UBA: Core Banking Operating Segment Supports Growth in Profitability

Kayode Tokede
On the heels of a severe operating environment, United Bank for Africa Plc (UBA) maintained an impressive performance in its core banking operating segment to support growth in profitability and outshine its peers.

The pan-African bank’s nine months ended September 30, 2021 result and accounts showed an impressive performance on the heels of severe challenging business and economic environment that emerged from the slow pace of activities following the global lockdown occasioned by the Covid-19 pandemic.

UBA in the period grew its top-line performance and bottom-line performance as the management was prudential in managing cost and growing non-core banking operations.

Growth in Core banking operations
The Group’s interest income grew by 8.4 per cent to N343.71billion in nine months of 2021 from N317.14 billion recorded in nine months of 2020 as its contributory lines save for cash and bank balances (-12per cent to N10 billion) recorded gains – interest on loans and advances to banks (+421.2per cent to N13.73 billion), loans and advances to customers (+9.8per cent to N187.06 billion), and investment securities (+0.1per cent to N132.92 billion).

Interest expense declined by 12.7per cent to N114.44 billion in nine months of 2021 from N131.12billion in nine months of 2020 as the bank recorded substantial moderations across the various liabilities categories.

The most decline emerged from interest expense on deposits from financial institutions (-57.6 per cent to N6.73 billion) and expenses on customer deposits (-5.8 per cent to N78.49 billion), as the bank’s CASA mix slightly improved (nine months of 2021: 82.3per cent as against 2020FY: 81.8per cent).
The combined impact of higher interest income and lower expenses on liabilities drove net interest income higher by 23.2 per cent to N229.27 billion in nine months of 2021 from N186.02 reported in nine months of 2020/

This was further supported by the decline in loan impairment charges (-70.3per cent y/y to N3.41 billion), as macro-economic conditions and obligors’ repayments improve. Consequently, net interest income ex-LLE expended by 29.4per cent y/y to N225.86 billion.
Contrastingly, non-interest income declined by five per cent to N102.42 billion, due to the lower marked-to-market gains from trading investment securities (-50.4per cent to N8.24 billion) and FX revaluation losses of N11.20 billion compared to the gains of N9.23 billion in the nine months of 2020.

The declines across these lines outweighed the impressive growth in FX trading (+78.8 per cent to N35.56 billion) and net fees and commission (+18.6per cent to N45.77 billion) incomes.

The gain in foreign exchange trading was on the backdrop of the better repositioning for Deposit Money Bank (DMBs) following the Central Bank of Nigeria (CBN)’s ban on sales of dollars to BDCs.

Operating expenses (OPEX) inched higher by 6.9 per cent from N206.01billion in nine months of 2021 from N192.7billion reported in nine months of 2020 albeit it represents a marginal increase from the 0.5per cent growth recorded as at H1 2021.
This was largely driven by increased regulatory charges – NDIC premium (+27.9per cent to N10.38 billion), Asset Management Corporation of Nigeria (AMCON) levy (+24.1per cent to N27.82 billion), given the balance sheet size growth.

However, the bank was able to maintain other operating expenses items like personnel and building maintenance expenses below the prevailing inflation level.
The faster increase in operating income (+16.3per cent) compared to OPEX led to an improvement in operational efficiency – cost-to-income ratio (ex-LLE) moderated to 62.8per cent relative to 68.2per cent in the prior year’s corresponding period.

Overall, the bank recorded a 36.1 per cent growth in Earning Per Share (EPS) to N2.94 in nine months of 2021 from N2.16 recorded in nine months of 2020.
Overall, profit-before tax was 36.4per cent higher at N123.35 billion in nine months of 2021 from N90.37billion recorded in nine months of 2020, while profit-after-tax grew by 35.6per cent to N104.60 billion (nine months of 2020: N77.13 billion) following the higher income tax expense (+41.2per cent to N17.67 billion).

