September 30, 2024/InvestmentOne Report
According to the H1’2024 financial report released by United Bank for Africa (UBA); the bank recorded a modest performance across major income lines amidst the headwinds in the local economy. In specifics, interest income rose by 134.32% YoY to NGN1.00trn, mirroring the prevailing high yield environment in the face of elevated inflationary pressures and macroeconomic policy adjustments. The jump in interest income was mainly driven by interest earned from loans and advances (+126.56% YoY) and investment securities (+149.10% YoY). Meanwhile, interest expense also increased by 119.03% YoY to NGN328.94bn, still on the back of high interest rates from interest paid on deposit from banks (+142.72% YoY), deposit from customers (+106.70% YoY) and borrowing (+161.07% YoY) which contributed majorly to the increase in the period.
Consequently, net interest income came in at NGN674.62bnin H1’2024, 142.57% higher than what was recorded in the corresponding period of 2023. Furthermore, impairment charges declined significantly on a YoY basis by 155.67% to NGN60.21bn given the decrease in impairment credit losses on loans and advances. This essentially points to the bank’s effective risk management despite the tough economic condition.
Loss on Derivatives Weigh on Non-Interest Income: Unlike interest income, non-interest income witnessed a downtrend in H1’2024, printing at NGN367.49bn, representing a 33.60% YoY decrease. Although fee and commission income and other operating income increased by 99.01% and 101.69% YoY to NGN250.62 and NGN18.70bn respectively, net trading and foreign exchange gains declined by 76.53% from the past year. This decline stemmed from the NGN311.70bn loss taken on derivative assets, which weighed significantly on non-interest income in the period. However, gross earnings improved by 39.65% YoY to NGN1.37trn mostly supported by the notable jump in interest income.
Higher Cost Drags Profit Lower: Meanwhile, we observed a 109.75% YoY surge in operating expenses to NGN474.80bn in the first half of 2024. Notably, employee benefit expenses increased by 92.91% YoY to NGN133.86 driven by wages and salaries which rose by 92.17% from a year ago to NGN126.58bn. We opine that this is reflective of the current elevated cost of living, which necessitated a commensurate increase in personnel remuneration. Additionally, maintenance cost (+218.74% YoY) and AMCON levy (+71.87% YoY) amongst others contributed to the overall jump in operating expenses. As such, pre-tax and post-tax profit settled at NGN401.58bn and NGN316.36bn respectively, representing a 16.30% and 18.72% YoY decrease.
Thus, ROE and ROA printed at 23.25% and 2.50% in the first half of 2024, compared to 38.24% and 3.92%. Likewise, EPS declined from NGN10.95 in H1’2023 to NGN8.90 in H1’2024. However, the bank declared an interim dividend of NGN2.00 (dividend yield of 7.07%) significantly higher the NGN0.30 (dividend yield of 3.62%) paid in H1’2023.
Outlook: Going forward, we expect income from core business to remain buoyant and grow, owing to the elevated yields on fixed income instruments. Furthermore, the loan book, which has grown by 26.10% to NGN7.00trn from the end of last year, should also contribute substantially to interest income. Moreover, we envisage an improvement in non-interest income through higher fee and commission income and other operating income. Meanwhile, we see net trading gains improving as the bank strategically takes advantage of volatility in interest rates, whilst the loss incurred on derivatives should likely taper. Conclusively, we expect gross earnings to maintain an upward trajectory through FY’2024.
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