UBA: Leveraging on Africa Expansion to boost profit, dividend to shareholders

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By Kayode Tokede

United Bank for Africa Plc (UBA) reported an impressive performance to outshine its peers in profitability and dividend payout to shareholders among others.

The pan-African bank half-year (H1) ended June 30, 2021  showed an impressive performance despite severe challenging business and economic environment that emerged from the slow pace of activities following the global lockdown occasioned by the COVID-19 pandemic.

UBA for the period grew its top-line and bottom-line performances as the management was prudential in managing cost and growing non-core banking operations.

Also, UBA for the H1 2021 audited result and accounts reported stronger growth in total assets, driven by its resilience business across 20 Africa where to operate.

The Group demonstrated strong balance sheet amid Post-COVID-19 pandemic as reflected in growth in customers deposit and loans & advances to customers.

The balance sheet structure enabled the group to withstand the negative impact of COVID-19 which virtually affected all the sectors of the nation’s economy.

UBA reported N8.32 trillion total assets as at June 30, 2021 from N7.7trillion reported in financial year ended December 31, 2020.

Customer Deposits crossed the N6 trillion mark growing by 7.4 per cent to N6.1trillion in the period under consideration, compared to N5.7 trillion as at 2020 FY.

The group’s shareholders’ funds remained robust at N752.5billion up from N724.1billion in December 2020, reflecting its strong capacity for internal capital generation.

In line with the bank’s culture of paying both interim and final cash dividend, the Board of Directors of UBA has declared an interim dividend of 20kobo per share  (+17.6per cent from H1 2021: N0.17/share), for every ordinary share of 50kobo each, held by its shareholders.

UBA recorded strong earnings growth as core income segment supported H1 2021 performance, driven mainly by improvements in funding cost as non-core income declined year-on-year.

The bank recorded an 8.3 per cent growth in interest income to N222.63 billion from N205.69billion recorded in H1 2020 as all major lines recorded gains.

Specifically, interest on loans and advances to banks rose by 378 per cent to N10.38 billion in H1 2021 from N2.17billion in H1 2020), while interest on investment securities added 5.1 per cent to N87.24 billion in H1 2021 from N82.19billion reported in H1 2020.

In addition, loans and advances to customers rose by four per cent to N118.44 billion in H1 2021 from N113billion in H1 2020 and cash and bank balances inched up by 1.4 per cent to N6.57 billion in H1 2021 from N6.48billion reported in H1 2020.

Expectedly, the group’s growth in income from investment securities was strong considering the reinvestments of maturing funds in higher-yielding instruments compared to levels obtainable in the prior quarter.

Likewise, growth in loans to banks and customers (+96.3 per cent and 4.1 per cent, respectively) significantly contributed to the strong performance.

Interest expense declined by 13.6 per cent to N74.56 billion in H1 2021 from N86.26billion reported in H1 2020 as the bank recorded moderations across all contributory lines save for expense on interest-bearing liabilities (26.7 per cent to N25.07 billion).

The largest decline was recorded on interest expense on deposits from customers (-20.5 per cent to N42.43 billion in H1 2021 from N53.18billion in H1 2020) as the bank’s CASA mix improved (H1 2021: 84.3 per cent as against 81.1 per cent recorded in financial year of  2020).

Consequent to the income growth and declining expenses, the bank recorded an expansion in net interest income that rose by 24.1 per cent to N148.1billion in H1 2021 from N119.32bbillin in H1 2020, further supported by the significant decrease in loan loss expenses (-47 per cent to N4.14billion). Eventually, net interest income ex-LLE settled 29.1 per cent higher at N143.93 billion.

Elsewhere, non-interest income declined during the period by 16.8 per cent to N64.38 billion, driven by foreign exchange revaluation (loss of N2.84 billion as against H1 2020: gain of N8billion) and derivatives (loss of N5.27 billion as against H1 2020: gain of N9.43 billion) as well as the decline in gains from investment securities (-55.5 per cent to N1.96 billion).

The aforementioned offset the growth in net fees and commission income (+18.6 per cent to N45.77 billion in H1 2021 from N38.58billion in H1 2020); a consistent trend observed across the industry as electronic banking transaction volumes improve.

