April 21, 2021/InvestmentOne Report

·         Net interest income of N74.38billion, up 1.27%q/q , 13.70%y/y       

·         Non-interest income of N32.27billion, down 20.16%q/q, up 13.11%y/y.

·         Profit before tax of N40.58billion, down 2.19%q/q, up 24.00% y/y.

·         Profit after tax of N38.16billion, up 4.15%y/y, 26.76%y/y..

Weak q/q Performance

Recently, UBA reported its Q1 2021 result which showed a 2.19%q/q decline in PBT. This was driven by a 20.16%q/q decline in Non-interest income and 12.71%q/q increase in OPEX which offset the impacts of the slight increase in Net Interest Income (NII) and 86.94%q/q decline in loan impairment. We believe the increase in NII may not be unconnected to the fall in the bank’s cost of funds as the bank increased its savings deposit (which is usually the cheapest fund). Elsewhere, Non-Interest income declined on the back of the 22.75%q/q fall in Net fees and Commission and 23.75%q/q decrease in Net trading and FX income. We believe high base effect of growth in volume of online transactions recorded in Q4 2020 could have caused the fall in q/q decline in net fees and commission while the fall in Net trading income may be due to the rise in yields in the fixed income market which has led to mark to market loss for fixed income traders. 

Gains in NII and Non-interest Income Support Earnings

On a y/y basis, Net Interest Income was up 13.70% to N74.438billion and Non-interest income rose by 13.11% to N32.27billion in Q1 2021. While the fall in cost of funds (down 130bpsy/y) and increase in the bank’s net loan book (+7.69%YTD) could have supported NII, the increase in Non-interest income was driven by 8.90%y/y increase in Net fees and Commission and 14.48%y/y rise in Net trading. The increase in net fees and commission was driven by electronic banking income, commissions on transactional services and credit-related fees and commissions, amongst others. We highlight that electronic banking income grew by 50.40%y/y following impressive group-wide growth in our digital banking customer base and transactions. Resultantly, the bank’s Profit before provisions and OPEX rose by 13.52% y/y to N106.65billion. OPEX rose by 9.88% majorly due to the increase in AMCON fees and Contract services cost while loan impairment fell by 23.24%y/y as macroeconomic condition improved further.

As a result of the strong income growth which offset the increase in OPEX, cost to income ratio fell to 60.40% at the end of Q1 2021 from 62.40% in Q1 2020.  As a result of the improvement in NII, Non-interest Income and a decline in loan impairment which offset the increase in OPEX, PBT rose by 24.00%y/y to N40.58billion in Q1 2021.

Outlook

Going forward, we expect the loan restructuring programme of the CBN to reduce the impact of the pandemic on loan assets. In terms of earnings, we expect the bank’s initiative on credit growth (click credit) to support its loan book expansion (forward guidance of 20% in 2021) while we believe recent increase in interest rate should improve NIM and asset yield in the near term. We also expect the improvement in the bank’s online and digital transaction to continue to support its fees and commission income. Similarly, we believe the bank is well positioned, due to its Pan African exposure, to enjoy the trading benefit under the African Continental Free Trade Area (AfCFTA). We also expect the batter than expected improvement in oil price and Nigeria economy to support the bank’s asset quality and loan growth. Overall, we believe the bank remains resilient to survive the impact of the current pandemic given its strong capital base and geographical diversification.

Source: Company financials, Investment One Financial Services Research

Source: Company financials, Investment One Financial Services Research