• Gross revenue of N853.17billion, down 8.50%q/q, up 29.23%y/y         
• Net interest income of N379.49billion, up 6.17%q/q, 19.82%y/y.
• Profit before tax of N200.88billion, up 32.47%q/q, 31.23% y/y.
• Profit after tax of N170.28billion, up 92.26%q/q, 43.48%y/y.

At the tail end of last week, United Bank for Africa released its FY 2022 financial report which showed an impressive performance over the period across major indicators. According to the report, gross earnings grew by 29.23% y/y to N853.17 billion, majorly driven by the 17.48% y/y and 28.77% y/y growth in both interest income and non-interest income. This was propelled by interest income on loans and advances to banks which rose by 72.21% to N37.50 billion, while interest on loans to customers (corporates & individuals) also recorded a marginal increase of 4.44% to N263.08 billion. Similarly, interest expense came in higher by 12.77% to N177.66 billion compared to what was previously recorded due to the 25.25% increase in deposit from customers to N130.31 billion, while lease liabilities rose significantly (+88.77% y/y to N1.26 billion) in the period under review. We highlight that higher interest rates, tighter financial conditions, and a reduction in CASA mix (+85.51% in FY 2022 vs +86.60% in FY 2021) were the major drivers of the high cost of funding. Nevertheless, net interest income was positive and higher for the year by 19.82% at N379.49 billion. 

Looking down the line, impairment charges for credit losses on loans jumped by 99.68% to N19.67 billion, driven by impairment for credit losses on loans and advances to customers which spiked by 135.86% to N23.35 billion from N9.90 billion in the previous year. Furthermore, there was a large increase in net impairment on other financial assets of about N22.29 billion, compared to N3.01 billion recorded in the prior year due to the significant rise in impairment charge on investment securities from N784 million to N17.98 billion. According to details from the report, the rapid rise in impairment charge on investment securities can be attributed to the group’s exposure to Ghana investment market and the subsequent Domestic Debt Exchange program (DDEP) launched by the Ghanian Government. Recall that Ghana has struggled with fiscal distress in the past months and defaulted in its debt servicing when payment was suspended on external debt to achieve stability in a bid to secure a $3 billion loan from IMF. However, despite the 25.59% rise in OPEX, profit before tax (PBT) and profit after tax (PAT) printed notable upturn by 31.23% and 43.48% to N200.88 billion and N170.28 billion, respectively, due to the commendable topline performance as the bank declared final dividend of N0.90 (+12.50% y/y) which amounts to a yield of c.10.77% (as at last week Friday’s price). 

On a sequential basis, gross revenue recorded substantial increase (+8.50% q/q) as a result of net interest income which grew by 6.17% q/q. This was sufficient to offset the rise in OPEX (+7.02% q/q), causing a 32.47% q/q and 92.26% q/q upward shift in PBT and PAT, respectively. Overall, we opine that the bank recorded an impressive performance across major revenue generating line items despite the significant jump in impairment charges on debt securities, showing the bank’s resilience in the face of tough macro-economic conditions. Hence, we see UBA as a buy opportunity in the banking sector with expectation of further positive performance.