Contrary to feelings in some quarters that many of the first quarter results of quoted companies in Nigeria will be impacted by lull in the economy that trended from the 2017 recession, United Bank for Africa plc released results for Q1 2018, has chided the thoughts with strong signs of growth in Gross earnings (+17.89%), PBT (+4.26% y/y), and PAT (+6.20%).

The bank performed well from the previous year, to NGN119.37 billion, NGN26.56 billion, and NGN23.74 billion respectively.

Looking at quarter-on-quarter, however, Gross earnings and PAT were lower by 6.49% and 1.43%, while PAT was 34.33% higher, following a significantly favourable ETR of 10.62% in the quarter, against high base of 34.41% in Q4-2017.

Interest income (+17.68% y/y, +3.16% q/q) posted solid growth in the quarter to NGN90.33 billion, following a 78.62% growth in interest income via cash and bank balances — comprising money market placements and unrestricted balances with CBN which grew 55% and 49.72% respectively – as well as a 4.9x surge in interest earned on loans to banks (NGN948 billion). Interests earned on customer loans (which makes up 56.03% of total interest income) also increased by 4.12% y/y.

Besides, interest earned on T-bills and bonds improved by 38.69% y/y and 33.50% y/y respectively. Meanwhile, our computed annualized yield on asset dipped 64 bps to 11.18%, from 11.82% as at FY-2017.

Just as interest expense increased at a faster pace than interest income by 46.10% y/y (+14.12% q/q) to NGN36.78 billion, observers say this was largely attributable to the 55.14% upturn in interest paid on customer deposits (which constitutes 65.57% of total interest expense: NGN24.12 billion), and the 87.12% increase in interest paid on borrowings (NGN7.66 billion). Funding cost, on an annualized basis, inched 2 bp higher to 3.72% in the quarter, from 3.70% in FY2017. The dip in asset yield, coupled with the increase in the cost of fund, translated to a 70 bps drop in the NIM to 6.91%, from 7.61% in FY-2017.

NIR, against similar period in the previous year, posted 14.41% positive growth, while it declined by 30.09% q/q to NGN24.00 billion. Growth in net fee and commission income (making up the largest chunk of NIR: 62.48%) grew by 15.40% y/y (-22.28% q/q) to NGN15 billion and coupled with the 859.07% y/y (+408.50% q/q) surge in other income, muted the 13.09% y/y (-53.85% q/q) decline in other income to NGN2.27 billion.

Impairment charges, as has been the case in tier 1 banks’ Q1-18 result released so far (GUARANTY: -51.96% y/y to NGN1.64 billion; Zenith: -42.01% y/y to NGN4.57 billion), plunged by 53.14% y/y to NGN1.45 billion in the quarter, against expectation of increased provisions, following implementation of IFRS 9.

Total loans and advances also came lower by 1.55% to NGN1.65 trillion, from NGN1.67 trillion in FY-2017. This is also similar to the recent tier 1 bank releases (GUARANTY: -6.55% to NGN1.35 trillion; Zenith: -16.35% to NGN1.78 trillion). Accordingly, the cost of risk was 7 bps lower than in FY2017 to 1.94%.

Total operating expenses increased by 12.85% y/y (+15.77%) to NGN49.68 billion, following the uptick in other operating expenses (17.37% y/y, +30.11% q/q) and depreciation and amortization (+18.85% y/y, +4.26% q/q) to NGN29.36 billion and NGN2.79 billion respectively. As a result, cost-to-income ratio increased by 630 bps to 64.06%.

In its implementation of IFRS 9, UBA deducted NGN34 billion (vs. NGN138.13 billion in Zenith and NGN82.15 billion in GUARANTY) from its retained earnings as at beginning of the year. However, the effect was muted following a transfer of same sum from regulatory credit risk reserve to the retained earnings.

Industry pundits say whereas the UBA’s performance over Q1-18 remains impressive and in line with those of the recently published Tier-1 peers, positive reaction will definitely trail the result.