UBA released unaudited Q1-2021 numbers late yesterday, which showed that the bank recorded a strong performance during the period. This performance was supported by growth in non-core income items as growth in core income lines declined marginally year-on-year. Consequently, the bank recorded an EPS of NGN1.04 (Q1-2020: NGN0.83).

Interest income declined by 0.5% y/y to NGN108.59 billion as all major lines recorded declines save for interest on loans from customers (+10.0% y/y to NGN66.75 billion) – loans and advances to banks (-22.2% y/y to NGN0.33 billion), interest from investment securities (-12.0% y/y to NGN38.15 billion), and interest on cash and bank balances (-27.5% y/y to NGN3.37 billion). 

Interest expense declined significantly by 21.7% y/y to NGN34.21 billion as the bank recorded declines across all major lines. However, the major contributor to the decline was the interest expense on deposits from customers (-30.5% y/y to NGN18.51 billion) as the bank’s CASA mix improved (Q1-2021: 82.6%, 2020FY: 81.8%, 2019FY: 73.5%). Consequent to the growth in income and decline in expense, the bank recorded an expansion in net interest income (+13.7% y/y). Also, there was a significant decline in loan loss expenses (-23.2% y/y to NGN2.03 billion), resulting in an expansion in net interest income ex-LLE to 15.3% y/y.

Non-interest income grew during the period by 14.2% y/y to NGN74.38 billion, driven by the growth in fees and commissions income (+8.9% y/y to NGN20.37 billion), and FX trading income (+30.8% y/y to NGN6.17 billion). Although the strong performance here is a key highlight, we note that the ongoing standoff between banks and Telcos over the cost of USSD service could pressure transaction volumes if there is no amicable settlement between both parties.

Operating expenses settled 9.9% higher year-on-year, driven primarily by increased regulatory costs – AMCON levy (+32.8% y/y to NGN7.44 billion) and NDIC premium (+27.4% y/y to NGN3.36 billion), but remained below the expansion in operating income (+14.9% y/y to NGN105.04 billion). Consequently, the bank’s cost-to-income ratio (ex-LLE) settled lower at 61.4% relative to 64.2% in the prior year’s corresponding period. This decline improved the trickle-down from the income line and resulted in profit-before tax expanding significantly by 24.0% y/y to NGN40.58 billion. Profit-after-tax settled 26.8% higher y/y at NGN38.16 billion, given a lower income tax expense (-7.6% y/y to NGN2.43 billion).

Comment: The bank’s performance follows on from a strong 2020 fiscal year. While the strong performance of non-funded income supported the financial performance, the improved operational efficiency is a highlight that should further propel earnings as the bank drives funded income growth through risk asset creation in the year. In addition, improved fixed income yields should provide a backdraft for income generation. Our estimates are under review.