MON 25 OCT, 2021-theGBJournal- UBA released its nine-month interim report during the weekend, which showed that the bank recorded strong earnings growth during the period.
The bank’s core segment has continued to support the growth in profitability consequent on higher income from loans, lower funding and impairments costs. On the other hand, the non-core income segment declined year-on-year.
Overall, the bank recorded a 36.1% y/y growth in EPS to NGN2.94 in 9M-21 (9M-20: NGN2.16).
Interest income grew by 8.4% y/y to NGN343.71 billion as its contributory lines save for cash and bank balances (-12.0% y/y to NGN10.00 billion) recorded gains – interest on loans and advances to banks (+421.2% y/y to NGN13.73 billion), loans and advances to customers (+9.8% y/y to NGN187.06 billion), and investment securities (+0.1% y/y to NGN132.92 billion).
Just as envisaged, the bank reversed the decline in its loan book recorded last quarter as loans to customers grew by 9.0% q/q in Q3-21 (YTD: +12.4% to NGN2.87 trillion), which contributed significantly to the strong performance on a YTD basis.
Interest expense declined by 12.7% y/y to NGN114.44 billion as the bank recorded substantial moderations across the various liabilities categories. The most decline emerged from interest expense on deposits from financial institutions (-57.6% y/y to NGN6.73 billion) and expenses on customer deposits (-5.8% y/y to NGN78.49 billion), as the bank’s CASA mix slightly improved (9M-21: 82.3% vs 2020FY: 81.8%).
However, we believe that this moderation could be linked to the more conservative approach of accumulating liabilities from customers (+7.2% in 9M-21 vs +35.7% in 9M-20). The combined impact of higher interest income and lower expenses on liabilities drove net interest income higher by 23.2% y/y to NGN229.27 billion.
This was further supported by the decline in loan impairment charges (-70.3% y/y to NGN3.41 billion), as macro-economic conditions and obligors’ repayments improve. Consequently, net interest income ex-LLE expended by 29.4% y/y to NGN225.86 billion.
Contrastingly, non-interest income declined by 5.0% y/y to NGN102.42 billion, due to the lower marked-to-market gains from trading investment securities (-50.4% y/y to NGN8.24 billion) and FX revaluation losses of NGN11.20 billion compared to the gains of NGN9.23 billion in the 9M-20.
The declines across these lines outweighed the impressive growth in FX trading (+78.8% y/y to NGN35.56 billion) and net fees and commission (+18.6% y/y to NGN45.77 billion) incomes.
Cordros Research say they still see scope for more growth in e-banking fees as the industry continues to record growth in electronic transaction volumes given the sustained recovery in economic activities and, FX trading given the better repositioning for DMBs following the CBN’s ban on sales of dollars to BDCs.
Operating expenses inched higher by 6.9% y/y, albeit it represents a marginal increase from the 0.5% growth recorded as at H1-21. This was largely driven by increased regulatory charges – NDIC premium (+27.9% y/y to NGN10.38 billion),
AMCON levy (+24.1% y/y to NGN27.82 billion), given the balance sheet size growth. However, the bank was able to maintain other opex items like personnel and building maintenance expenses below the prevailing inflation level.
Overall, the faster increase in operating income (+16.3% y/y) compared to opex led to an improvement in operational efficiency – cost-to-income ratio (ex-LLE) moderated to 62.8% relative to 68.2% in the prior year’s corresponding period.
Overall, profit-before tax was 36.4% y/y higher at NGN122.27 billion while profit-after-tax grew by 35.6% y/y to NGN104.60 billion (9M-20: NGN77.13 billion) following the higher income tax expense (+41.2% y/y to NGN17.67 billion).
The bank’s sustained growth in earnings in the face of challenging industry conditions remains impressive, and according to Cordros Research, ‘’in the last quarter leading up to full-year results, we expect the momentum in earnings growth to be sustained as more efforts are made to accelerate risk assets and reinvest maturing assets at higher yields.’’
Similarly, Cordros also expect improvements in the major non-funded income components and operational efficiencies to further propel earnings.
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