May 11, 2020/InvestmentOne Report
Net interest income of N65.42billion, up 3.9%q/q , up 12.6%y/y
· Non-interest income of N28.53billion, up 64.5%q/q, up 11.3%y/y.
· Profit before tax of N32.73billion, up 150.7%q/q, up 8.5% y/y.
· Profit after tax of N30.10billion, up 303,4%y/y, up 5.0%y/y.
Non-interest Income Supports q/q Performance
Recently, UBA reported its unaudited Q1 2020 result which showed a q/q jump in PBT to N32.73billion from N13.05billion in Q4 2019. This was driven by the 3.9%q/q increase in Net Interest Income and 64.5% jump in Non-interest income. We believe the growth in loan book (+9.5%ytd) could have supported the improvement in interest income as Net Interest margin weakened to 6.0% from 6.7% in Q4 2019. We opine that this was due to lower interest rate environment compared to 2019. Similarly, we think the drive to boost loan book could have caused the bank to lower its interest charges as competition for quality assets intensifies.
Similar to what we saw in Access Bank, Net fees and commission income rose by 11.9%q/q despite the recent downward review of charges on online transactions by the CBN. We think this may have been driven by high transaction volume on the bank’s online platforms. Nonetheless, we point out that the major driver of the boost in non-interest income was the significant income recorded from Net trading and FX income which jumped to N9.15billion in Q1 2020 from N1.91billion in Q4 2019. This was due higher income from FX trading (N7.14billion in Q1 2020 vs N4.99billion in Q4 2019) and FX revaluation gain of N69million (compared to a loss of N10.61billion in Q4 2019).
Decent y/y numbers
On a y/y basis, Net Interest Income was up 12.6% to N65.42billion and Non-interest income rose by 11.3% to N28.53billion. While the increase in Non-interest income was driven by the lower loss on derivative (N10million in Q1 2020 vs N5.71billion in Q1 2019) and a rise in net fees and commissions (up 11.6%y/y), the improvement in Net interest income was due to higher income from loans to customer as the bank continued to grow its loan book. Resultantly, the bank’s Profit Before Provisions and OPEX rose by 12.2% y/y to N93.94billion. Despite the 12.9%y/y (up 5.6%q/q) increase in OPEX, cost to income ratio was somewhat flat at 62.4% compared to 62.1% in Q1 2020 (62.7% in FY 2019). Overall, PBT rose by 8.5%y/y to N32.73billion in Q1 2020.
Outlook Remains Bleak
Going forward, despite its regional diversification compared to peers in Nigeria, we expect to see deterioration in asset quality as the impacts of the current pandemic materialize in most countries in Africa. While the current CBN’ s drive to boost credit to the real sector remains, we expect the pandemic to have negative significant effects on the overall economy particularly on oil price and Oil & Gas sector. As such, we expect the bank to focus on risk management and cost containment to weather the looming storm from the current pandemic. As such, we think the bank’s current LDR ratio of 52.81% may not reach CBN’s target of 65% by the end of 2020.
Similarly, with the recent devaluation, we see pressure on earnings for UBA given its net negative position in major foreign currencies (Net Negative FCY of N281billion based on our estimate from its FY 2019 result).
Nonetheless, we expect the bank’s drive to boost transaction volume on its e-channels platform to support earnings while its strong capital base (Bank level CAR of 20.39% as at December 2019), which is well above the regulatory requirement of 15%, should support its ability to survive in a challenging macroeconomic environment like this. Similarly, we think the bank’s diversified assets to other African countries should support its long term growth.
UNITED BANK FOR AFRICA PLC Q1 2020 (YE: DEC) (N millions) | |||||
Q1 2020 | Q/Q
| Y/Y
| |||
Interest Income | 109,107 | 2.0%
| 10.7%
| ||
Interest Expense | -43,690 | -0.6%
| 7.9%
| ||
Net Interest Income | 65,417 | 3.9%
| 12.6%
| ||
Non-interest income | 28,527 | 64.5%
| 11.3%
| ||
Profit before provisions | 93,944 | 17.0%
| 12.2%
| ||
Loan Impairment charges | -2,642 | -77.2%
| 54.1%
| ||
Total Opex | -58,657 | 5.6%
| 12.9%
| ||
PBT | 32,726 | 150.7%
| 8.5%
| ||
Tax | -2,625 | -53.1%
| 75.9%
| ||
Tax rate
| 8.0% | -3482bps
| 307bps
| ||
PAT | 30,101 | 303.4%
| 5.0%
| ||
Source: Company financials, Investment One Financial Services Research
Q1 2020 BANKS COMPARISON SHEET |
|
|
|
|
| |
NGN billion (unless stated otherwise) | GTB | ZENITH | ACCESS | UBA | FBNH | |
Key Income Statement Figures | Gross Earnings | 112.86 | 166.81 | 209.80 | 147.17 | 159.70 |
Net Interest Income | 64.30 | 81.50 | 72.21 | 65.42 | 60.30 | |
Non-interest Income | 35.80 | 46.64 | 77.93 | 28.53 | 49.70 | |
Total Expenses | 39.80 | 65.40 | 90.32 | 58.65 | 71.60 | |
Loan Impairment Charges | 1.22 | 3.95 | 8.58 | 2.64 | 9.70 | |
Profit Before Tax | 58.20 | 58.79 | 46.29 | 32.73 | 28.70 | |
Y/Y PBT Growth
| 1.17% | 2.60%
| 2.60%
| 8.50%
| 61.50%
| |
Dividend (Kobo per share) | nil | nil | nil | nil | nil | |
EPS (kobo per share) | 1.77 | 1.61 | 1.21 | 0.83 | 0.69 | |
Key Balance Sheet Figures | Total Assets | 4,057 | 7,128 | 7,281 | 6,351 | 7,023 |
Total Liabilities | 3,396 | 6,202 | 6,645 | 5,738 | 6,343 | |
Total Equity | 661 | 926 | 636 | 613 | 680 | |
Key Ratios | Net Interest Margin | 9.89% | 7.70% | 5.90% | 6.30% | 6.30% |
Cost of Fund | 1.50% | 2.60% | 3.80% | 3.30% | 3.30% | |
Cost to Income | 40.59% | 52.70% | 62.20% | 62.40% | 65.10% | |
NPL ratio | 5.95%
| 4.60% | 5.50%
| N/A | 9.20%
| |
Liquidity (bank level) | 45.59% | 41.80% | 44.60% | N/A | 30.10% | |
Cost of Risk | 0.30% | 0.60% | 1.20% | 0.50% | 1.90% | |
Capital adequacy ratio | 23.52% | 19.60% | 20.90% | N/A | 15.30% | |
ROE | 29.70% | 21.60% | 26.30% | 19.80% | 15.30% | |
ROA | 5.12% | 3.00% | 2.30% | 1.90% | 1.60% | |
Sources: Company financials, Investment One Research
