April 10, 2024/CSL Research
UBA’s FY 2023 audited numbers showed a strong 93.0% y/y growth in Interest Income to N1.1tn driven mainly by growth in Interest Income on Investment Securities, loans and on cash and bank balances. Net Loans to customers grew 66.7% in 2023 compared to December 2022, inclusive of the impact of devaluation on foreign currency loans. Interest Expense also grew strongly, up 107.0% y/y bringing cost of funds up to 2.65% in December 2023 from 2.18% in December 2022. Customer Deposits were up 90.3% in December 2023 compared with December 2022. Overall, Net Interest Income was up 86.4% y/y to N707.5bn for FY 2023 compared with N379.5bn for FY 2022 while Net Interest Margin (NIM) settled at 6.83% from 5.91% for FY 2022.
Net Fee and Commission Income also grew strongly, up 47.4% y/y and 20.1% above our forecast. The y/y growth was driven by growth in commission on turnover (+122.1% y/y), funds transfer fees (+122.1%y/y), credit-related fees and commissions (+26.7% y/y), Remittance fee (+96.8% y/y) and commissions on transactional services (up 91.3% y/y). E-banking Income, which made up 40.9% of total Fees and Commission in FY 2023 was up 59.1% y/y to N125.6bn, but as has been the case in recent times, was capped by high e-banking expense of N101.8bn, thus resulting in a balance of only N23.7bn for net e-banking income.
UBA FY 2O23
Source: Company’s Financials, CSL Research.
Other Income (Net Trading and Foreign Exchange Income and Other Operating Income) grew significantly, up 674.6% y/y to N659.9bn for FY 2023 compared with N85.2bn for FY 2022. The y/y growth was driven mainly by a significant growth in net fair value gains on derivatives to N457.2bn for FY 2023 compared with N6.5bn in 2022. The bank also reported foreign currency revaluation gain of N26.6bn for FY 2023 compared with N5.7bn for FY 2022 and foreign exchange trading income of N112.1bn compared with N39.9bn for FY 2022.
Total Impairment Charge (Loan impairments and impairments on other financial assets) grew significantly, up 393.7% to N207.2bn for FY 2023 from N42.0bn for FY 2022. Impairment charge for credit losses on Loans of N144.0bn was reported, bringing FY 2023 Cost of Risk to 3.3% compared with 0.6% for FY 2022. The bank also reported Impairment Charge on other financial assets of N63.2bn. The growth in impairment charge can be partly accounted for by the impact of devaluation on impairments on FX loans and conservative provisioning by the bank. NPL ratio grew to 5.85% in 2023 from 2.95% in 2022.
OPEX grew significantly, up 69.0% y/y to N591.6bn driven by significant growth in Employee benefit expenses (up 60.4% y/y) which we attribute to cost of living adjustments and growth in other operating expenses. Inflationary pressures and increased regulatory costs due to a significantly larger balance sheet pressured other operating expenses. The significantly lower y/y increase in opex compared with a 162.6%y/y growth in Total Operating Income led to a strong improvement in Cost to Income Ratio (ex-provisions) to 38.0% for FY 2023 compared with 59.1% for FY 2022.
Overall, Pre-tax Profit buoyed by strong operating performance and strong net fair value gains, grew strongly, up 277.2% y/y to N757.7bn while Profit after Tax was up 256.9%y/y to N607.7bn bringing FY 2023 ROAE to 41.2% compared with 19.7% for FY 2022.
The management proposed a final dividend of N2.30/s. This in addition to the interim dividend of N0.50/s brings the total dividend for the year to N2.80/s implying a dividend yield of 11.1% based on current price of N25.15/s.
The bank’s management will host a conference call on Friday April 12, 2024, at 2.00pm Nigerian time to discuss the results.
We have a Buy recommendation on the stock with a target price of N41.25/s Current Price N25.15/s.
Kindly click on the below link to download the full report.
UBA FY 2023 Quick Take.pdf
