United Finance Company: Marginal decline
Published: 23/08/2017 12:00 pm
United Finance Company (UFC) fell one spot to the fifth position in this year's Business Today-EY survey. The company scored 156 points this year compared to 169 in the previous year. The company performed really well in restricting the growth non-performing loans and in terms of stock price, both these factors helped it from falling further in the ranking.
For the financial year 2016, the company's net profit fell by 14.04 per cent to RO4.51mn compared to RO5.24mn in the corresponding period an year ago. The company in its annual report said, “The decline in profitability is mainly attributed to the increase in interest cost and incremental provisions on impaired assets.”
The company added that the market remained subdued in view of the restrained spending by the government against the back drop of the steep decline in oil revenue. The demand for equipment and commercial assets witnessed a decline due to dearth of avenues for deployment. The trimming of allowances in the public and private sectors impacted the demand for private vehicles. Further, the penetration of banks into SME and vehicle financing segment shrunk the market scope of FLCs and provided limited opportunities to expand credit.
UFC also suffered in terms of decline in overall loan portfolio as the company's gross loans fell by 4.18 per cent to RO120.25mn compared to RO124.49mn in the corresponding period in 2015. The company also had the highest non-performing loan to gross loan ration indicating deterioration in asset quality. But at the same time the company registered lowest growth in NPL.
On its performance the company said, “UFC would continue its pursuit to optimise the market potential to grow its book size. It would adopt a selective approach to grow its loan portfolio with emphasis on maintaining asset quality. The company would pursue appropriate measures and continue its focus on maintaining a balanced loan portfolio to mitigate risk. As regards funding, the company has secured adequate credit limits with banks and maintains sufficient unutilised credit limits to meet its business needs.”
However the report cautioned that the borrowings are expected to remain high in lieu of the tight liquidity in the market and have a corresponding impact on net interest income. Our collection team would increase their efforts on reduction of impaired loans and arrest the fresh incidence of impaired loans. However, tight liquidity and the delays in settlement of dues by counter parties are major factors that pose challenges to restrain the level of impaired loans. The company would explore avenues for cost reduction and optimum utilisation of resources to improve operational efficiency and profitability.
Another important development was that UFC was in news throughout the year for the merger agreement it signed with Bank Nizwa. After this, Alizz Islamic Bank and Al Omaniya also made offers to acquire it. Negotiations went on for months but nothing concrete happened.