Kayode Tokede
The pan-African bank in its half year (H1) ended June 30, 2022 reported profit before tax (PBT) growth of 12.6 per cent to N85.75billion from N76.19billion reported in half year ended June 30, 2021, while profit after tax (PAT) moved to N70.33 billion, representing an increase of 16.1per cent from N60.58 billion reported in H1 2021. Considering the challenging operating environment, this performance is considered to be a very healthy and commendable one.
Double-digit growth in PBT was largely driven by 30.1per cent growth in income from fees and commission, and 15.5per cent growth in interest income. Accordingly, H1 2202 saw earnings per share (EPS) gaining 28.9 per cent to N1.98 in H1 2022 from N1.69 in H1 2021, as the board proposed an interim dividend of N0.20, the second time in two years.
This implies a dividend yield of 2.74 per cent as of September 23, 2022. Findings from the group’s profit and loss figures revealed that net profits growth of 17.2 per cent to N70.33 billion in H1 2022 from N60.58 billion in H1 2021 and 23.1 per cent increase in non-interest income to N114.99billion in H1 2022 from N93.41billion in H1 2021.
In the period under review, UBA reported 17.8 per cent increase in gross earnings N372.4 billion in H1 2022 from N316.04 billion in H1 2021, driven by double digit growth in interest and non-interest income.
Interest income grew by 15.6 per cent in H1 2022 to N257.36 billion in H1 2022 from N222.63 billion in H1 2021 and was primarily driven by income from loans and advances while non-interest income was supported by electronic banking income.
The rise in interest income also came as the group grew its investment securities portfolio by 24.5 per cent.
Interest expense rose by 7.2 per cent to N79.9 billion in H1 2022 from N74.56 billion in H1 2021, driven by a 29.5 per cent increase in Interest paid on Customer deposits. The increase came as the group grew deposits by 10 per cent while the average interest rate paid on these deposits rose by 24 basis points.
Declining cost of funds
Despite the rise in interest expense, cost of funds declined by a marginal six basis points to 2.1 per cent as the group benefitted from cheaper interbank funding. Consequently, net interest income grew by 19.9 per cent, while the net interest margin (NIM) expanded by 39 basis points to 4.3 per cent, on our calculations.
For non-interest income, UBA recorded strong growth in electronic banking income as the management leveraged on state-of-the-art-technology to broaden and deepen payment solutions, and transaction volumes in the period under review.
Non-interest income was driven by 77.6 per cent growth in trade transaction income, 109.2 per cent increase in credit-related fees and commissions, 21.5per cent growth in account maintenance fee and 22.7 per cent increase in electronic banking income.
UBA’s electronic banking income (22.7 per cent growth) remains the largest non-interest income line, accounting for 37.7 per cent of total fees and commission income, and driven by its sustained gain in market share of digital banking business across the group.
Elsewhere, Operating expenses (OPEX) grew 22 per cent to N161.9 billion in H1 2022 from N132.83 billion in H1 2021, primarily on personnel costs, in Q4 2021; staff salaries were reviewed upwards, as part of broad measures to retain talent.
As a result, operating efficiency deteriorated slightly as the group’s cost-to-income ratio rose by 93 basis points to 63.2per cent in H1 2022 from 62.3 per cent in H1 2021.
However, following the larger growth in net revenue than costs, Pre-provision operating profits rose by 17.8 per cent.
Further down the P&L, loan loss provisions more than doubled, rising by 101.4 per cent (Cost of Risk rose by 29 basis points in H1 2022) despite weak loan growth.
Nevertheless, UBA, historically, has had a very prudent risk management framework and we suspect the group increased provisioning to account for the increasingly challenging macro environment across its regions of operations
Robust balance sheet
The group’s balance sheet position remained stronger, driven largely by growth in investment securities, customer loans and placements.
Total assets closed June 30, 2022 at N8.99 trillion, an increase of 5.4 per cent from N8.5 trillion reported in 2021 financial year.
