Group Managing Director/CEO
The United Bank for Africa (UBA) Plc released its audited H1-20 numbers recently, which showed that interest income increased by 0.3% y/y to NGN205.59 billion, supported by the growth across major contributors to the line, with the largest contributions coming from loans and advances to customers (+9.9% y/y to NGN113.89 billion), and loans and advances to banks (+77.5% y/y to NGN2.17 billion).
On the EPS of NGN1.24 (-23.5% vs. H1-19), the Board has proposed an interim dividend of NGN0.17/s (H1-19: 0.20/s), which equates to a yield of 2.6% based on the closing price of NGN6.55 as of the 1st of September 2020.
However, income from investment securities (-9.5% y/y to NGN83.04 billion) declined as yields on assets have fallen in 2020 across OMO and other fixed income instruments. We expect this line to remain under pressure through the year, and as such underperform FY-19.
Interest expense declined by 9.0% y/y to NGN86.26 billion despite growth across most major interest expense lines. However, the reduced cost on deposits from customers (-19.9% y/y to NGN53.38 billion), as the bank’s CASA mix improved during the period (78.5% vs. 73.5% in H1-19), was able to offset the impact. Consequent to the growth in income and decline in expense, the bank recorded an expansion in net interest income of 8.4% y/y.
According to Cordros Research, the bank still has some scope for gains here given that the CBN has now reviewed the minimum rate on savings deposits down to 10.0% of MPR (30.0% previously).
“We expect this will sustain net interest income growth in the year, even as interest income from loans may pare q/q through the rest of the year.”
Non-interest income grew during the period by 6.7% y/y to NGN77.74 billion, driven by the growth in fees and commissions income (+7.0% to NGN38.58 billion) and FX revaluation gains (+619.8% to NGN7.80 billion).
As expected there were declines in income from investment securities (-19.6% y/y to NGN13.84 billion) – given the LDR limit which reduced capital allocation –, and FX trading (-7.3% y/y to NGN13.37 billion) – given FX illiquidity.
Operating expenses settled 20.6% higher year-on-year, driven primarily by increased personnel expense (+19.9% y/y to NGN44.57 billion) and regulatory costs – AMCON levy (+12.1% y/y to NGN22.42 billion) and NDIC premium (+12.2% y/y to NGN5.58 billion).
Consequently, the bank’s cost-to-income ratio (ex-LLE) settled higher at 69.8% relative to 60.9% in the corresponding period of the prior year.
This pressured the trickle-down from the income line and resulted in profit-before tax declining significantly by 18.7% y/y to NGN57.13 billion. Consequently, profit-after-tax settled 21.7% lower y/y at NGN44.43 billion, despite a lower income tax expense (-6.2% y/y to NGN12.70 billion).