UBA: Supporting Economic Growth

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The increased loans and advances of N2.2 trillion by United Bank for Africa Plc as at June 30, 2020, indicates the pan-African lender’s commitment to economic growth, writes Goddy Egene

The economy of any nation grows faster when companies operating in the economy witness growth. And one sector that can facilitate the growth is the banking industry given its role of financial intermediation.

A major role of banks is to lend money for economic activities and engender growth. However, over the years, the role has not been played to the satisfaction of stakeholders. Both companies and individuals have stories to tell about how difficult it is to get funding from banks through normal lending process.

While some of the banks may be willing to lend, the challenging operating environment has affected the level of financial support to companies and individuals. In order to encourage more lending, the Central Bank of Nigeria (CBN) had to introduce the loan to deposit ratio (LDR) policy that mandate banks to lend about 65 per cent of their total deposits to private sector.

Despite that policy, some banks are feeling reluctant to increase their lending to companies, thereby not contributing enough to the growth of the economy. However, one bank that has shown commitment towards the growth of the economy through lending to companies is United Bank for Africa (UBA) Plc as reflected in its half-year (H1) results ended June 30, 2020.

The audited results, which was released last week, showed that loans and advances to customers rose to N2.186 trillion at the end of June 2020, from N2.061 trillion at the end of December 2019. Apart from contributing to the economic growth through increased lending, UBA Plc also put a smile on the faces of its shareholders by recommending an interim dividend of 17 kobo per 50 kobo share.

Despite the challenging business and economic environment occasioned by the Covid-19 pandemic, the pan African financial institution was able to end the H1 with higher gross earnings which rose to N300.6 billion, compared with N294 billion recorded in the corresponding period of 2019.
Net interest income grew by 8.4 per cent to N119.3 billion, whilst net fee and commission income stood at N38.6 billion representing a 7.0 per cent increase compared to the similar period in 2019. Operating income also grew by 7.7 per cent to N197.1 billion compared to N182.9 billion while profit before tax stood at N57.1 billion from N70.3 billion in 2019, yielding a 14.4 per cent annualised return on average equity.

The bank’s shareholders’ funds remained strong at N634.7 billion up from N597.9 billion in December 2019, driven by growth in retained earnings, a reflection of UBA’s capacity for business growth.
Reflecting growing affinity for the brand by customers, deposits increased by 25.2 per cent to N4.8 trillion from N3.833 trillion. However, the bank’s ability to increase its profit making potential was retarded by a jump of 89.9 per cent in restricted deposits to N1.579 trillion as at June, compared with N832 billion as at December 2019.

However, as at June 30, 2020, the bank’s total assets surpassed the N6 trillion mark hitting N6.8 trillion.
Commenting on the results, Group Managing Director/Chief Executive Officer, UBA Plc, Mr. Kennedy Uzoka said: “Our 2020 H1 results is yet another demonstration of the resilience of our business model in an extremely uncertain and tough operating environment. We recorded commendable growth in our underlying business in terms of customer acquisition, transaction volumes and balance sheet whilst inflation, depressed yield environment and exchange rate volatilities impacted our net earnings as anticipated.

According to him, despite the short-term challenges to various economic sectors occasioned by the Covid-19 pandemic, they focused on the fundamentals of businesses in growth-driving sectors of various economies in which they operate and achieved 6.4 per cent growth in gross loan to customers,

“The Group achieved N114.3 billion (a 10% YoY growth) in interest income from loans and advances to customers, as well as credit related fees and commissions,” he said
Uzoka explained that notwithstanding the lockdown in a number of countries and the general lull in several economic sectors, UBA’s banking channels remained open to customers ‘24/7.’
“Fortunately, we had proactively built robust electronic channel platforms to enable us serve customers efficiently, and deliver services to them in the comfort of their homes. Notably, we are adjusting our operating model in response to the ‘new normal’ and will continue to optimise the way we work and serve customers in the days ahead,” he said.

He expressed confidence in the bank’s capacity to deliver good returns to shareholders, noting that “We remain committed to our drive as ‘Africa’s Global Bank’ and confident of claiming and sustaining industry leadership on key metrics across geographies where we operate. We will strive to deliver our services in a sustainable way, ultimately leveraging our best-in-class digital capabilities to delight our 21 million (and growing) customers across 23 countries.”

