UBA: Rising profit despite prevailing macro economic challenges

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By Kayode Tokede

United Bank for Africa plc (UBA) in its half year (H1) audited account and results for the period ended June 30, 2018 yet again was on improved profits and returns to shareholders.

The group sustained growth in gross earnings and total assets that leverage on improved profit before tax and dividend payout to shareholders.

The management of UBA proposed an interim dividend of N0.20 per share and payment of the dividend will be paid on September 17, 2018.

The group within the period under review enhanced its asset-liability management strategies improved asset yields and grew interest income despite prevailing low yield environment.

Notably, the group’s customers deposit nearly hit the N3 trillion mark in H1 results that ended June 30, 2018.

The bank’s results for period indicated a strong performance across most indicators on the back of sustained cost efficiency, effectively risk management and improved profits.

Demonstrating its prudent culture of risk asset creation and management, UBA maintained a conservative balance sheet, supported by solid capital and liquidity.

For the period under review, the Group’s reported Capital Adequacy Ratio (CAR) of 23per cent. The Bank’s liquidity ratio closed at 48per cent and loan-to-deposit ratio of 57per cent, all to reinforce the management capacity to grow, with ample headroom for risk asset creation.

UBA is a leading Pan-African financial institution, offering banking services to  more than fourteen million customers, across 1,000 business offices and customer touch points in 19 African countries.

With presence in New York, London and Paris, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross-border payments and remittances, trade finance and ancillary banking services.

The management thus re-engineering its global offices in New York, London and Paris, as the recent upgrade of London presence brings significant new opportunities to serve global and African businesses.

Sustained growth in profit amid hike in interest expense

UBA for the H1 2018 financial reported growth double-digit increase in interest expenses as interest paid on deposits from customers and borrowing rose significantly.

The group Gross earnings grew by 15.9 per cent to N257.9 billion in H1 2018 from N222.7 billion in H1 2017, leveraging on enhanced customer engagement, improving service quality, speed to market and innovative offerings.

Interest  income, which  contributed  heavily to gross earnings, grew by 20.9er cent to N187.3 billion in H1 2018 from N154.95 billion in H1 2017,  driven by better  pricing on  the loan book as well as positive rub-off of the higher  interest rate environment in a few of markets.

Interest expenses also grew by 42.3 per cent to N76 billion in H1 2018 from N53.57 billion in H1 2017.

Consequently, the interplay between gross earnings, interest income and interest expenses drive the financial institution net interest income gain of 9.6 per cent to N111.07 billion in H1 2018 as against N101.4 billion reported in H1 2017.

UBA reported Net impairment loss on loans and receivables of N6.7 billion for the period under review from N9.4 billion in the corresponding half year period of2017, driven by prudent provisioning by cleansing its books of assets with poor quality, thus paving the way for operational efficiency and improved earnings for the business years ahead.

Fees and commission income rose by 25.7 per cent to N45.8 billion in H1 2018 from N36.5 billion while fees and commission expense closed the year at N13.25 billion, 79.9 per cent increase over N7.4 billion reported in H1 2017.

Total operating Expenses closed H1 2018 at N103.7 billion, compared to N94.8 billion in H1 2017, representing 9.4 per cent growth.

The breakdown of UBA’s total operating expenses revealed that, Employee benefit expenses, closed H1 2018 at N35.2 billion, 3.7 per cent higher than N33.96 billion reported in H1 2107.

Depreciation and amortization rose by 18.1 per cent to N5.7 billion in H1 2018 from N4.79 billion in H1 2017 while Other operating expenses hits N62.8 billion in H1 2018 from N56.05 billion reported in H1 2017.

The combination of a strong growth in operating expenses prevented a higher profit.

The group’s Profit before tax rose by 1.1 per cent to N58.1 billion, compared to N57.5 billion in H1 2017 while Profit after tax grew by 3.4 per cent to N43.8 billion, compared to N42.3 billion in H1 2017.

The growth in profit translated to pre-tax and post-tax return on average equity of 23per cent and 17per cent respectively.

 

Stronger assets over increased Customer Deposits

The Group maintained its appetite for a well-diversified balance sheet, with more than half of the assets in liquid, low risk instruments.

The Group’s balance sheet remained strong with 4.9per cent increase in total assets to N4.27 trillion as at June 30, 2018 from N4.07 trillion reported in 2017.

Net Loans moved to N1.54 trillion as at June 30, 2018; a 6.5per cent decline compared to N1.65 trillion loan portfolio as at 2017 financial year.

Customer Deposits closed June 30, 2018 at  N2.90 trillion, compared to N2.73 trillion as at 2017 financial year; representing 6.1per cent  growth.

Meanwhile, Shareholders’ Funds closed the period under review at N496.3 billion, down 6.3per cent from N529 billion following the implementation of IFRS 9.

UBA’s vision and financial goals are based on creating a sustainable business which delivers long term value creation to shareholders.

This is based on maintaining moderate risk appetite to achieve a good balance between profitability and sustainability.

Conclusion

The bank is planning a unique pan-African franchise -diversified risk and earnings across fast growing African economies; Sound governance, risk management and compliance culture -adherence to international best practice; a robust digital banking platform -leveraging technology to serve over 14 million customers in a cost efficient approach that helps to deepen African banking penetration and Strong financial capacity -high capitalization (BASEL II capital ratio well above requirement) and strong liquidity.

In a statement, the GMD/ CEO, UBA, Kenndy Uzoka, said, “”Our performance in the first half the year reflects the resilience of our business model and strategies. Despite declining yields in two core markets, Nigeria and Ghana, the Bank delivered double digit growth in gross earnings.

“Our performance demonstrates the success of our digital banking initiatives and broader Customer-First strategies. We are integrating banking into our customers’ lifestyle, simplifying processes for routine transactions and driving financial inclusion by making banking services accessible and affordable.

“We are creating opportunities for wealth creation and economic progress, as we empower our customers, through innovative platforms and solutions that support their personal and business growth.

“Our commitment to delivering excellent service is paying-off, as we increasingly win a bigger share of customers’ wallet across our chosen markets.

“Our enhanced asset-liability management strategies improved asset yields and grew interest income by 21per cent, despite prevailing yield environment. Our re-engineered sales structure provided the impetus for renewed retail deposit growth.

“I am particularly pleased by the 24per cent year-to-date growth in retail savings and current account deposits, underpinning the increasing penetration of our digital offerings and the Group’s overarching goal of democratising banking across Africa.

“We improved net interest margin to 7.4per cent, in line with our 2018 target, notwithstanding strong competition for wholesale deposits and the impact of rising global interest rates on our foreign currency funding.

“Rising statutory expenses and inflation-induced cost pressures led to a nine per cent year-on-year growth in operating expenses. Nonetheless, we are optimistic on achieving our medium-term cost efficiency targets, as we continue to build a solid foundation for the Group’s long-term sustainability. Overall, we closed the first half of the year with a N58 billion profit, translating to pre-tax and post-tax return on average equity of 23per cent and 17per cent respectively.

“We are committed to delivering our 2018 targets and more importantly investing in the future sustainability of our business, as we believe our investment in people, technologies and processes will distinguish our franchise over the long term.

Our broader Africa network continues to grow in importance, contributing 40per cent of Group’s profit. Our network provides earnings diversification and an increasing ability to benefit from group synergies, driving our capability to leverage the scale and scope economies – the rapid rollout of the Leo digital banker in eighteen markets, is just one example of how we can implement new products and services across Africa.

“We are re-engineering our global offices in New York, London and Paris, as the recent upgrade of our London presence brings significant new opportunities to serve global and African businesses.”

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