UBA’s total operating expenses closed relatively flat, growing moderately by 0.5 per cent to N132.83billion in H1 2021 from N132.13billion in H1 2020, as increasing regulatory cost pressures – Nigeria Deposit Insurance Corporation (NDIC) premium (+27.3 per cent to N7.11 billion) and Asset Management Corporation of Nigeria (AMCON) levy (+24.1 per cent to N27.82 billion) were offset by moderations in personnel, building maintenance and business travel expenses.

Consequently, the bank’s operating income (+10.3 per cent) advanced faster than opex, leading to an improvement in operational efficiency – cost-to-income ratio (ex-LLE) settled lower at 63.8 per cent relative to 69.9 per cent in the prior year’s corresponding period.

Overall, profitability was more robust, with profit-before tax recording a 34.2 per cent growth to N76.19 billion in H1 2021 from N57.13billion in H1 2020 while profit after tax came in 36.3 per cent higher at N60.58 billion in H1 2021 from N44.43billion in H1 2020, despite the higher income tax expense (+26.4 per cent  to N15.61 billion in H1 2021 from N12.7billion reported in H1 2020).

UBA’s Group Managing Director/Chief Executive Officer, Mr. Kennedy Uzoka, expressed delight over the bank’s performance in the first half of the year, adding, “This has been a strong first half for us, as global economic recovery exceeded expectations, creating a positive rub-off on consumer and corporate confidence, savings and investment activities.

“We saw this positively impact our business, as we continued to leverage our key strategic levers – People, Process and Technology, and our Customer 1st Philosophy, to revolutionise customer experience at UBA.”

He added that the bank’s investment in the Rest of Africa (Excl. Nigeria) continues to yield good results for the group. In his words; “The benefits of pan-African business diversification accruing to the Group is once again evident, with gross earnings and interest income growth of 5.1per cent and 8.2per cent respectively, despite the low yield environment in our largest market, Nigeria.

“We are making remarkable progress on our strategy that is progressively positioning UBA as the bank of choice on the continent, driven by our emphasis on tech-led innovation and best customer experience.”

Continuing, the GMD pointed out that the bank recognises the far-reaching effects of the pandemic on businesses globally, and remains focused on its promise to always provide our customers with the best banking experiences possible.

“Our H12021 performance reflects our progressive efforts in building on the strong momentum that we started the year with.

“As a purpose-driven organisation, we remain resolute in our drive for sustained growth in customer acquisition, transaction volumes and balance sheet, as we consolidate our ‘Africa’s Global Bank’ market position in the years ahead, uplifting livelihoods across the continent,” Uzoka explained.

UBA’s Group Chief Financial Officer (GCFO), Ugo Nwaghodoh, on his part, noted that the bank’s goal is to achieve marked improvement in earnings quality whilst maintaining positive operating leverage as well as top-notch asset quality.

“The Group recorded an RoAE of 17.5per cent (from 15.1per cent in 2020H1) and a NIM of 5.8per cent (from 5.4per cent in H12020) as we played the volatile yield environment diligently for best return on our interest earning assets.

“Capital position remained strong, with the capital adequacy and liquidity ratios of 24.9per cent (22.4per cent in 2020H1) and 58.3per cent (58.2per cent in 2020H1) respectively. This is robust enough to support our growth ambitions,” he said.

The GCFO pointed out that even while the operating environment remains largely uncertain and volatile, despite marked improvement from COVID-19 induced macroeconomic stress, UBA will continue to build resilience through its geographically diversified business model to support headline earnings growth for the Group.

“We remain committed to our 18per cent and 15per cent respective RoAE and deposit growth guidance for FY 2021, as we continue to invest in growth opportunities across our geographies of operation, whilst managing capital and balance sheet prudently,” Nwaghodoh stated.

According to analysts at Cordros Research, “The bank’s performance remains impressive given the challenging core business environment.

“We envisage this strong earnings growth would remain till full-year, given our expectations of sustained momentum in the acceleration of loans and higher yields obtainable to reinvest maturing assets.

“We also expect the bank’s continued improvements in operational efficiency to propel earnings further. Our estimates are under review.”