United Bank for Africa (UBA) released its Q1-23 interim financials after the close of business on Thursday, which showed that the bank recorded a 28.9% year-on-year growth in EPS for the period under review (Q1-23: NGN1.47 vs Q1-22: NGN1.14). The expansion in the group’s EPS was buoyed by the impressive growth across the core (+53.4% y/y) and non-core (+35.3% y/y) income in Q1-23.
Interest income grew by 53.4% y/y to NGN191.88 billion driven by gains recorded across all the major lines. In nominal terms, the group generated higher income from loans and advances to customers (+36.6% y/y), investment securities (+64.8% y/y), cash and bank balances (+210.2% y/y), and loans and advances to banks (+92.7% y/y). Expectedly, the growth in these income lines was induced by a combination of the higher yield environment and the rise in the group’s interest-earning assets (+4.8% YTD to NGN9.31 trillion).
UBA recorded a 79.7% growth in interest expense to NGN72.25 billion due to the higher cost incurred on deposits from financial institutions (+203.6% y/y), borrowings (+71.0% y/y), and deposits from customers (+65.4% y/y). We attribute the higher expense incurred on deposits from customers to the increase in the bank’s deposits (+10.5% YTD to NGN8.65 trillion) amid a slight deterioration in its CASA mix (Q1-23: 84.0% vs 2022FY: 85.1%). Consequent to the faster growth in interest income than interest expenses, the group recorded an expansion in net interest income (+41.0% y/y). Eventually, net interest income ex-LLE closed 39.6% higher y/y to NGN112.60 billion after taking account of the 68.1% y/y growth in the group’s impairment charges in Q1-23.
Also supporting earnings, non-interest income advanced during the period by 35.3% y/y to NGN56.08 billion, driven by gains from investment securities (+127.4% y/y to NGN13.42 billion), net fees and commission income (+19.3% y/y to NGN28.98 billion), and FX trading (+20.8% y/y to NGN12.10 billion). Consequently, operating income rose by 38.1% y/y to NGN168.68 billion.
Further out, operating expenses closed higher by 38.2% y/y, triggered by the increasing regulatory costs and persistent inflationary pressures. Precisely, the group incurred higher costs on fuel, repairs and maintenance (+63.8% y/y to NGN14.02 billion), AMCON levy (+32.3% y/y to NGN10.18 billion), NDIC premium (+22.6% y/y to NGN5.09 billion), and personnel expenses (+22.2% y/y to NGN31.26 billion) during the period. Accordingly, the group’s operational efficiency was flat as the cost-to-income ratio (ex-LLE) settled at 63.6% (same as the corresponding period in the prior year).
All in, profit-before-tax grew by 38.0% y/y to NGN61.37 billion. The group recorded a 29.1% y/y growth in profit-after-tax, amid the higher income tax expense (+160.5% y/y to NGN7.78 billion).
In its commentary, Cordros Capital says “The group’s performance remains impressive given the challenging business environment. We envisage this strong earnings growth remaining in 2023FY given our expectations for sustained momentum in core and non-core income. We also expect the group’s continued improvements in operational efficiency to propel earnings further.”
