United Bank for Africa (UBA) Plc is a financial services group in sub-Saharan Africa with presence in Africa, the United Kingdom, the United States, and France. The Company is a financial institution offering a range of banking, pension fund custody and other financial services to customers in retail, commercial and corporate segments of the African market.
The bank just released its audited results for the year ended December 2015, showing strong performance index amid a tough operating environment. This stellar performance means the lender has leapfrogged peer rivals in terms of consistently recording growth at both the top and bottom lines.
The bank management was able to grow margins and improve key ratios despite the prevailing tight liquidity and harsh regulatory environment that was expected to impact negatively on financial performance of most banks.
UBA gave back to the owners of the business by consistently paying dividends. The bank proposed a final dividend of 40 kobo for every 4 ordinary shares of 50 kobo each, subject to applicable withholding tax.
Moderate growth in gross despite competition and macro pressure
For the year ended December 2015, UBA reported a growth of 9.80 percent in gross earnings to N314.83 billion from N286.62 billion in the corresponding period of 2014.
Interest income followed the same upward trajectory, as it increased by 18.95 percent to N233.96 billion in December 2015 as against N196.68 billion in December 2014; driven by a strong growth in interest on loans and advances.
Net income spiked by 30 percent to N137.94 billion in December 2015 compared with N106.13 billion in December 2014. Despite weak FX due to prevailing FX regime, growing fees from e-banking fees provided support for non-interest income.
UBA has been consistently recording strong growth in gross earnings over the past four years. Its 13 percent CAGR is above Nigeria’s average inflate on rate, despite competition and macro pressures in our core markets
The sustained earnings growth reflects enhanced yield on assets, improving extraction of latent opportunities across our channels, growing share of our customers’ wallet and improving performance of African subsidiaries, according to the bank’s 2015 audited financial statement.
Despite the high interest rate environment through the period that resulted in increase in competition among banks, UBA’s interest expense rose by a single digit 6.06 percent to N96.03 billion in December 2015 from N90.54 billion as at December 2014.
Enhanced earnings generation, improved efficiency help boost profit
The bank has been able to sustain a solid cost management strategy and thus, profitability. Its profit margins have improved significantly compared to its peer rival.
Despite its large branch networks across the country, the bank’s operating expenses increased by a single digit 5.40 percent to N136.62 billion in December 2015 from N129.68 billion as at December 2014. The operating expense is lower than inflation rate.
Cost to income ratio (CIR)- a measure of efficiency reduced to 66.60 percent in the period under review as against 69.80 percent in 2014. A lower CIR means UBA is reducing costs to its barest minimum while boosting profit. Impairment charges on loans were up by 58.05 percent to N5.05 billion in December from N3.18 billion in December. The rise in loan loss expense was due to write offs of loans owed by defaulters.
Net foreign exchange income fell by 50.57 percent to N16.02 billion in the period under review from N32.41 billion in December; caused by the foreign exchange restriction imposed by the Central Bank of Nigeria. The apex bank said limiting dollar sales to lenders would help curb inflation and stabilise an economy hard hit by a significant fall in the price of oil.
However, banks say the policy is hurting earnings due to liquidity squeeze.
While some lenders have issued profit warnings that full year earnings will falter, UBA recorded a 24.50 percent rise in net income to N59.65 billion in December 2015 as against N47.90 billion as at December 2014.
Pre tax profits were up by 21.80 percent to N68.45 billion in December 2015 as against N56.20 billion in December 2014; reflecting enhanced earnings generation and improving cost efficiency. Operating profit moved by 10.40 percent to N205.19 billion in December 2015 compared with N185.87 billion in December 2014, as the bank leverages improving asset yield and enhanced service channels in growing income lines.
Steady improvement in profitability ratio
UBA has utilised the resources of the owner’s in generating higher profit, as return on equity (ROE) increased to 20.0 percent in 2015 from 19.20 percent in 2014. Return on assets (ROA) moved to 2.20 percent in 2015 as against 1.90 percent in 2014.
Net margins, a measure of profitability and efficiency 18.94 percent in 2015 as against 16.71 percent in 2014. Pre-tax margins jumped to 21.74 percent in 2015 compared with 19.60 percent in 2014. The Bank’s shareholders’ funds moved by 25 percent to N333 billion from N265 billion as at 2014 in 2014.2. Total assets were down slightly by 0.4 percent to N2.75 trillion in 2015 as against N2.76 billion in 2014.
UBA was less aggressive about lending as loans to deposit ratio fell to 49.1 percent in 2015 compared with 50.20 percent in 2014. Loans and advances to customers reduced by 3.3 percent to N1.03 trillion in 2015 from N1.07 trillion in 2014. Deposit from customers fell to 4.1 percent to N2.08 trillion in 2015 from N2.17 trillion in 2014.
The Nigerian lender continues to grow deposits in double digits, leveraging technology and innovative offerings to increase its share of existing customer wallet whilst also acquiring new customers and expanding coverage.
The bank’s exposure to the oil and gas as Non Performing Loans (NPLs) stood at 1.7 percent, one of the lowest in the industry.
A breakdown of loans distributed by sector showed oil and gas industry had the highest allocation with 19 percent; Manufacturing, 17 percent; General, 14 percent; communication and Commerce 10 percent a piece.
The 2015 results further convince us on the payoff of our tenacity and prudence. Amidst macroeconomic volatilities, we leveraged efficiency gains in our business development and operations to grow earnings. We improved on our balance sheet management and pricing, thus ensuring a strong 19% growth in interest income as well as an enhanced net interest margin of 6.3%. Our improved service delivery and customised offerings helped in growing transaction-banking volume, with attendant fee income. Whilst we were exposed to some external cost pressure, we managed to keep our cost growth at 5% (below the average inflation rate of 9% in Nigeria; our core market which represents three-quarter of our operations). I am particularly excited by the performance of our business in Africa (ex-Nigeria), as we further our synergy extraction and pursuit of scale economics to achieve market share and earnings targets, according to the Group CFO of the bank, Ugo Nwaghodoh.
“Precisely, UBA Africa contributed 24% of our Group’s profit before tax in the 2015, despite the impact of cross-currency depreciation in some of our markets. Whilst our cautious stance on lending in Nigeria moderated the loan book, we recorded a collective 14% loan growth in UBA Africa, as we deepen market penetration and our share of customers’ wallet. Our prudence and discipline in risk asset creation over the past half-decade sustained the quality of our loan portfolio; NPL ratio stabilised at 1.7% with full provisions coverage,” said Nwaghodoh.