September 12, 2022/FSDH Research

FSDH Initial Reaction: United Bank for Africa 2Q22 results 
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Key Performance Highlights:

• United Bank for Africa reported solid net profit numbers for 2Q22, with the gross earnings jumping 17.7% YoY and the profit soaring 28.6% YoY to N41.5 billion in 1Q22. The growth in gross earnings was driven by a solid 17.1% YoY growth in interest income on amortised cost and FVOCI securities (70.1% of 2Q22 gross earnings) to N131.9 billion, coupled with a 38.7% YoY surge in fee and commission income (28.9% of 2Q22 gross earnings) to N54.3 billion in 2Q22. The Bank’s Interest Income on FVTPL securities tanked 82.5% YoY to N385 million due to the absence of interest income on promissory notes at FVTPL in 2Q22. Interest expense for the period edged 1.6% lower, driven by a 23.8% YoY decrease in borrowings to N11.4 billion, resulting in a 25.7% YoY rise in net interest income to N92.6 billion.
   
• Solid growth in Fee & Commission income (+38.7% YoY), coupled with a proportionately lower increase in Fee & Commission expense (+36.0% YoY), led to a net Fee & Commission income growth at 40.2% YoY to N35.6 billion in 2Q22. The Fee & Commission income was boosted by a 166.6% YoY increase in the credit-related fees and commissions to N10.7 billion, supported by a 23.9% YoY rise in the electronic banking income of N21.2 billion, and a 60.0% jump in trade transactions income fee to N10.2 billion. The jump in Fee & Commission expenses was driven by a 38.0% YoY increase in E-Banking expenses to N12.4 billion versus N9.0 billion in 2Q21. The Group reported a net loss in trading and foreign exchange operations of N5.8 billion, compared to a loss of N1.4 billion in the prior-year quarter, primarily driven by an N22.6 billion net fair value loss on derivatives this quarter. Other operating income for the period also declined by 8.6% YoY to N7.4 billion in 2Q22. Consequently, non-interest income soared 15.8% YoY to N37.2 billion in 2Q22. 
   
• The impairment charge for credit losses on loans increased a massive 279.6% YoY to N8.0 billion from N2.1 billion in 2Q22. UBA reported a net impairment reversal on other financial assets of N3.8 billion this quarter compared to an impairment charge of N11 million in the prior period.
   
• The bank’s employee benefit expenses soared 25.4% YoY to N26.7 billion, and the other operating expenses vaulted by 24.2% YoY. Consequently, profit before tax was up 15.9% YoY to N41.3 billion in 2Q22. UBA recorded an effective tax rate of 30.1% in 2Q22, down from 37.0% in 2Q21. Consequently, the after-tax profit was boosted by 28.6% YoY to N28.8 billion in 2Q22. The group earnings per share went from N0.65/share to N0.84/share in 2Q22.
   
• The bank recorded a return on average equity of 17.7% in 1H22 compared to 16.4% in 1H21. The net interest margin stood at 5.5% in 1H22, up from 5.2% in 1H21, as the company continued to moderate its cost of funds whilst improving the yield on assets. The group recorded a stable cost-of-funds of 2.1% (1H21: 2.1%) in 1H22, while the Cost-of-risk ascended to 0.8% in 1H22 from 0.2% in 1H21. The cost-to-income ratio stood at 63.2% during 1H22 versus 62.3% in 1H21. Moreover, the company’s capital position remains strong as the Group recorded a risk-weighted capital adequacy ratio of 25.1% in 1H22 versus 23.9% in the prior period. UBA’s net loans increased to N3.0 trillion at the end of 1H22 compared to N2.8 trillion in the prior year period.
   
• The board of directors proposed an interim dividend of N0.20 (1H21: N0.20 per share), subject to applicable withholding tax. The dividend will be paid to shareholders whose names appear in the Register of Members at the close of business on September 22, 2022.                                                            
• On June 8, 2022, UBA redeemed its $500 million 5-year Eurobond notes, with a maturity date of June 8, 2022. Issued in 2017, the five-year bond was offered at a coupon rate of 7.75%. As part of UBA’s liability management strategies, in November 2021, the Group repurchased $310.9 million of the notes through a cash tender offer. Upon maturity, the outstanding portion of $189.1 million and the coupon of $7.3 million were paid.
   
• On August 1, 2022, UBA announced the appointment of Oliver Alawuba as Group Managing Director, overseeing the entire Group’s banking operations.

Market Reaction: The investor reaction to the solid 2Q22 results was extremely positive as the United Bank for Africa stock popped 3.42% to close at N7.55 on Friday (9/9), against a marginal 0.09% rise in the All-Share Index.

United Bank for Africa 2Q22 Earning Highlights

Source: Company Financials, FSDH