Similarly, net loans grew by 4.09 per cent growth to N2.95 trillion as of June 30, 2022 from N2.83 trillion in 2021, whilst customer deposits rose by 5.7 per cent to N6.73 trillion as of June 30, 2022 compared to N6.37 trillion in the corresponding period of 2021, reflecting increased customer confidence, enhanced customer experience, successes from the on-going business transformation programme and the deepening of its retail banking franchise.
The group maintains a well-diversified balance sheet, with about 40.2per cent of the assets in liquid, low-moderate risk instruments.
Customer deposits continue to dominate the bank’s funding mix (82 per cent), even as CASA grew by three per cent in H1 2022 as the management deepen wallet share of corporates, commercial and retail customers.
Overall, asset quality continued to show a positive trend, as the NPL (non-performing loan) ratio declined to 3.3 per cent in half year 2022 from 3.6 per cent in 2021 and was below the statutory limit of five per cent.
Elsewhere, the group’s total capital adequacy ratio closed at 25.1per cent, significantly higher than the minimum regulatory requirement of 15per cent.
Industry analysts believe the performance, which was achieved during the time of Mr. Kenny Uzoka, who retired recently, would be sustained given the sustainable strategy put in place and considering the pedigree of his successor, Mr. Oliver Alawuba. Some shareholders had recently commended the contributions of Uzoka to the growth of Uzoka during his tenure, which is being seen in the 2022 H1 results.
GMD’s Comments
The Group Managing Director/ Chief Executive Officer, UBA, Mr. Oliver Alawuba, in a statement said, “Our performance in H1 of year 2022 is in line with our expectations as the group grew gross earnings by 17.8 per cent, largely from double-digit growth in both net interest and non-interest income.
“We have continued to leverage our Customer -1st philosophy to pursue the mission of providing superior value to our stakeholders. This is evident in the increase in low-cost customer deposits, and strong growth of our payments and transaction banking.
“The financial year 2022 showed initial signs of recovery of economies across the globe, despite continued COVID-induced supply-chain disruptions. However, geopolitical challenges including the Russia and Ukraine conflict resulted in escalation of global commodity prices, particularly those of grains and crude oil, which have taken a toll on several economies.”
He added, “Notwithstanding these developments, our half-year numbers came out stronger than the prior year, with top and bottom-line reaching new record highs.
“The Group’s profitability increased by 12.6 per cent to N85.7 billion, with double-digit growth recorded across our key income line. We recorded a decent 20 per cent growth in our net interest income as we continued to moderate our cost of funds whilst improving yield on assets, thereby contributing to the strong 20 per cent growth in operating income.
“Our investments in state-of-the-art technology continue to yield expected results, evident in the huge boost of our digital banking income, which grew 22.7per cent year-on-year to N36.3 billion. “These gains have enabled us to optimise net earnings amid the accelerating inflationary pressure, the currency devaluation, and increased regulatory induced cost.”
“I am particularly delighted at the strides we are making in growing our market share across Africa. Our retail business has continued to grow, as we ride on our agency banking network, trusted brand, competitive product offerings and quality service delivery to deepen our retail penetration.
“As the Group consolidates its Pan-African leadership in facilitating intra-Africa and international trade, cross-border payments and remittances, we are now a preferred partner for last-mile distribution of donor flows. Our newly launched operation in the United Arab Emirate (UAE) will no doubt contribute immensely to these objectives.
“The Group Board of Directors recently appointed me as Group Managing Director/Chief Executive Officer as well as five other Group Executive Directors. Together, with our highly motivated workforce, we are poised to usher the business into a new era of growth that will deliver superior values to all stakeholders, ”he said.
Analysts View
According to analysts at Coronation Research, “The group’s pre-provision operating profits were in line with our expectations. However, net profits were lower than our and the market’s forecasts following higher-than-expected loan loss provisioning. Nonetheless, we are encouraged by the double-digit earnings growth, NIM expansion and the RoE uplift.
“Looking ahead, the benefits of rising asset yields are likely to filter through to funded income and further support earnings in Q3. In addition, the stock has declined by 6.2per cent y-t-d, is trading at a deep discount to its peers and historical valuation, and has a 2022F dividend yield of 15.9 per cent. This presents an attractive entry opportunity for investors. Accordingly, we maintain our BUY recommendation on the stock.”
