Event: UBA released its half-year audited financials yesterday afternoon, which showed that the bank recorded strong earnings growth during the period. The core income segment supported this performance, driven mainly by improvements in funding cost as non-core income contrastingly declined year-on-year. Consequently, the bank recorded an EPS of NGN1.69 (H1-20: NGN1.24) and declared an interim dividend of NGN0.20/share (+17.6% from H1-20: NGN0.17/share).

The bank recorded an 8.3% y/y growth in interest income to NGN222.63 billion as all major lines recorded gains – interest on loans and advances to banks (+377.6% y/y to NGN10.38 billion), investment securities (+5.1% y/y to NGN87.24 billion), loans and advances to customers (+4.0% y/y to NGN118.44 billion) and cash and bank balances (+1.4% y/y to NGN6.57 billion). Expectedly, the growth in income from investment securities was strong considering the reinvestments of maturing funds in higher-yielding instruments compared to levels obtainable in the prior quarter. Likewise, growth in loans to banks and customers (+96.3% and 4.1%, respectively) significantly contributed to the strong performance.

Interest expense declined by 13.6% y/y to NGN74.56 billion as the bank recorded moderations across all contributory lines save for expense on interest-bearing liabilities (+26.7% y/y to NGN25.07 billion). The largest decline was recorded on interest expense on deposits from customers (-20.5% y/y to NGN42.43 billion) as the bank’s CASA mix improved (H1-21: 84.3% vs 2020FY: 81.8%). Consequent to the income growth and declining expenses, the bank recorded an expansion in net interest income (+24.1% y/y), further supported by the significant decrease in loan loss expenses (-47.0% y/y to NGN4.14billion). Eventually, net interest income ex-LLE settled 29.1% higher y/y at NGN143.93 billion.

Elsewhere, non-interest income declined during the period by 16.8% y/y to NGN64.38 billion, driven by FX revaluation (loss of NGN2.84 billion vs H1-20: gain of NGN8.00 billion) and derivatives (loss of NGN5.27 billion vs H1-20: gain of NGN9.43 billion) as well as the decline in gains from investment securities (-55.5% y/y to NGN1.96 billion). The aforementioned offset the growth in net fees and commission income (+18.6% y/y to NGN45.77 billion); a consistent trend observed across the industry as electronic banking transaction volumes improve.

Operating expenses closed relatively flat, growing moderately by 0.5% year-on-year, as increasing regulatory cost pressures – NDIC premium (+27.3% y/y to NGN7.11 billion) and AMCON levy (+24.1% y/y to NGN27.82 billion) were offset by moderations in personnel, building maintenance and business travel expenses. Consequently, the bank’s operating income (+10.3% y/y) advanced faster than opex, leading to an improvement in operational efficiency – cost-to-income ratio (ex-LLE) settled lower at 63.8% relative to 69.9% in the prior year’s corresponding period.

Overall, profitability was more robust, with profit-before tax recording a 34.2% y/y growth to NGN76.19 billion while profit-after-tax came in 36.3% higher at NGN60.58 billion despite the higher income tax expense (+26.4% y/y to NGN15.61 billion).

Comment: The bank’s performance remains impressive given the challenging core business environment. We envisage this strong earnings growth would remain till full-year, given our expectations of sustained momentum in the acceleration of loans and higher yields obtainable to reinvest maturing assets. We also expect the bank’s continued improvements in operational efficiency to propel earnings further. Our estimates are under review.