April 14, 2023/CSL Research

UBA’s Q1 2023 unaudited numbers showed a strong 53.4% y/y growth in Interest Income to N191.9bn driven mainly by a significant growth in Interest Income on Investment Securities and on cash and bank balances. Net Loans to customers grew marginally, up only 5.2% in Q1 compared to December 2022. Interest Expense also grew strongly, up 79.7% y/y on the back of a 204% y/y growth in Interest Expense on deposits from banks, 65% y/y growth on Interest Expense on Customer Deposits and a 57% y/y growth in Interest Expense on borrowings. Customer Deposits were up 10.5% in March compared with December 2022. Overall, Net Interest Income was up 41.0% y/y to N119.6bn in March 2023 from N84.9bn in March 2022.

Net Fee and Commission Income was up 19.3% y/y to N28.98bn. The y/y growth was driven by growth in account maintenance (+36.4% y/y) and funds transfer fees (+ 97.9y/y). E-banking Income, which made up 40.1% of Fees and Commission was up 38.5% y/y to N20.9bn, but again capped by high e-banking expense of N19.9bn, thus resulting in a balance of only N1.0bn for net e-banking income.

Q1 2023 Nm

Source: Company, CSL Research.

Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) was up 62.1% y/y and summed up to N27.1bn in Q1 2023 compared with 16.7bn in Q1 2022. The y/y growth was driven mainly by a significant growth in income from trading in fixed income securities, which was up 127% to N13.4bn in Q1 2023 from only N5.9bn in Q1 2022. 

Impairment Charge was up 68.1y/y to N7.0bn in Q1 2023, bringing annualised Cost of Risk to 0.9% compared with 1.3% for FY 2022. We expect cost of risk to remain minimal.

OPEX grew significantly, up 38.2% y/y. The slightly lower y/y increase in Opex compared with an 39.6% growth in Total Operating Income led to a slight improvement in Cost to Income Ratio (ex-provisions) to 61.1% for Q1 2023 compared with 61.7% for Q1 2022.

Overall, Pre-tax Profit was up 38.0% y/y to N61.4bn while Profit after Tax was up 29.1%y/y to N53.6bn due to a higher tax rate in Q1 2023 compared with Q1 2022.  Overall, Q1 2023 annualised ROAE comes to 22.6% compared with 19.7% for FY 2022.

We have a Buy recommendation on the stock with a target price target of N18.87/s. Current Price N8.45/s.