while term deposits continued to fall to €5,543 million.
Mutual funds grow by 2.7% year-on-year
Off-balance sheet funds show a positive performance of mutual funds, which record net subscriptions of €379 million in the year, reaching €11,759 million, up 2.7% y-o-y.
Total loan book remains stable, with a market share in mortgages of 8.4%
Lending has been boosted mainly by the increase in loans to individuals, both in mortgages and consumer loans.
The performing loan book reached at the end of the first half of the year €54,237 million. New lending reached €5,308 million, of which €2,284 million correspond to residential mortgages. New mortgage lending represents a domestic market share of 8.4% (average in the last twelve months, source: Consejo General del Notariado), almost twice Unicaja Banco’s natural share in the Spanish banking sector.
The performing residential mortgage book has increased by 1.8% y-o-y to €31,528 million. This sustained growth is achieved following a strategy of utmost prudence in risk management.
As for consumer lending and other lending to individuals, it has grown by 1.8% y-o-y, reaching, with the book reaching €3,532.
The portfolio of corporate loans has decreased by 4.0% y-o-y due largely to the extraordinary growth in financing in 2021 as a result of the ICO-guaranteed lines and the financing associated with meeting the TLTRO 3 objectives.
Highly diversified loan book
Unicaja Banco’s performing loan book is highly diversified: 58.1% corresponds to retail mortgage financing, 24.4% to corporate loans, 11.0% to public administrations and 6.5% to consumer and other purposes.
With regard to the corporate loan book, 15% of the outstanding risk is guaranteed by ICO. 94% of ICO loans have completed their interest-only periods without any signs of impairment having been identified.
Improved balance sheet quality and increased coverages
Unicaja Banco maintains its strategy of maximum solvency and ongoing improvement of the balance sheet quality. At the end of 1H22, the NPL ratio stands at 3.5%, below the sector average, which is close to 4%. Sales recorded positive results, as reflected in gross outflows of foreclosed assets during the first half of the year, amounting to €315 million. This involves a reduction of 17% in foreclosed assets in the last year. Sales are distributed mainly among housing (50% of the total), land (37% of the total) and tertiary sector assets and buildings under construction (13%).
All of the above has resulted in an improvement in the NPA ratio of 0.4 p.p. in the last twelve months, standing at 6.7%, while NPA declined by 5.4% (€222 million).
At the same time, Unicaja Banco has maintained its high coverage ratios, both for NPL and for foreclosed assets, reaching a 65% NPL coverage ratio, above the sector average (60%), and a 63% foreclosed assets coverage ratio (the highest in the sector). The total NPA coverage (NPL and foreclosed assets) reached 64%, one of the highest among the Spanish sector.
P&L account
Recovery of the NII
Unicaja Banco posts in 1H22 a consolidated net profit of €165 million, 62% higher than the same period one year earlier, underpinned by a recovery in the second quarter of the net interest income (with a q-o-q increase of 13.8%), strong growth of fee income (12.8% y-o-y), decrease in operating expenses (-9% y-o-y) after the first synergies resulting from the implementation of the restructuring plans, and lower needs for provisions (43.6% reduction y-o-y).
The net interest income reached €501.6 million, starting to recover the growth path once the negative Euribor phase has been overcome, growing by 13.8% in the second quarter compared to the previous quarter, with a positive contribution from both the wholesale and retail business. On a year-on-year basis, net interest income was 7.6% below the figure recorded twelve months earlier. Customer spread grew by 6 bps up to 1.4% in the second quarter.
The net fee income posts a significant increase, reaching €264 million, up 12.8% y-o-y. This growth has been boosted by the activities in mutual funds, cards and insurances. The gross income reached €825 million, 0.8% higher than in the same period one year earlier.
The improvement in the P&L account has also been based on cost reductions, which already reflect the first synergies resulting from the implementation of the restructuring plans. Fifty-six percent of the planned staff exits have already materialized. Operating expenses were down 9% year-on-year to €390 million.
Income from the strictly banking activity (net interest income plus fee income less operating expenses) have improved with regard to the first half of 2021 by €27 million (7.9%), reaching €375.2 million.
Thus, pre-provision profit increased by 14.5% y-o-y, standing at €389 million.
Loan loss provisions fell by 43.6% y-o-y to €89 million, so that the cost of risk, which has begun to normalize, continued to fall, to 27 bps compared with 58 bps in the same period of the previous year. This decline resulted in operating income of €248 million, 93.1% higher than in the same period of the previous year.
Consolidated profit before tax was €225.2 million, and net profit amounted to €165 million, with year-on-year increases of 70% and 62%, respectively.
All of the above has led to an increase in profitability (ROTE) of 1.4 p.p. in the quarter, to 5.2%, which is more than double the 2.3% with which it closed the 2021 financial year.
Solvency and liquidity
CET 1 ratio of 13.5% and strong liquidity position
After the merger, Unicaja Banco maintains strong solvency levels[1]. As at the end of 1H22, it had a phase in CET 1 ratio of 13.5%, a Tier 1 capital ratio of 15.1% and a Total Capital ratio of 16.8%, well above the ratios required to the Bank of 5.3 p.p. in CET 1 and 4.2 p.p. in Total Capital.
