March 31, 2023/Cordros Report
United Bank for Africa Plc (UBA) released its audited full-year results yesterday, reporting a solid earnings growth in 2022FY. Specifically, the bank recorded a 42.8% y/y growth in EPS to NGN4.84 in 2022FY (2021FY: NGN3.39), supported by the stellar growth across the core (+17.5% y/y) and non-core (+66.7% y/y) income. The management proposed a final dividend of NGN0.90/s (higher than NGN0.80/s in the corresponding period last year), representing a dividend yield of 11.3% on the last closing price of NGN8.00/s (30 March).
In 2022FY, the group’s interest income grew by 17.5% y/y to NGN557.15 billion buoyed by all contributory lines. Specifically, income from loans and advances to customers (+4.4% y/y), investment securities (+27.0% y/y), loans and advances to banks (+72.2% y/y), and cash with banks (+44.8% y/y) recorded growth during the period. We highlight that the growth in income from loans and advances is due to the group’s creating more risky assets (loans & advances to customers: +17.0% y/y to NGN3.14 trillion; loan and advances to banks: +97.1% y/y to NGN303.25 billion). In addition, we attribute the higher income from investment securities to the dual impact of higher fixed-income yields and increases in the group’s investment securities holdings (+25.3% y/y to NGN4.18 trillion).
Interest expense grew by 12.8% y/y to NGN177.66 billion driven by the higher costs on deposits from customers (+25.3% y/y) and borrowings (+7.2% y/y). The rise in funding costs from customer’s deposits can be traced to the increase in deposits from customers (+22.9% y/y to NGN7.82 trillion) amid a slight deterioration in its CASA mix (2022FY: 85.1% vs 2021FY: 86.6%). The impact of faster growth in interest income than expense led to a 19.8% increase in net interest income to NGN379.49 billion.
However, the group recorded higher impairment charges on loans and other financial assets (+226.3% y/y), primarily due to the Domestic Debt Exchange programme (DDE) in Ghana. In the programme, UBA Ghana exchanged c.NGN38.58 billion worth of eligible bonds for c.NGN24.34 billion new bonds, implying an impairment loss of NGN14.24 billion. Consequently, the group’s subsidiary in Ghana recorded a 74.1% decline in PAT to NGN2.58 billion (2021FY: NGN9.97 billion).
Impressively, non-interest income increased by 66.7% y/y to NGN213.74 billion owing to the higher income generated from FX trading (+104.9% y/y), net fees and commission (+27.1% y/y), and investment securities trading (+9.1% y/y) during the period.
Further in, operating expenses (OPEX) increased by 25.6% y/y as balance sheet growth and inflationary pressures drove most expense items higher – personnel expenses (+22.2% y/y), NDIC premium (+10.3% y/y), and AMCON levy (+12.9% y/y). Overall, the faster increase in operating income (+13.1% y/y) relative to OPEX led to improved operational efficiency – cost-to-income ratio (ex-LLE) moderated to 63.6% (vs 2021FY: 64.6% and 5-year average: 65.1%).
On a balancing note, profit-before-tax grew by 31.2% y/y to NGN200.88 billion which was further supported by the lower income tax expense (-11.0% y/y to NGN30.60 billion). As a result, profit-after-tax grew by 43.5% y/y to NGN170.28 billion faster than the prior year (+4.3% y/y to NGN118.68 billion in 2021FY).
Comment: We like that UBA recorded growth in its earnings in 2022FY, especially the sturdy increase in non-core income. This strong income generation helped offset the impact of the higher impairment charges in the period, especially from the Ghana DDE, which was expected to dampen earnings during the period. For our outlook, we remain optimistic about the future financial performance of the Group. Our estimates are under review.
