Union Bank (UBC) continues to stagnate 4 years after historic TPG investment

Union Bank Chairman Atul Malik and CEO Indrajit Wickramasinghe

July 25, 2018 (LBO) – Colombo Stock Exchange listed Union Bank of Colombo (UBC) reported lacklustre results for the quarter ended June 2018.  These results have been a continuation of the slow performance the company has displayed over the last several years.

Although showing decent growth in revenue, operating income, and profit after tax, the bank still lags its competitors in the most important performance metric.

Return on equity (ROE) continues to trend below 3%, in an environment where yields of government securities are double digit, and other banking institutions have ROE’s in the high double digits.

Approximate ROE’s of Sri Lanka’s Banks:

Commercial Bank – 16%

Sampath Bank – 21%

Hatton National Bank – 16%

Seylan Bank – 12%

Nations Trust Bank – 24%

Union Bank of Colombo – 3%

Almost four years ago, a subsidiary of Texas Pacific Group (one of the worlds largest private equity firms) invested close to US$100mn for a 70% stake in UBC at a share price of Rs15.3.

Today, the stock languishes at Rs12.4 with the Sri Lankan currency having devalued significantly during that time period.  Book value is Rs16/share indicating that investors are losing confidence in the business.

So far, the investment has been a loser for TPG, however, not nearly as much as a dud it has been to investors in UBC’s IPO almost 7 years ago.  This IPO was heavily oversubscribed at a price of Rs25, leaving investors who have held on with large losses.

Based on past results, it is unclear how the bank will raise its ROE to that of its peers.  Analysts say the bank continues to be in ‘risk off’ mode, failing to aggressively pursue increases in deposit base and loan books in line its more successful competitors.