October 31, 2023/Cordros Report
United Bank for Africa Plc (UBA) published its nine-month unaudited financial report after the close of business yesterday (30 October). The report revealed that the Holdco delivered a three-digit expansion in its EPS (+295.4% y/y to NGN12.93 | 9M-22: NGN3.27). We highlight that the impressive growth in earnings was supported by the broad-based expansion across its core (+58.6% y/y) and non-core (+334.6% y/y) income lines.
The group recorded a 58.6% y/y growth in interest income to NGN666.29 billion, driven by higher income recorded across all contributory lines. In nominal terms, UBA recorded higher income from investment securities (+76.5% y/y to NGN298.06 billion), loans to customers (+36.5% y/y to NGN297.31 billion), placement with banks (+225.1% y/y to NGN43.61 billion), and loans to banks (+35.4% y/y to NGN27.31 billion). We highlight that the growth in these income lines was supported by the impact of the higher yield environment and the significant rise in the group’s interest-earning assets (+46.1% YTD to NGN12.99 trillion).
UBA’s interest expense grew by 62.1% y/y to NGN223.21 billion in 9M-23, as the group incurred higher cost-of-funds (2.5% vs 9M-22: 2.3%), largely reflecting the elevated interest rates. Parsing through the drivers, the group incurred higher costs on its deposits – banks (+78.8% y/y to 30.67 billion) and customers (+61.3% y/y to NGN160.04 billion) – and borrowings (+39.2% y/y to NGN26.58 billion) in the review period. Consequently, the group recorded an expansion in net interest income (+56.8% y/y). However, net interest income ex-LLE grew slower by 11.0% y/y to NGN298.47 billion after taking account of the 964.4% y/y growth in the group’s impairment charges in 9M-23.
Non-interest income advanced further in 9M-23, rising by 334.6% y/y to NGN574.54 billion, driven majorly by the substantial net fair value gain (NGN348.43 billion | 9M-23: NGN339.96) generated in H1-23. In addition, the group recorded higher revenue from net fees and commission income (+39.0% y/y to NGN114.29 billion) and investment securities trading (+112.2% y/y to NGN49.32 billion). Accordingly, operating income rose by 117.6% y/y to NGN873.01 billion.
Further down, operating expenses grew by 41.2% y/y, triggered by increases in the group’s regulatory and personnel costs. Precisely, the group incurred higher costs on personnel expenses (+37.6% y/y to NGN111.11 billion), AMCON levy (+31.2% y/y to NGN40.92 billion), and NDIC premium (+31.3% y/y to NGN16.28 billion) in 9M-23. Nonetheless, given that the group’s operating income grew faster than opex, UBA’s operational efficiency improved as the cost-to-income ratio (ex-LLE) settled at 42.5% (vs 65.5% in the prior year).
Overall, profitability grew stronger as the HoldCo’s profit before tax grew by 262.5% y/y to NGN505.09 billion. Eventually, UBA’s ROAE and ROA settled at 44.4% and 4.4%, respectively, in 9M-23.
Comment: We like that UBA is able to leverage the rising interest rates environment in the debt market and improve its digital banking activities in growing funded and non-funded income. We are optimistic that the group will continue to expand its earnings through Q4-23, supported majorly by the impact of the elevated interest rates in the forecasted period. Our estimates are under review.