In fully loaded terms, the entity had a CET 1 ratio of 12.8%, with €1,583 million in excess of regulatory requirements, a Tier 1 capital ratio of 14.3%, and Total Capital of 16.1%. CET 1 fully loaded increased 20 bps in the quarter, as the generation of earnings has offset the increase in risk-weighted assets derived from applying internal models to Liberbank’s equity portfolio. The decline in corporate lending also contributed positively.
Finally, the Texas ratio stood at 44.1%, an improvement of 0.8 p.p. compared to the same period in 2021.
The bank maintains a sound liquidity position, reflected in the Loan to Deposit (LtD) ratio, which stood at 79.3%, in the LCR ratio (333%) and in the NSFR of 142%.
Completion of the technological and operational integration
Unicaja Banco completed on 23 May the technological and operational integration of Liberbank into Unicaja Banco, as planned and in less than one year, achieving full integration from a technological, commercial and operational point of view, resulting in a more powerful and efficient unified technological platform, with greater capabilities and higher security and quality standards in all Unicaja Banco’s centers and service channels. The integration has involved more than 700,000 hours of work during 10 months by a team of more than 500 people. This process has resulted in the integration of 575 branches and centers, 1,249 ATMs and 2,700 mobile devices from Liberbank.
Boost to digital subscription, with 22% of new accounts
The boost to business through digital channels and the transformation of the bank, through an open banking model with an omnichannel view in which the customer is the center of the relationship, is one of the pillars of the 2022-2024 Strategic Plan and, in this sense, Unicaja Banco’s digital capacity is being reinforced.
At the end of the first half of the year, 59% of customers were digital and the contribution of digital channels to subscriptions continued to grow in the said period, reaching 28% of new consumer loans, 22% of new accounts and more than 16% of new subscriptions in mutual funds and delegated portfolio management.
Specific actions in advice and Next Generation funding
Unicaja Banco, with the aim of channelling the Next Generation Funds, both to customers and non-customers, developed during the second quarter of 2022 a program of actions aimed at strategic segments such as SMEs and freelancers, companies, the agricultural sector and homeowners' associations. The program includes an offering of financial products and services under preferential conditions, support throughout the process, with guidance and processing of the different public aid and/or subsidies through various partners, and updated information on the different programs through the Next European Aid Simulator.
With regard to the agricultural sector, a new Intensive Crops campaign was launched, with which the Bank reinforces its support to agriculture and makes available to its customers with farms in the fruit and vegetable sector, a line of pre-approved loans of €653 million, under preferential conditions. Likewise, new solutions and technologies continue to be deployed, such as the virtual assistant (chatbot) to facilitate a personalized financing offer to its customers from any device, place and time.
Progress in sustainable finance and CSR actions
Unicaja Banco regards sustainability as one of the pillars of its 2022-2024 Strategic Plan. Through sustainable and responsible banking, CSR and financial education actions, this strategic approach has been implemented in the second quarter of 2022:
First green issuance
In the area of ESG business, the first Framework for the Issuance of Green Bonds, aligned with the Green Bond Principles published by the International Capital Market Association (ICMA) in 2021, was approved. The issuance in June 2022 of the first Senior Preferred Green Bond, for an amount of €500 million falls within the said framework. Demand exceeded the amount offered by 2.5 times, with 60% being subscribed by investors specialized in ESG.
Sustainability and CSR
Unicaja Banco has continued to develop actions of Corporate Social Responsibility (CSR) and sustainable and responsible banking throughout 2Q 2022, such as:
- Following the adhesion to the strategic protocol promoted by the banking sector to reinforce the social and sustainable commitment of the banks, especially in relation to the elderly and the disabled, Unicaja Banco has implemented a series of measures: extension of customer service hours for cash services at the teller or ATM; development of specific training plans for the staff and for customers; preferential phone service at no cost, with a personal interlocutor; improvement of the accessibility and ease of use of all the ATMs, etc.
- Implementation and development of the Corporate Social Responsibility Master Plan 2022-2024, which is inspired by the Institution’s values and is supported by the establishment of specific practices for action with stakeholders and the monitoring and supervision of the actions established.
- Unicaja Banco has joined the “Extremadura es futuro” project, an alliance promoted by the Social Council of the University of Extremadura, to boost opportunities that foster economic, social and sustainable development and growth in the region.
- Unicaja Banco, together with the Government of Castilla-La Mancha, has launched the scientific dissemination project linked to the Sustainable Development Goals, ‘ODS&Science’, aimed at primary, secondary and high school students.
- The Edufinet financial education project has organized the first edition of “Edufinet Kids”, a workshop aimed at primary school students, with the participation of nearly 800 students from Andalusia and Castilla y León.
- Unicaja Banco and Funcas have renewed for the fourth year their collaboration to contribute to improving the level of knowledge of citizens on economic and financial matters, especially in the current context of digitalization, with the development of various activities aimed at less digital groups, such as the elderly.
- The Edufinet Project and Fundación Caja Extremadura have also signed an agreement to carry out financial education training activities in the region. The first of these, a seminar aimed at senior citizens, was given to 15 users of the Red Cross.
[1] Capital ratios include net income, net of accrued dividends, computability pending approval by the European Central Bank.
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