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UBA PLC recently released its audited Q1-20 unaudited numbers, which showed that the bank recorded an 8.5% y/y growth in profitability in the first quarter of the year. We like that the bank recorded decent growth in interest and non-interest income, which was enough to offset expenses pressure, and thus, led to an expansion in profitability.
Interest income increased by 10.7% y/y to NGN109.11 billion, supported by the growth across all major lines, with the largest contributions stemming from loans and advances to customers (55.6% of total interest income; +25.1% y/y to NGN60.69 billion) and investment securities (37.3%; +0.7% y/y to NGN40.70 billion). Interest expense was also up, increasing by 7.9% y/y to NGN43.69 billion, driven by a combination of increased expenses on borrowings (+6.0% y/y to NGN10.58 billion) and deposits from financial institutions (+18.0% y/y to NGN125.05 billion). Consequent, on the larger growth in income relative to expenses, net interest income settled 12.6% higher year-on-year at NGN65.42 billion.
Non-interest income grew by 11.1% y/y to NGN28.61 billion, driven by the growth in fees and commissions income (+11.6% y/y to NGN18.70 billion). Notably, all major contributory lines to NII were weaker relative to the corresponding period of the prior year – gains on investment securities (-40.7% y/y), foreign exchange trading gains (-10.6% y/y), and FX revaluation gains (-88.2% y/y). Consequent on the growth in funded and non-funded income, the bank recorded an 11.3% growth in operating income to NGN91.38 billion.
Operating expenses settled 12.9% higher year-on-year, driven personnel expenses (+21.5% y/y to NGN21.98 billion), and increased regulatory costs – AMCON levy (+4.6% y/y to NGN5.60 billion) and NDIC premium (+4.1% y/y to NGN2.64 billion). Consequent on the larger expansion in expenses relative to income, the bank’s cost-to-income ratio (ex-LLE) settled lower at 64.2% relative to 63.3% in the corresponding period of the prior year.
The bank’s profit-before tax grew by 8.5% y/y to NGN32.73 billion, however, given a significant jump in income tax expense (+75.9% y/y to NGN2.63 billion), profit-after-tax growth was more moderate, settling higher by 5.0% y/y at NGN30.10 billion.
Comment: The bank’s performance is in line with expectations, as a slowdown in the momentum witnessed over the prior fiscal year was expected. The trajectory is still positive, and should result in a positive FY2020. Our estimates are under review.