United Bank for Africa (UBA) released its 2024 financial results, which showed a notable increase in revenue generation by the bank. According to the details from the report, gross revenue expanded by 53.56% YoY to NGN3.19trn, compared to NGN2.08trn.

This was driven by improved performance across major income lines, including both interest income and non-interest income. Specifically, interest income expanded by 119.44% YoY to NGN2.37trn, on the back of the high yield environment, which was prevalent in 2024, as policy makers jacked up rates to curb inflationary pressures.

This positively impacted asset yield, translating to substantial increase in interest earned on loans and investment securities. Thus, interest income from loans and investment securities stood at NGN1.02trn and NGN1.20trn, representing a 104.98% and 137.05% YoY jump respectively, while interest on cash balance also rose by 109.43% YoY to NGN146.08bn in 2024.

Similarly, interest expense grew by 128.17% YoY to NGN839.25bn, despite the expansion of Current Account and Savings Account (CASA) mix by 304bps to 88.52%. This was mainly propelled by interest incurred on deposits from banks (+277.77% YoY to NGN196.63bn), deposits from customers (+85.24% YoY to NGN456.61bn) and borrowings (+169.86% YoY to NGN180.56bn). Eventually, net interest income amounted to NGN1.53trn, 116.35% higher than what was recorded in the same period in 2023.

Non-Interest Income Slows Amid FX Losses: Unlike income from core business, non-interest income took a downturn, declining by 18.32% YoY to NGN816.84bn. This can be mostly attributed to the contraction net trading and foreign exchange gain (-72.43% YoY to NGN181.76bn) due to the relatively lower depreciation of the Naira in 2024, compared to the previous year when the foreign exchange market was liberalized. Further details showed that the lower FX gain was due to the net loss of NGN342.21bn on derivatives, as against the NGN457.19bn gain recorded in FY’2023. However, non-interest income was supported by fees and commission income, which expanded by 91.66% YoY to NGN589.00bn.

Heightened Costs Drag Earnings: Cost pressure was evident in the review period. This emanated from impairment charges on financial instruments, which amounted to NGN253.57bn, representing a 22.71% YoY increase amid the challenging macroeconomic conditions affecting loan repayments. Elsewhere, operating expenses saw significant increase, coming in at NGN1.06trn (+69.01% YoY), driven by the inflationary pressures witnessed in 2024 as employee benefits jumped by 72.12% YoY to NGN314.66bn. Additionally, other operating expenses rose by 83.14% YoY to NGN682.91bn, spurred majorly by fuel repair and maintenance (+70.94% YoY to NGN101.28bn), AMCON levy (+78.17% YoY to NGN71.91bn) and contract services (+70.19% YoY to NGN111.88bn).

Against this backdrop, profit before tax increased slightly by 6.08% YoY to NGN803.73bn, while profit after tax came in at NGN766.57bn, 26.14% higher than what was recorded in FY’2023. This translates to an EPS of NGN21.73 in FY’2024, compared to NGN17.49 in FY’2023. Furthermore, ROE and ROA resulted in 28.14% and 3.01% (vs 41.17% and 3.86% in FY’2023) pointing to lower profitability in FY’2024. However, the bank declared a final dividend of NGN3.00 (dividend yield of 8.75%) compared to the NGN2.30 (dividend yield of 8.97%) paid to shareholders in FY’2023.

Outlook: Going forward, we expect the bank to sustain its commendable revenue generation. In our view, this should be driven by elevated interest income, with yields still at attractive levels
despite the moderation seen since the turn of the year. Furthermore, we envisage that the bank
will likely strategically expand its loan book in a bid to improve asset yield while managing risk to reduce impairment. 

Moreover, fair value gains on security holdings should also contribute positively to interest income as the bank takes advantage of volatility in yields. In addition, we expect non-interest income to also improve in 2025 due to higher fees and commission from other banking services. Consequently, we maintain our STRONG BUY recommendation on the ticker given the positive outlook. However, we highlight that increasing cost of operation, which could suppress earnings, poses downside risk to this outlook.

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