March 7, 2022/CSL Research

UBA’s FY 2021 AUDITED numbers showed a moderate 10.8% y/y growth in Interest Income to N474.3bn (Net loans to customers grew 4.9% y/y). Interest Expense, on the other hand, was down 6.4% y/y but was up 8.1% q/q. The q/q growth reflects the gradual increase in funding costs through 2021. Overall, cost of funds was down to 2.2% in FY 2021 compared with 2.9% in 2020. Customer Deposits were up 12.2% y/y. Net Interest Income was up 22.1% y/y to N316.1bn in December 2021 from N259.5bn in December 2020, broadly in line with our estimates.

Net Fee and Commission Income was up 22.1% y/y to N100.9bn and up 48.9% q/q. The y/y growth was driven by growth in credit related fees (+41.5% y/y), account maintenance fee (+35.2% y/y), funds transfer fees (+22.3% y/y). E-banking Income, which made up 40.7% of Fees and Commission surged higher, up 46.0% y/y to N64.6bn, albeit capped by high e-banking expense of N47.9bn, thus resulting in a balance of only N16.7bn for net e-banking income. Q/q, Net Fee and Commission was up 48.9% in Q4 2021 compared with Q3 2021.

FY 2021 Nm

Source: Company, CSL Research. 

Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) declined 58.4% y/y and summed up to a loss of N9.1bn in Q4 compared with a profit of N15.9bn in Q3. The y/y decline was due to a foreign currency revaluation loss of N2.0bn compared with a gain of N6.2bn in December 2020 and a Net Fair value loss on derivatives of N19.4bn compared with a gain of N5.4bn in December 2020. The bank also saw a decline in FX trading Income, which was down 17.8% to N19.5bn for FY 2021.  

Impairment Charge declined 52.4% y/y to N12.9bn in FY 2021, significantly lower than our estimate of N6.3bn, bringing annualised Cost of Risk to 0.3% compared with our estimate of 0.2%. We expect cost of risk to remain minimal, but we model an increase to 0.7% in FY 2022. The bank reports NPL ratio of 3.6% for FY 2021. 

OPEX grew moderately, up 11.7% y/y but was relatively flat Q/q (Q4 compared with Q3). The higher y/y increase in Opex compared with a 9.9% growth in Total Operating Income led to a slight deterioration in Cost to Income Ratio (ex-provisions) to 63.0% for FY 2021 compared with 62.0% for FY 2020.  

Overall, Pre-tax Profit was up 20.3% y/y to N153.1bn but declined 37.0% in Q4 compared with Q3 while Profit after Tax was up 8.7%y/y to N118.7bn due to a significantly higher tax rate of 22.4% in FY 2021 compared with only 14.2% in FY 2020. Q/q, Pre-tax profit was down 68.0%. Overall, FY 2021 ROAE comes to 15.6% compared with 16.6% for FY 2020. And lower than our estimate of 17.7%. 

The pan-African operations accounted for 63.2% of the Group’s profitability, compared to 55.4% in 2020. 

The bank’s management declared a final dividend of N0.80/s, bringing FY 2021 total dividend to N1.00/s compared with N0.52/s for FY 2020, implying FY 2021 dividend yield of 12.1%. 

We have a Buy recommendation on the stock with a target price target of N19.40/s. Current Price N8.25/s. 

The bank’s management will hold its 2021 full-year results conference call on Wednesday, March 10, 2022, at 3:00 pm Lagos time (2:00 pm London / 09:00 am New York / 4:00 pm Johannesburg).