April 3, 2023/FSDH

FSDH Initial Reaction: United Bank for Africa FY22 results 
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Key Performance Highlights:

• United Bank for Africa reported a solid set of numbers for FY22, with the gross earnings jumping 29.6% YoY to N852.9 billion and the net profit surging 43.5% YoY to N170.3 billion in FY22. The growth in gross earnings was driven by a solid 17.5% YoY rise in interest income on amortised cost and FVOCI securities (65.3% of FY22 gross earnings) to N556.7 billion, coupled with a 32.7% YoY surge in fee and commission income (24.7% of FY22 gross earnings) to N210.5 billion in FY22 and a 4.4x jump in the Bank’s net trading and foreign exchange income (8.5% of FY22 gross earnings) to N72.2 billion in FY22. Although interest expense grew 12.8% YoY in FY22, primarily driven by increased customer deposits to N130.3 billion from N104.0 billion in FY21, net interest income vaulted 19.8% YoY to N379.5 billion.
   
• Net Fee & Commission income climbed 27.1% YoY to N128.2 billion in FY22 as growth in Fee & Commission income (+32.7% YoY) was largely offset by an increase in Fee & Commission expense (+42.5% YoY). The Fee & Commission income was boosted by a 92.3% YoY increase in the trade transactions income to N37.5 billion, supported by a 22.1% YoY rise in the electronic banking income to N78.9 billion, and a 29.8% jump in credit-related fees and commissions to N27.0 billion. The jump in Fee & Commission expenses was driven by a 30.7% YoY increase in e-Banking expenses to N61.3 billion versus N46.9 billion in FY21 and a 53.3% YoY increase in trade-related expenses to N14.1 billion in FY22.
   
• The Group reported a net profit in trading and foreign exchange operations of N72.2 billion, a 4.4x jump compared to a profit of N16.4 billion in the prior year, primarily driven by a 104.6% YoY growth in foreign exchange trading income to N39.9 billion in FY22 and fair value gain on derivatives of N6.5 billion compared to fair value loss on derivatives of N19.4 billion in FY21. Other operating income for the period improved by 45.0% YoY to N13.0 billion in FY22. Consequently, non-interest income soared 69.0% YoY to N213.4 billion in FY22. Moreover, the impairment charge for credit losses on loans increased a massive 99.7% YoY to N19.7 billion in FY22 from N9.9 billion in FY21.
   
• The Bank’s employee benefit expenses climbed 22.2% YoY to N114.0 billion, and the other operating expenses vaulted by 28.9% YoY to N210.2 billion in FY22. Consequently, profit before tax was up 31.2% YoY to N200.9 billion in FY22. UBA paid the income tax at an effective tax rate of 15.2% in FY22, down from 22.5% in FY21, boosting the after-tax profit growth. Resultantly, the after-tax profit improved by a solid 43.5% YoY to N170.3 billion in FY22. The group earnings per share went from N3.39/share in FY21 to N4.84/share in FY22. The Bank proposed a final dividend of N0.90, bringing the total dividend for the financial year ended December 31, 2022, to N1.10. The dividend will be paid on Thursday, April 27, 2023, to shareholders whose names appear in the Register of Members at the close of business on Friday, April 14, 2023.
   
• In FY22, the Group’s total assets surged 27.2% YoY, crossing the N10 trillion mark to close at N10.9 trillion, up from N8.5 trillion in FY21. UBA recorded a 21.4% growth in loans to customers, moving up to N3.4 trillion in FY22, while customer deposits improved by 22.9% to N7.8 trillion compared to N6.4 trillion in FY21. The company’s cost-to-income ratio dropped to 59.2% from over 60% in FY21 due to the Group’s improving efficiency, while the net interest margin grew to 5.61% in FY22 from 5.57% in FY21. The continuous rejigging of the Groups’ risk management approach resulted in moderation of the NPL ratio, from 3.6% in FY21 to 3.1% in FY22. Moreover, the Group continued to rely on lower-cost funds, further reducing its cost funds to 2.1% in FY22 (FY21: 2.2%). Going forward in FY23, the Bank plans to increase its market share with expansion to Dubai and the United Arab Emirates, simultaneously aiming for strong growth of digital banking and payment businesses.
   
• On January 30, 2023, the Board of Directors of UBA announced the appointment of Mrs. Abiola Bawuah as Chief Executive Officer (CEO) of UBA Africa. She also joined the Group Board as an Executive Director, overseeing the Group’s operations across the African continent outside Nigeria.

Market Reaction: The investor reaction to the robust FY22 results was buoyant as the United Bank for Africa stock popped 4.38% to close at N8.35 on Friday (31/3) against a 0.33% fall in the All-Share Index.