FRI, APRIL. 14 2023-theGBJournal |United Bank for Africa (UBA) released its Q1-23 interim financials after the close of business Thursday, which showed that the bank recorded a 28.9% year-on-year growth in EPS for the period under review (Q1-23: N1.47 vs Q1-22: N1.14). 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 N191.88 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 N9.31 trillion).
UBA recorded a 79.7% growth in interest expense to N72.25 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 N8.65 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 N13.42 billion), net fees and commission income (+19.3% y/y to N28.98 billion), and FX trading (+20.8% y/y to N12.10 billion). Consequently, operating income rose by 38.1% y/y to N168.68 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 N61.37 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 N7.78 billion).
”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.” says analysts at Cordros Research.
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