September 9, 2022/CSL Research
UBA’s H1 2022 audited numbers showed a moderate 15.6% y/y growth in Interest Income to N257.4bn driven mainly by a significant growth in Interest Income on bonds, term loans and loans to banks. Net Loans to customers were up 2.7% in June compared with the December 2021 position. Q/q (Q2 2022 compared with Q1 2022), Interest Income was up 5.8%. Interest Expense was up 7.2% y/y on the back of a 29.5% y/y growth in Interest Expense on Customer Deposits. While Customer Deposits were up 10.4% y/y, Interest Expense on such deposits were up 28.5%, pointing to a moderate increase in funding costs. Deposits were up 5.7% in June compared with December 2021. Overall, Net Interest Income was up 19.9% y/y to N177.5bn in June 2022 from N148.1bn in June 2021.
Net Fee and Commission Income was up 30.9% y/y to N59.9bn. The y/y growth was driven by growth in trade transaction income (+77.6% y/y) and credit related fees (+109.2% y/y). E-banking Income, which made up 37.7% of Fees and Commission was up 22.7% y/y to N36.3bn, albeit capped by high e-banking expense of N27.3bn, thus resulting in a balance of only N9.0bn for net e-banking income. We are surprised at the strong growth in credit related fees despite the very minimal year to date Net Loan growth. Q/q, Net Fee and Commission also grew strongly, up 46.6%.
| H1 2022 Nm |
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Source: Company, CSL Research.
Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) declined 1.7% y/y due to a significant dip in Q2 2022 compared with Q1 2022, down 90.6% q/q to N1.6bn from N16.7bn in Q1. The Q/q decline was mainly driven by Net fair value (loss) on derivatives of N22.6bn reported in Q2.
Impairment Charge was up 101.4% y/y to N8.3bn in H1 2022, bringing annualised Cost of Risk (COR) to 0.6% compared with 0.3% for H1 2021. We expect cost of risk to remain minimal, but we model an increase to 0.7% for FY 2022.
OPEX grew significantly, up 21.9% y/y and 8.5% q/q. The slightly higher y/y increase in Opex compared with a 20.3% growth in Total Operating Income led to a slight deterioration in Cost to Income Ratio (ex-provisions) to 63.3% for H1 2022 compared with 62.5% for H1 2021. Major opex growth drivers were a significant growth in employee benefit expenses, which grew to N52.3 billion in H1 2022 from N42.6 billion in H1 2021. This, according to the management was due to investment in staff training. Other Operating Expenses also grew significantly, driven by growth in regulatory charges and fuel, repairs/maintenance costs.
Overall, Pre-tax Profit was up 12.6% y/y to N85.7bn while Profit after Tax was up 16.1% y/y to N70.3bn, bringing H1 2022 annualised ROAE to 17.7% compared with 15.6% for FY 2021. Q/q however, pre-tax profit was down 7.2% q/q while Net Profit declined significantly, down 30.5% q/q due to a significantly higher tax charge in Q2 compared to Q1.
The Bank’s management proposed an interim dividend of N0.20/s.
We have a Buy recommendation on the stock with a target price target of N19.40/s. Current Price N7.30/s.