FSDH Initial Reaction: United Bank for Africa 3Q22 results 
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October 31, 2022/FSDH Research

Key Performance Highlights:

• United Bank for Africa reported stable net profit numbers for 3Q22, with the gross earnings jumping 33.3% YoY and the profit climbing 3.8% YoY to N45.7 billion in 3Q22. The growth in gross earnings was driven by a solid 32.1% YoY growth in interest income on amortised cost and FVOCI securities (67.8% of 3Q22 gross earnings) to N159.9 billion, coupled with a 13.0% YoY surge in fee and commission income (17.7% of 3Q22 gross earnings) to N41.7 billion in 3Q22 and a massive rise in the Bank’s Interest Income on FVTPL securities to N3.0 billion in 3Q22 compared to N106 million in 3Q21. Although interest expense for the period soared 45.0% YoY, primarily driven by an increase in deposits from banks to N10.5 billion from N105 million in 3Q21, net interest income grew 29.4% YoY to N105.1 billion.
   
• Net Fee & Commission income marginally improved by 0.7% YoY to N22.3 billion in 3Q22 as growth in Fee & Commission income (+13.0% YoY) was largely offset by an increase in Fee & Commission expense (+31.4% YoY). The Fee & Commission income was boosted by an 80.5% YoY increase in the account maintenance fees to N3.0 billion, supported by a 72.2% YoY rise in the trade transactions income of N6.3 billion, and a 113.2% jump in fund transfer fees to N1.7 billion. The jump in Fee & Commission expenses was driven by a 25.8% YoY increase in E-Banking expenses to N18.4 billion versus N14.7 billion in 3Q21 and a 125.5% YoY increase in trade-related expense to N850 million in 3Q22.
   
• The Group reported a net profit in trading and foreign exchange operations of N29.3 billion, up 60.6%, compared to a profit of N18.2 billion in the prior-year quarter, primarily driven by a 25.8% YoY jump in foreign exchange trading income to N25.3 billion in 3Q22 and fixed income securities growth of 44.2% to N9.1 billion, supported by a decrease in foreign currency revaluation loss. Other operating income for the period improved by 155.4% YoY to N2.1 billion in 3Q22. Consequently, non-interest income soared 30.3% YoY to N53.7 billion in 3Q22. Moreover, the impairment charge for credit losses on loans increased a massive 116.3% YoY to N5.2 billion in 3Q22 from N2.4 billion in 3Q21.
   
• The bank’s employee benefit expenses soared 19.3% YoY to N28.5 billion, and the other operating expenses vaulted by 50.3% YoY to N66.9 billion in 3Q22. Consequently, profit before tax was up 11.8% YoY to N52.7 billion in 3Q22. UBA paid the income tax at an effective tax rate of 13.3% in 3Q22, up from 6.7% in 3Q22, diminishing the after-tax profit growth. Resultantly, the after-tax profit improved by a steady 3.8% YoY to N45.7 billion in 3Q22. The group earnings per share went from N1.25/share to N1.29/share in 3Q22.
   
• The bank’s return on average equity remained stable at 19.2% in 9M22 (9M21: 19.2%). The net interest margin stood at 5.9% in 9M22, compared to 5.6% in 9M21, as the company continued to moderate its cost of funds while improving the yield on assets. The group recorded a stable cost-of-funds of 2.3% (9M21: 2.3%) in 9M22, while the Cost-of-risk ascended to 0.7% in 9M22 from 0.6% in 9M21. The cost-to-income ratio stood at 63.2% during 9M22 versus 61.9% in 9M21. Moreover, the company’s capital position remains strong as the Group recorded a risk-weighted capital adequacy ratio of 30.3% in 9M22 versus 23.7% in the prior period. UBA’s net loans increased to N3.2 trillion in 9M22 compared to N3.0 trillion in the prior year period.

Market Reaction: The investor reaction to the 3Q22 results was muted as the United Bank for Africa stock closed flat at N7.00 on Tuesday (25/10) against a 0.73% rise in the All-Share Index. However, the stock rose 0.71% on Wednesday (26/10) versus a 0.16% increase in the All-Share Index.

United Bank for Africa 3Q22 Earning Highlights

Source: Company Financials, FSDH