FSDH Initial Reaction: United Bank for Africa FY21 results 
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March 9, 2022/FSDH Research

Key Performance Highlights:

• United Bank of Africa reported respectable numbers for FY21, with the gross earnings increasing by 6.9% YoY while the profit jumped 8.7% YoY to N118.7 billion in FY21. The growth in gross earnings was driven by a solid 22.1% YoY growth in net interest income to N316.7 billion and a 22.1% YoY jump in Fee & Commission income to N100.9 billion, partially offset by a 70.1% decline in net trading and foreign exchange income to N16.4 billion in FY21 from N54.8 million in FY20. The income from Interest Income on FVTPL securities fell massively by 93.2% YoY to N353 million due to a significant decline in interest income from promissory notes. The bank’s Interest income on amortised cost and FVOCI securities rose 12.1% YoY to N473.9 billion due to a 117.7% increase in the interest income on loans and advances to banks, resulting in a 22.1% YoY increase in net interest income.
   
• A significant 25.0% YoY growth in Fee & Commission income was offset by a 30.2% increase in Fee & Commission expense, resulting mainly from the rise in the E-Banking expense, limiting net Fee Commission income growth at 22.1% YoY to N100.9 billion in FY21. Net trading and foreign exchange income also dropped 70.1%, majorly from N19.4 billion loss on derivatives. Other operating income spiked 47.0%, owning to an N1.9 billion gain on disposal of property and equipment. Resultantly, non-interest income dropped 12.0% YoY to N126.3 billion in FY21.
   
• There was a considerable fall in an impairment charge for credit losses on loans, declining by 56.1% YoY to N9.8 billion while impairment charges on financial assets dropped by 34.0% YoY to N3.0 billion, leaving the net interest income after impairment loss growth at 14.4% YoY to N430.1 billion in 1Q21.
   
• The bank’s employee benefit expenses increased 6.5% YoY to N93.2 billion, and the other Operating expenses grew by 14.6% YOY. Consequently, profit before tax was up by 20.3% YoY to N153.1 billion. This increase was offset by an increase in the effective tax rate to 22.5% in FY21 from 14.2% in FY20, leading to the after-tax profit of N118.7 billion, compared to N109.2 billion last year,8.7% YoY growth. The Group Earnings per Share went from N3.10/share to N3.39/share in FY21.
   
• In the 4Q21, net Interest Income jumped 19.1% YoY to N87.5 billion, majorly from interest Income on FVTPL securities. This was offset by net trading and foreign exchange loss of N10.9 billion in 4Q21, leading to a marginal 1.9% YoY growth in Operating Income to N111.3 billion in 4Q21. A 27.6% increase in the total operating expenses eroded the marginal operating income growth, leading to a massive 19.4% YoY drop in profit before tax to N29.7 billion in 4Q21. The company paid the income tax at an effective tax rate of 52.6% in 4Q21, up from 13.2% in 4Q20, further resulting in a humongous 56.0% YoY drop in the net profit to N14.1 billion in 4Q21.
   
• The bank recorded a net Loans and advances growth of 7.7% to N2.8 trillion with exposure mostly to resilient economic sectors including oil & gas, agriculture, and manufacturing. Customers’ deposits grew 12.2%, crossing the N6 trillion mark to N6.4 trillion. The bank managed to protect its net interest margin. It achieved a downward moderation of cost of funds (CoF) by 70 basis points to 2.2% from 2.9% in the prior year through active and diligent assets and liabilities management. The Group’s capital adequacy ratio at 24.9% is well above the required regulatory minimum and reflects a strong capacity for business growth. The Group’s non-performing loan ratio improved further to 3.6% from 4.7% at the end of 2020, while the bank’s Cost-to-Income ratio came in at 63.0% at the end of the year.
   
• The bank proposed a final dividend of N0.80, bringing the total dividend for the financial year ended December 31, 2021, to N1.00. The dividend will be paid to shareholders whose names appear in the Register of Members at the close of business on Friday, March 18, 2022.

Market Reaction: United Bank of Africa stock closed 1.82% up at N8.40 on March 7, against a marginal 0.01% fall in the All-Share Index.

United Bank for Africa FY21 Earning Highlights

Source: Company Financials, FSDH