United Bank for Africa (UBA) plc released audited 2020FY numbers, which showed that the bank recorded a strong performance for the period.
Impressively, the bank recorded growth in both core and non-core income lines despite the pressured operating environment during the fiscal year. On the EPS of NGN3.20 (2019FY: NGN2.52), the board has proposed a final dividend of NGN0.35/s (vs. 2019FY: 0.80/s), which equates to a yield of 4.4% based on the closing price of NGN8.00 as of the 8th of March 2021.
Interest income increased by 5.7% y/y to NGN427.86 billion supported by the growth across major contributory lines, with the largest contributions coming from loans and advances to customers (+8.2% y/y to NGN225.04 billion) and banks (+150.5% y/y to NGN9.52 billion), as well as investment securities (+1.7% y/y to NGN181.21 billion). There was, however, a decline in income from interest on cash and bank balances (-18.7% y/y to NGN12.09 billion).
Interest expense declined by 8.0% y/y to NGN168.40 billion despite growth across most major interest expense lines. However, the reduced cost on deposits from customers (-17.1% y/y to NGN103.63 billion) as the bank’s CASA mix improved (81.8% vs. 73.5% in 2019FY), 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 16.9% y/y. Also, there was a significant increase in loan loss expenses (+48.0% y/y to NGN27.01 billion), resulting in a contraction in net interest income ex-LLE to 14.2% y/y.
Again, non-interest income grew during the period by 19.6% y/y to NGN149.25 billion, driven by the growth in fees and commissions income (+3.3% to NGN82.61 billion), gains on investment securities (+84.6% y/y to NGN19.65 billion), and FX revaluation (+160.7% to NGN6.17 billion). We expected the performance on these major lines given a combination of a volatile fixed income market and the realignment of the official FX rate during the year.
Operating expenses settled 15.0% higher year-on-year, driven primarily by increased personnel expense (+16.6% y/y to NGN87.55 billion) and regulatory costs – AMCON levy (+15.7% y/y to NGN23.13 billion) and NDIC premium (+2.2% y/y to NGN11.49 billion). Consequently, the bank’s cost-to-income ratio (ex-LLE) settled lower at 65.5% relative to 66.1% 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 18.5% y/y to NGN131.86 billion. Profit-after-tax settled 27.7% higher y/y at NGN113.77 billion, given a lower income tax expense (-18.5% y/y to NGN18.10 billion).
Besides, the bank’s capital adequacy and liquidity ratios settled at 22.4% and 44.3%, respectively, above the respective regulatory minimum of 15.0% and 30.0%. These ratios signify that the bank has the potential for business growth over the next financial period. The bank’s NPL ratio declined to 4.7% (2019FY: 5.3%), relative to the statutory minimum of 5.0%, driven mainly by growth in loan book (+24.0% y/y to NGN2.55 trillion).
Industry observers are of the view that on the face of it, the pandemic’s impact is not apparent on income generation, given strong performances in both funded and non-funded income growth during the year.
Experts also aver that the much-reduced dividend may be tied to the need to be prudent, given the still under pressure operating environment.