Also speaking on the results, Group Chief Financial Officer (CFO), Ugo Nwaghodoh said: “Our H1 2020 results reflects the inherent benefits of diversification as we have seen marked growth in contribution from the subsidiaries across Africa. Our Rest-of-Africa operations have continued to break new grounds in market share gains, providing a buffer for Group earnings. As the global and local economies begin to improve, we remain optimistic of a better performance in the second half of the year, with expected improvement in the group’s NIM and ROAE which stood at 5.4 per cent and 14.4 per cent respectively as at end of H12020.

“We defensively positioned our loan portfolio whilst we grew gross loans by 6.4 per cent, maintaining our prudent risk appetite, even as NPL ratio for the Group moderated to 4.1 per cent (from 5.3 per cent in 2019FY). We have prudently set up reserves for loan impairments in recognition of potential losses on the portfolio, resulting in 150 per cent growth in our provisioning. Albeit, cost of risk moderated to 0.7 per cent from 0.9 per cent in 2019FY. The Group’s capital adequacy ratio increased to 24.9 per cent providing a very strong buffer for asset growth. We remain committed to maintaining our robust risk management practices, as profitable growth and good asset quality remain our priority in 2020.

Looking at the results, analysts at Cordros Research said interest income increased by 0.3 per cent to N205.59 billion, supported by the growth across major contributors to the line, with the largest contributions coming from loans and advances to customers (+9.9 per cent to N113.89 billion), and loans and advances to banks (+77.5 per cent to N2.17 billion).

They noted that interest expense declined by 9.0 per cent to N86.26 billion despite growth across most major interest expense lines.
“However, the reduced cost on deposits from customers (-19.9 per cent to N53.38 billion), as the bank’s CASA mix improved during the period (78.5 per cent vs. 73.5 per cent in H1-19), was able to offset the impact. Consequent to the growth in income and decline in expense, the bank recorded an expansion in net interest income of 8.4 per cent. The bank still has some scope for gains here given that the CBN has now reviewed the minimum rate on savings deposits down to 10.0 per cent of MPR (30.0 per cent previously). We expect this will sustain net interest income growth in the year, even as interest income from loans may pare q/q through the rest of the year,” they added.

Cordros Research said non-interest income grew during the period by 6.7 per cent to N77.74 billion, driven by the growth in fees and commissions income (+7.0 per cent to N38.58 billion) and FX revaluation gains (+619.8 per cent to N7.80 billion).
Operating expenses settled 20.6 per cent higher, driven primarily by increased personnel expense (+19.9 per cent to N44.57 billion) and regulatory costs – AMCON levy (+12.1 per cent to N22.42 billion) and NDIC premium (+12.2 per cent to N5.58 billion).
United Bank for Africa Provides $200 Million for Nigeria’s Petroleum Industry – Timely Financing for Post COVID Economic Growth.

• In line with its commitment to the growth of the nation’s economy and in order sustain its increased lending to customers, UBA Plc recently acted as an Initial Mandated Lead Arranger with a consortium of Nigerian commercial and international banks in a $1.5 billion pre-export finance facility for Eagle Export Funding Limited, to enable the forward sale of crude by the Nigerian National Petroleum Corporation (NNPC) and its upstream subsidiary, the Nigerian Petroleum Development Company (NPDC).

UBA is providing $200 million towards the crude oil sale, to support investment growth and liquidity requirements. The forward sale will provide much needed capital for investment in NNPC’s production capacity, which is of strategic importance to the Nigerian economy and the country’s leading source of foreign exchange earnings. UBA’s position as mandated lead arranger recognises the group’s strength in structuring and deploying financing to the oil and gas sector, and the depth and liquidity of the group’s balance sheet.

UBA has a strong track record in the resources sector across Africa, having facilitated similar oil prepayment deals with the NNPC. UBA was also responsible for the EUR 240 million Revolving Crude Oil Financing Facility for the Société Africaine de Raffinage and in Congo Brazzaville co-funded the $250 million crude oil prepayment facility for Orion Oil Limited.

Speaking on this most recent support for the Nigeria’s petroleum industry, Chairman, UBA Group, Tony Elumelu said: ‘This has been one of the most economically challenging years that Nigeria has witnessed. With the sharp drop in the price of oil and the ensuing hardship that followed the onset of the Covid-19 pandemic, the private sector must come together and contribute meaningfully to the economy. This facility is clear evidence of this – UBA is providing investment that will significantly improve Nigeria’s production capacity and in doing so also demonstrating the strength, depth, and sophistication of our commercial banking capability. I believe that together, working with governments, we can create more jobs and more wealth for people, not only in Nigeria, but across Africa.”