May 3, 2024/Cordros Report

United Bank for Africa (UBA) released its Q1-24 unaudited financials today, which showed that the Holdco recorded a significant 169.4% year-on-year growth in EPS to NGN3.96 in Q1-24 (vs Q1-23: NGN1.47). The expansion in the group’s EPS was underpinned by the remarkable expansion in funded income (+129.7% y/y), just as non-funded income (+38.9% y/y) also grew in Q1-24.

Interest income rose by 129.7% y/y to NGN440.76 billion driven mostly by the group’s investment income (+147.1% y/y). In nominal terms, the group also earned higher interest from its loans and advances to customers (+103.3% y/y) and cash and bank balances (+267.2% y/y). We highlight that the growth across these income lines were induced by a combination of the rise in the group’s interest-earning assets (+71.6% YTD to NGN15.98 trillion) and higher yields in the fixed income market.

UBA recorded a 93.9% y/y growth in interest expense to NGN140.09 billion due to the higher cost incurred on deposits from customers (+71.1% y/y), deposits from financial institutions (+138.7% y/y) and borrowings (+149.2% y/y). We attribute the higher interests paid on deposits from customers to the increase in customers’ deposits (+112.6% YTD to NGN18.38 trillion) amid an improvement in its CASA mix (Q1-24: 87.0% vs Q1-23: 84.0%). Consequent to the faster pace of growth in interest income relative to interest expenses, the group recorded an expansion in net interest income (+151.3% y/y). Eventually, net interest income ex-LLE closed 164.1% y/y higher after taking account of the 53.4% y/y decline in the group’s impairment charges in Q1-24.

Further down, non-interest income advanced by 38.9% y/y to NGN77.91 billion, supported by good expansions in net fees and commission income (+114.6% y/y) and net FX trading income (+95.8% y/y). Consequently, operating income settled higher by 122.5% y/y to NGN373.31 billion.

Operating expenses in Q1-24 also notched higher by 104.1% y/y, triggered by expansions in employee benefits, regulatory costs and sticky inflationary pressures. For context, the group recorded higher costs from personnel expenses (+112.1% y/y), fuel, repairs and maintenance (+136.5% y/y), AMCON levy (+75.5% y/y) and NDIC premium (+111.4% y/y) during the period. Despite this, the group’s operational efficiency improved as the cost-to-income ratio (ex-LLE) settled at 58.3% (Q1-23: 63.6%) on account of the faster expansion in operating income.

All in, profit-before-tax grew by 154.7% y/y to NGN156.34 billion. The group recorded a 166.1% y/y growth in profit-after-tax, amid the higher income tax expense (+76.8% y/y).

Comment: UBA’s Q1-24 outturn was impressive given the solid growth print in core banking operation amid the expansion in non-core income as well. We anticipate the Holdco will persist in growing interests earned from core income lines and envisage non-income growth will also remain healthy. Also, we envisage the stellar earnings will help offset cost pressures in 2024E. Our estimates are under review.