April 27, 2022/CSL Research

UBA’s Q1 2022 unaudited numbers showed a moderate 15.2% y/y growth in Interest Income to N125.1bn driven mainly by a significant growth in Interest Income on bonds (up 73.4% y/y). Interest Expense on the other hand was up 17.5% y/y on the back of a 61.5% y/y growth in Interest Expense on Customer Deposits. While Customer Deposits were up 14.9% y/y, Interest Expense on such deposits were up 61.5%, pointing to an increase in funding costs. Deposits were up 4.5% in March compared with December 2021. Net Interest Income was up 14.1% y/y to N84.9bn in March 2022 from N74.4bn in March 2021.

Net Fee and Commission Income was up 19.3% y/y to N24.3bn. The y/y growth was driven by growth in trade transaction income (+109,2% y/y) and credit related fees (+40.9% y/y). E-banking Income, which made up 35.9% of Fees and Commission was up 21.0% y/y to N15.1bn, albeit capped by high e-banking expense of N14.9bn, thus resulting in a balance of only N207m for net e-banking income.

Q1 2022 Nm

Source: Company, CSL Research.

Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) was up 40.5% y/y and summed up to N16.7bn in Q1 2022 compared with 11.9bn in Q1 2021. The y/y growth was driven mainly by a significant growth in income from trading in fixed income securities, which was up 435.4% to N5.9bn in Q1 2022 from only N1.1bn in Q1 2021. 

Impairment Charge was up 106.3% y/y to N4.2bn in Q1 2022, bringing annualised Cost of Risk to 0.6% compared with 0.3% for FY 2021. We expect cost of risk to remain minimal, but we model an increase to 0.7% in FY 2022.

OPEX grew significantly, up 20.5% y/y. The higher y/y increase in Opex compared with an 18.0% growth in Total Operating Income led to a slight deterioration in Cost to Income Ratio (ex-provisions) to 61.7% for Q1 2022 compared with 60.4% for Q1 2021.

Overall, Pre-tax Profit was up 9.6% y/y to N44.5bn while Profit after Tax was up 8.8% y/y to N41.5bn due to a slightly higher tax rate in Q1 2022 compared with Q1 2021.  Overall, Q1 2022 annualised ROAE comes to 20.4% compared with 15.6% for FY 2021.

We have a Buy recommendation on the stock with a target price target of N19.40/s. Current Price N8.10/s.