Balance sheet position
UBA for the nine months under review maintained a stronger growth in total assets, driven by its resilience business across 20 Africa where to operate.
UBA reported N8.35 trillion total assets as at September 30, 2021 from N7.7trillion reported in financial year ended December 31, 2020.
Key contributing factors to growth in total assets include 12.4 per cent increase in loans and advances to N2.87 trillion as at September 30, 2021 from N2.55trillion reported in 2020, while Deposits from customers gained 7.2 per cent to at N6.08trillion from N5.68trillion recorded in full year ended December 31, 2020.

The Group’s Shareholders’ Funds remained robust at N798.3billion, an increase of 10 per cent from N724.1billion in December 2020, reflecting its strong capacity for internal capital generation.

The nine months unaudited results reflected the bank’s half years impressive performance, underlined by growth profit loss figures and balance sheet size position.
Hitherto, the bank in line with its culture of paying both interim and final cash dividend, the Board of Directors of UBA had declared an interim dividend of 20kobo per share (+17.6per cent from H1 2021: N0.17/share). for every ordinary share of 50kobo each, held by its shareholders.
The bank’s core segment has continued to support the growth in profitability consequent on higher income from loans, lower funding and impairments costs.
Delivering Returns to shareholders

Commenting on the bank’s performance, the Group Managing Director/CEO, UBA Plc, Kennedy Uzoka, said, “Once again, the bank has shown resilience in delivering on its commitment to shareholders, stakeholders, and the investing public, evident in the strong positive financial metrics recorded in the reporting period.
“Particularly, gross earning was up eight per cent to N490.3 billion in the nine-month period, mirroring the improvements seen in both the domestic and international economies as countries roll out vaccines, helping to return economic activities nearer to pre-pandemic levels.

“Similarly, our profit before tax was up by a record 37per cent to N123.4 billion, with an annualised RoAE of 19.2per cent, showing our renewed commitment to creating more value for our shareholders,”Uzoka explained.

The GMD pointed out that UBA’s prudent approach to risk management and the efficacy of its digital-first customer-centric business strategy, helped in keeping loan growth steady at double-digit, while still being able to moderate our cost in the period, adding “Through the help of our digital-first strategy, we were able to increase the number of our agent network in the period by over 140%, increasing our controlling stake in the market.”

Speaking on the expectations for the rest of the year, Uzoka said, “Looking ahead, we believe our huge investments in digital business following lessons learnt from the pandemic, will continue to pay off in delivering significant growth opportunities across our business operations even as the economy speedily heals from the impact/effect of the pandemic.

“We will continue to remain a bank holding company, leveraging on our robust balance sheet and diverse customer-base to deliver (above the expectation of our shareholders) sound rewards to our shareholders.”
Also throwing more light on the Bank’s financial performance and position, the Group CFO, Ugo Nwaghodoh said, “The performance reflects our progressive efforts in building on our robust balance sheet, strong customer base and our people, in delivering impressive earnings.

“Particularly, I am pleased at the 90bps improvement in Cost of Funds (CoF) from 3.2per cent to 2.3per cent in the period. This was despite the increase in our customer deposits by 7.2 to N6.1 trillion, portraying the Bank’s deliberate effort to substitute high-cost funds for low-cost deposits.”
He noted that UBA has continued to optimise its digital banking offerings, which has been paying-off hugely as evident in the 50.4per cent growth to N41.9 billion in income from electronic banking.

“As we continue to pursue a cautious loan growth strategy in 2021, we have strategically maintained strong capital adequacy and liquidity ratios at 23.9per cent and 43.9per cent respectively, ensuring adequate buffer to withstand impending shocks and good headroom for growth and the Bank will sustain this growth momentum, to ensure we consistently deliver sustainable value to our valued stakeholders,” the GCFO explained.

United Bank for Africa Plc, he added, “is a leading Pan-African financial institution, offering banking services to more than twenty-one million customers, across over 1,000 business offices and customer touch points, in 20 African countries.”
In their comments, analysts at Cordros capital said: “The bank’s sustained growth in earnings in the face of challenging industry conditions remains impressive. In the last quarter leading up to full-year results, we expect the momentum in earnings growth to be sustained as more efforts are made to accelerate risk assets and reinvest maturing assets at higher yields. Similarly, we also expect improvements in the major non-funded income components and operational efficiencies to further propel earnings. Our estimates are under review.”

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