Consolidating Growth for Better Returns

The improved first quarter performance of United Bank for Africa Plc has shown that the pan-African financial institution is consolidating and on track to deliver higher returns to shareholders, writes Goddy Egene

“I am very optimistic for 2021 and have no doubt we are on the right path to the industry leadership that we have envisioned for United Bank for Africa Plc (UBA), in Nigeria, Africa and globally.”
The above were the words of the Chairman of UBA, Mr. Tony Elumelu, to shareholders at bank’s annual general meeting (AGM) recently. Going by the bank’s first quarter (Q1) financial performance ended March 31, 2021, where it posted double digit growth in bottom-line, shareholders would be expecting a bounteous harvest.

UBA was the earliest filer among top banks to present their unaudited financials for the Q1. The unaudited results showed a growth of 5.5 per cent in gross earnings to close at N155.4 billion in 2021, from N147.2 billion recorded in the corresponding period of 2020. The bank leveraged on modest growth in both interest and non-interest income as well as increased efficiency to deliver an impressive 24 per cent in profit before tax (PBT), which printed at N40.6 billion, compared with N32.7 billion in 2020. Profit After Tax grew faster by 26.8 per cent from N30.1 billion to N38.2 billion. The bank recorded an annualised 20.5 per cent return on average equity (RoAE) compared to 19.9 per cent in the same period of 2020.

A further breakdown of results, showed that interest expense fell from N43.69 billion to N34.209 billion, the biggest of which was the reduction in expense incurred on deposits from banks, which depreciated from N26.633 billion to N18.51 billion, resulting in net interest income of N74.381 billion, up from the previous N65.417 billion.

Also, fee and commission income rose to N34.955 billion from N28.237 billion, helped by the N12.483 billion income from electronic banking, which increased from N8.301 billion, while commissions on transactional services rose from N4.733 billion to N5.535 billion.

The bank’s total assets also rose by 2.5 per cent to N7.9 trillion in the period under review, compared to N7.7 trillion recorded at the end of the 2020 financial year whilst shareholders’ funds grew to N762.4 billion up by 5.3 per cent from N724.1 billion as at full year 2020.

Commenting, the Group Managing Director/CEO of UBA Plc, Mr. Kennedy Uzoka, expressed satisfaction with the performance, stating that the result reflected the bank’s capacity to sustainably grow earnings even in a highly uncertain macroeconomic environment.

According to him, its robust capital and liquidity have positioned the bank as it continues to support its customers across diverse sectors and markets, guided by prudent risk management practices.

“This impressive Q1 results reflect the capacity of our business to sustainably grow earnings even in a highly uncertain macroeconomic environment. We remain upbeat on the macroeconomic outlook of the countries in which we operate, especially as the COVID-19 vaccine distribution gains traction globally, whilst commodity prices and currencies continue to stabilise. Our robust capital and liquidity positions have positioned us to continue to support our customers across diverse sectors and markets, guided by prudent risk management practices,” he said.

The GMD noted the bank’s effort towards diligently executing its priorities for the year 2021, saying it is leverages people, process, and technology to deliver the best customer experience across all its channels and touch points, achieving industry leadership and dominance.

“The bank is making strong progress in Nigeria where our continuous market share and efficiency gains are translating into higher profits. We are committed to sustaining this strong start throughout the year, leveraging our customer-First (C-1st) philosophy and unparalleled execution to deliver even stronger returns to our esteemed shareholders in 2021 and beyond;” Uzoka said.

Also speaking, the Group Chief Finance Officer, UBA Plc, Ugo Nwaghodoh, said he was particularly pleased with their annualised return on average equity of 20.5 per cent and return on average asset of 2.0 per cent, as these indices buttress their commitment to delivering sustainable value to our stakeholders.

“We continued to deploy our balance sheet efficiency and digital-led cost optimisation initiatives to achieve desired outcomes. Cost-to-income ratio improved by 200 basis points (bps) to 60.4 per cent during the period, whilst cost of funds settled at 2.0 per cent, a 130bps reduction from 3.3 per cent in 2020 Q1,” he said.

Nwaghodoh expressed confidence that the bank would meet and surpass its target for the remaining three quarters of the year.

“We are confident on the strong prospect for earnings growth, particularly as we are better positioned to consolidate recent market share gains in Nigeria and other geographies where we operate. This result is a strong start for the year, and we are optimistic about sustaining the exciting performance throughout the year and beyond,” he stated.

Uzoka had said 2020 was a powerful demonstration of what they could achieve by working together, and he was am proud of their accomplishments.

He said: “Whilst the road to recovery is still being mapped out, there’s no doubt as to the ultimate destination. We remain well-positioned to meet the challenges and to capture the opportunities that the future holds. Strategic priorities for 2021 combining disciplined execution with the Customer-First approach and a mindset of continuous improvement has enabled us to deliver superior growth rates, advance key profitability metrics, and continue to raise the bar on our financial targets.”

According to him, the primary strategy will continue to focus on providing services from customer’s standpoint (C1stPhilosophy), and deliver positive customer experience that culminates in their core essence – excellent service…delivered!

“We will push for increased efficiency in all our activities across the group, supported with a high degree execution drive. Our ambition is grounded in the strength of our People – their high engagement, personal integrity, sense of responsibility and commitment to positive customer experience,” Uzoka said.

Assuring the shareholders, Elumelu had said he was very optimistic for 2021, saying “I have no doubt we are on the right path to the industry leadership that we have envisioned for UBA, in Nigeria, Africa and globally.”

“UBA is the only pan-African bank, with offices in New York, London and Paris, complementing our twenty African country presence, that can truly claim to be Africa’s global bank. We are uniquely positioned to benefit, and ensure our customers benefit, from the opportunities presented by renewed economic growth. Equally, the investments in people and technology, that we have patiently and strategically made, are ensuring we both maximise our potential and optimise our business model,” he stated.

Assessing the results, analysts at Cordros Securities said UBA recorded a strong performance during the period. According to the analysts, non-interest income grew during the period by 14.2 per cent to N74.38 billion, driven by the growth in fees and commissions income (+8.9 per cent to N20.37 billion, and FX trading income (+30.8 per cent to N6.17 billion).

“ Although the strong performance here is a key highlight, we note that the ongoing standoff between banks and Telcos over the cost of USSD service could pressure transaction volumes if there is no amicable settlement between both parties,” they noted.

Cordros Securities noted that UBA’s operating expenses settled 9.9 per cent higher year-on-year, driven primarily by increased regulatory costs – AMCON levy (+32.8 per cent to N7.44 billion) and NDIC premium (+27.4 per cent to N3.36 billion), but remained below the expansion in operating income (+14.9 per cent to N105.04 billion).

“Consequently, the bank’s cost-to-income ratio (ex-LLE) settled lower at 61.4 per cent relative to 64.2 per cent in the prior year’s corresponding period. This decline improved the trickle-down from the income line and resulted in profit-before tax expanding significantly by 24 per cent to N40.58 billion.

Profit-after-tax settled 26.8 per cent higher at N38.16 billion.The bank’s performance follows on from a strong 2020 fiscal year. While the strong performance of non-funded income supported the financial performance, the improved operational efficiency is a highlight that should further propel earnings as the bank drives funded income growth through risk asset creation in the year. In addition, improved fixed income yields should provide a back draft for income generation,” Cordros Securities stated.