October 21, 2024/Cordros Report
United Bank for Africa Plc (UBA) published their 9M-24 financials today (21 October). We highlight that the stellar growth in the group’s core income (+170.0% y/y) was sufficient to offset the decline in non-core income (-24.1% y/y), leading to a 14.3% growth in EPS to NGN14.78 (9M-23: NGN12.93).
The group recorded a 170.0% y/y growth in interest income to NGN1.80 trillion, driven by higher income recorded across all contributory lines. In nominal terms, UBA recorded higher income from investment securities (+166.3% y/y to NGN793.82 billion), loans to customers (+123.7% y/y to NGN665.16 billion), placement with banks (+406.7% y/y to NGN220.99 billion), and loans to banks (+335.5% y/y to NGN118.93 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 (+72.1% YTD to NGN28.20 trillion).
UBA’s interest expense grew by 211.6% y/y to NGN695.57 billion in 9M-24, largely reflecting the elevated rates in the debt market. Parsing through the drivers, the group incurred higher costs on deposits from customers (+153.1% y/y to NGN405.00 billion), deposits from banks (+575.1% y/y to NGN207.05 billion) and borrowings (+183.2% y/y to NGN80.93 billion) in the review period. Consequently, the group recorded an expansion in net interest income (+149.0% y/y) and net interest income ex-LLE (+228.3% y/y) after accounting for the 14.6% y/y decline in credit impairment charges.
Non-interest income declined during the period by 24.1% y/y to NGN435.84 billion as the fair value loss on derivatives (NGN243.38 billion) undermined the gains from foreign exchange revaluation (+671.2% to NGN251.37 billion), net fees and commission income (+104.6% y/y to NGN233.85 billion), FX trading (+222.0% y/y to NGN91.39 billion), and investment securities (+68.5% y/y to NGN83.10 billion). However, the sturdy growth in interest income was enough to outstrip the decline in non-interest income, causing operating income to grow by 62.2% y/y to NGN1.42 trillion.
Further down, operating expenses grew by 119.0% y/y to NGN812.20 billion, triggered by increases in the group’s regulatory and personnel costs. Precisely, the group incurred higher costs on personnel expenses (+102.9% y/y to NGN225.42 billion), fuels, repairs and maintenance (+127.9% y/y to NGN104.07 billion), AMCON levy (+71.9% y/y to NGN70.33 billion), and NDIC premium (+110.1% y/y to NGN34.21 billion) in 9M-24. Nonetheless, given that the group’s operating expenses grew faster than operating income, UBA’s operational efficiency deteriorated as the cost-to-income ratio (ex-LLE) settled at 57.4% (vs 42.5% in the prior year).
Overall, profitability grew stronger as the group’s profit before tax rose by 20.2% y/y to NGN603.48 billion.
Comment: We like that UBA effectively leverages the rising interest rates environment in the debt market and solid asset base (NGN31.80 trillion) to improve the group’s funded income. We are optimistic that the group’s earnings will continue to expand in Q4-24 positively, supported mainly by the impact of elevated interest rates and improved risky asset creation in the forecasted period. Our estimates are under review.
