October 25, 2021/CSL Research

UBA’s 9M 2021 unaudited numbers showed a moderate 8.4% y/y growth in Interest Income to N343.7bn. Net loans to customers were up 12.4% in 9M 2021 compared with December 2020 and up 9.0% in Q3 2021. Interest Expense on the other hand was down 12.7% y/y and 1.2% q/q. Customer Deposits were up 7.2% y/y in 9M 2021  compared with December 2020 (Q3 2021; down 0.2%) while borrowings declined 15.2% in Q3, both of which may have resulted in the marginal decline in Interest Expense seen in Q3. Overall, Net Interest Income was up 23.2% y/y to N229.3bn in 9M 2021 from N186.0bn in 9M 2020.

Net Fee and Commission Income was up 20.8% y/y to N67.9bn but was down 12.8% q/q (Q3 compared with Q2 2021). The y/y growth was driven by growth in credit related fees (+30.3% y/y), account maintenance fee (+21.6% y/y), commissions on transactional services (+33.3% y/y), commission on turnover (up 186.9% y/y) and funds transfer fees (+42.0% y/y). E-banking Income, which made up 62.2% of Fees and Commission surged higher, up 50.4% y/y to N49.1bn but the growth was capped by high e-banking expense of N37.2bn, thus resulting in a balance of only N4.8bn for net e-banking income.

9M 2021 Nm

Source: Company, CSL Research.

Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) declined 33.0% y/y to N34.5bn in 9M 2021 but was up 136.9% q/q. The y/y decline was due to a foreign currency revaluation loss of N11.2bn compared with a gain of N9.2bn in September 2020 and a net fair value loss on derivatives of  N5.3bn compared with a gain of N9.4bn in September 2020.

Impairment Charge declined 70.3% y/y to N3.4bn in 9M 2021, bringing annualised Cost of Risk to 0.2% compared with 0.7% in the same period of 2020. We expect cost of risk to remain minimal for the year.

OPEX grew moderately, up 6.9% y/y and up 7.0% in Q3 compared with Q2 2021. The moderate y/y increase in Opex compared with a higher growth in Total Operating Income (up 12.9% y/y)  led to an improvement in Cost to Income Ratio (ex-provisions) to 62.1% in 9M 2021 compared with 65.6% in September 2020.

Overall, Pre-tax Profit was up 36.5% y/y to N123.4bn in 9M 2021 and 32.5% q/q while Profit after Tax was up 35.6%y/y to N104.6n bringing annualised ROAE to 18.3% compared with 17.2% for FY 2020. 

We have a Buy recommendation on the stock with a target price target of N16.00/s. Current Price N8.40/s.