October 31, 2023/CSL Research

UBA’s 9M 2023 unaudited numbers showed a strong 58.6% y/y growth in Interest Income to N666.3bn driven mainly by growth in Interest Income on Investment Securities, loans and on cash and bank balances. Net Loans to customers grew 57.4% in 9M 2023 compared to December 2022, inclusive of the impact of devaluation on foreign currency loans. Interest Expense also grew strongly, up 62.1% y/y on the back of a 78.8% y/y growth in Interest Expense on deposits from banks, 61.3% y/y growth on Interest Expense on Customer Deposits and a 38.2% y/y growth in Interest Expense on borrowings. Customer Deposits were up 48.6% in September compared with December 2022. Overall, Net Interest Income was up 56.8% y/y to N443.1bn in September 2023 from N282.5bn in September 2022 and up 4.1% q/q to N164.97bn in Q3 2023 from N158.5bn in Q2 2023.

Net Fee and Commission Income also grew strongly, up 39.0% y/y but was down 27.0% q/q. The y/y growth was driven by growth in account maintenance (+52.1% y/y), funds transfer fees (+71.3%y/y) and commissions on transactional services (up 81.4% y/y). E-banking Income, which made up 41.5% of Fees and Commission in 9M 2023 was up 57.9% y/y to N75.7bn, but as has been the case in recent times, was capped by high e-banking expense of N61.2bn, thus resulting in a balance of only N14.6bn for net e-banking income.

UBA 9M 2O23

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Source: Company’s Financials, CSL Research.

Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) grew significantly, up 826.7% y/y to N460.3bn in 9M 2023 compared with N49.7bn in 9M 2022 but declined 91.8% q/q. The y/y growth was driven mainly by a significant growth in net fair value gains on derivatives recorded in Q2 post the devaluation of the Naira. As of 9M 2023, the net fair value gains had declined to N339.96bn from N348.8bn reported in H1. The bank also reported foreign currency revaluation gain of N32.6bn as of 9M 2023. The q/q decline was mainly due to the absence of the net fair value gains in Q3.

Impairment Charge grew significantly to N144.6bn in 9M 2023 from N13.6bn in 9M 2022, bringing 9M 2023 annualised Cost of Risk to 4.6% compared with 0.7% for 9M 2023. The growth in impairment charge can be partly accounted for by the impact of devaluation on impairments on FX loans.

OPEX grew significantly, up 41.2% y/y to N370.9bn. The significantly lower y/y increase in opex compared with an 145.6%y/y growth in Total Operating Income led to a strong improvement in Cost to Income Ratio (ex-provisions) to 36.4% in 9M 2023 compared with 63.4% in 9M 2022.

Overall, Pre-tax Profit buoyed by strong operating performance and strong net fair value gains, grew strongly, up 262.5% y/y to N502.1bn while Profit after Tax was up 287.2%y/y to N449.3bn bringing 9M 2023 annualised ROAE to 44.4% compared with 19.7% for FY 2022.

In trying to examine the performance of the company excluding net fair value gains and revaluation gains, we assumed cost of risk at 0.7%, same as last year to exclude the excess impairments as a result of the devaluation. Our analysis still showed a strong operating performance as seen below.

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We have a Buy recommendation on the stock. Current Price N19.85/s. Our estimates are being reviewed.

Kindly click on the below link to download the full report.

​​​UBA 9M 2023 Quick Take.pdf​​​