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UBA released its audited full-year results recently, and the performance was in line with analysts’ expectations. The bank’s core income growth and lower funding costs supported its strong performance. Overall, the bank recorded a 9.4% y/y growth in EPS to NGN3.39 in 2021FY (2020FY: NGN3.10), on which the management approved a final dividend of NGN0.80/share, a significant increase (+128.6% y/y from NGN0.35/share) from the corresponding period last year. This represents a dividend yield of 9.7% on the last closing price of NGN8.25/share as of the 4th of March 2022.
Impressively, interest income recorded a double-digit growth of 10.8% y/y to NGN472.26 billion propelled by all contributory lines. Most significantly (in nominal terms), income from loans and advances to customers (+11.9% y/y), loans and advances to banks (+117.7% y/y), investment securities (+4.3% y/y) and cash with banks (+5.2% y/y) recorded growth during the period.
Also boding well for the bank, interest expense declined by 6.4% y/y to NGN157.55 billion driven by the lower cost of borrowings (-28.5% y/y to NGN32.54 billion). Interestingly, the bank recorded a marginal 0.4% increase in funding costs for deposits, despite the 12.2% y/y growth in deposits (to NGN6.37 trillion) owing to its improved CASA mix (2021FY: 86.6% vs 2020FY: 81.8%). The collective impact of higher income and lower expense led to a 22.1% increase in net interest income to NGN316.71 billion. Likewise, impairment charges on loans and other financial assets declined (-52.4% y/y) to pre-pandemic levels and supported profitability margins. All in, net interest income ex-LLE expanded by 30.7% y/y.
On the other hand, dissimilar to other Tier-1 banks which have released results thus far, non-interest income declined by 14.1% y/y to NGN128.21 billion due to (1) losses from FX revaluation and derivative contracts compared to the gains recorded in 2020FY and (2) lower FX trading gains (-31.2% y/y) and mark-to-market gains from trading investment securities (-6.6% y/y). The decline across these lines offset the robust growth in net fees and commission income (+18.6% y/y to NGN45.77 billion).
Operating expenses (opex) increased by 11.7% y/y as the balance sheet growth and increasing inflationary pressures in the business environment drove most expense items higher – most significant were regulatory charges for NDIC premium (+38.5% y/y to NGN15.91 billion) and AMCON levy (+21.0% y/y to NGN27.98 billion). All in, the faster increase in operating income (+13.1% y/y) compared to Opex led to improved operational efficiency – cost-to-income ratio (ex-LLE) moderated to 64.6% (vs 2020FY: 65.5% and 5-year average: 65.1%).
Overall, profit-before-tax was 16.1% y/y higher at NGN153.07 billion but further weighed down by the higher income tax expense (+90.1% y/y to NGN34.40 billion). Consequently, profit-after-tax grew (+4.3% y/y to NGN118.68 billion) slower than the prior year (+27.7% to NGN113.77 billion in 2020FY).
Comment: UBA’s strong financial performance and the corresponding increase in payout to shareholders bode well for the bank, and we expect to see sentiments improve in the short to medium term, which may potentially drive price action. We remain optimistic regarding the long-term outlook and expect financial performances to maintain the positive growth trajectory. Our estimates are under review.