September 10, 2021/CSL Research

UBA’s H1 2021 AUDITED numbers showed a moderate 8.3% y/y growth in Interest Income to N222.6bn. Net loans to customers grew 20.5% y/y and are up 3.1% in H1 2021 compared with December 2020. Interest Expense on the other hand was down 13.6% y/y (H1 cost of funds down to 2.3% in H1 2021 from 3.4% in H1 2020) but was up 18.0% q/q. The q/q growth was driven by growth in Interest Expense on Customer Deposits and borrowings despite only a 5.3% growth in Customer Deposits and a 20.1% decline in Borrowings in Q2, suggesting increased funding cost in Q2. Customer Deposits were up 27.0% y/y and 7.4% in H1 2021 compared with December 2020. Overall, Net Interest Income was up 24.1% y/y to N148.1bn in H1 2021 from N119.3bn in H1 202 bringing Net Interest Margins to 5.8% compared with 5.4% in H1 2020.

Net Fee and Commission Income was up 18.6% y/y to N45.8bn and 24.7%q/q. The y/y growth was driven by growth in credit related fees (+47.1% y/y), account maintenance fee (+51.3% y/y), commissions on transactional services (+187.0% y/y) and funds transfer fees (+83.7% y/y). E-banking Income, which made up 40.0% of Fees and Commission surged higher, up 65.1% y/y, albeit capped by a significant growth of 55.0% y/y in e-banking expense, thus resulting in a balance of only N7.1bn for net e-banking income.

Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) declined 52.0% y/y to N18.6bn in H1 2021 and 43.6%q/q. The y/y decline was due to a foreign currency revaluation loss of N2.8bn compared with a gain of N7.98bn in June 2020 and a Net Fair value loss on derivatives of  N5.3bn compared with a gain of N9.4bn in June 2020.

Impairment Charge declined 47.0% y/y to N4.1bn in H1 2021, bringing annualised Cost of Risk to 0.3% compared with 1.2% in the same period of 2020. Management attributes the decline to improved macro conditions resulting in more repayments and fewer defaults. We expect cost of risk to remain minimal. NPL ratio was down to 3.5% in H1 2021 compared with 4.1% in H1 2020.

OPEX grew marginally, up 0.5% y/y but was up 6.1% in Q2 compared with Q1 2021. The marginal y/y increase in OPEX coupled with a modest growth in Total Operating Income (up 8.0% y/y)  led to an improvement in Cost to Income Ratio (ex-provisions) to 62.5% in H1 2021 compared with 67.2% in June 2020.

Overall, Pre-tax Profit was up 33.4% y/y to N76.2bn in H1 2021 but declined 12.3% q/q while Profit after Tax was up 36.3%y/y to N60.6bn bringing annualised ROAE to 16.4% compared with 17.2% for FY 2020.

The bank’s management declared a dividend of N0.20/s compared with N0.17/s declared in the same period of 2020.

We have a Buy recommendation on the stock with a target price target of N16.00/s. Current Price N7.85/s.

The bank’s management will hold a conference call to discuss the numbers on Thursday, September 16, 2021 at 3pm Lagos time.

Regards, 

Gloria Fadipe.

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