UBA FYE 2018: Decrease in Impairment Charges Support Performance

March 20, 2019/InvestmentOne Report

  • Net interest income of N54.9billion, up 38.7% q/q; down 0.7% y/y    
  • Non-interest income of N14.9billion, down 50.8% q/q, down 56.6% y/y
  • Profit before tax of N27.6billion, up 31.9% q/q; up 6.8% y/y
  • Profit after tax of N16.9billion, down 5.6% q/q; up 1.7 y/y 

United Bank for Africa published its Q4 2018 results on Friday, revealing fairly decent numbers quarter-on-quarter (q/q). The performance was driven by lower impairment charges following a write back of about N6.15billion in the reporting quarter. This, combined with the 38.7% q/q improvement in net interest income to N54.9billion, was enough to offset the 50.8% decline in non-interest income to N14.9billion. Consequently, PBT was up 31.9% q/q to N27.7billion. 

However, the bank recorded a 5.6% q/q drop in PAT to N16.9billion on the back of a higher effective tax rate in Q4 2018 (38.9% versus 14.6% in Q3 2018). 

Topline Performance 

Looking at the full year 2018 numbers, UBA reported a relatively flat net interest income (down marginally by 1.0% y/y), largely attributable to the 33.3% y/y increase in interest expense which outweighed the 11.4% uptick in interest income. Additionally, we believe the relatively lower yield environment in 2018 compared to 2017 may have further weighed on net interest income. 

In contrast to its peers (GT Bank and Zenith Bank) but similar to Access bank, UBA reported a 3.9% y/y and 7.2% q/q increase in net loans. The latter, was supportive of the aforementioned 38.7% q/q growth in net interest income and was further aided by the rise in interest rates in Q4 2018. Contrary to management’s guidance of 7%, the bank posted a decline in Net Interest Margin (NIM) by 10bps y/y to 6.1% despite the 138bps increase in Cost of Funds to 4.2%. 

Similarly, non-interest income was down 13.8% y/y. This was driven by the 35.4% dip in net trading and foreign exchange income to N31.7billion due to foreign currency revaluation loss of about N31.5billion versus a gain of N952million FY 2017. 

In the same vein, non-interest income declined 56.6% when comparing Q4 2018 numbers with that of the corresponding quarter in 2017. This reduction was on the back of the N726million loss in net trading income in Q4 2018 against a gain of N19.3billion in Q4 2017. 

Lower Impairment Charges Ensure Modest Bottomline 

Non-Performing Loan (NPL) ratio improved to 6.4% in FY 2018 from 6.7% in FY 2017, missing management’s target of sub 5% levels. Cost to Income ratio was up to 63.9% compared to 58.0% in FY 2017 on the back of the 4.1% y/y increase in operating expenses and the 5.6% y/y decline in operating income. This increase in operating expenses is attributable to the 15% y/y increase in AMCON charges. 

We point out that profit before provisions declined by 5.6% y/y. However, loan impairment charges decreased by 86.2% y/y which was enough to offset the 4.1% y/y increase in total expenses to N197.3billion. Consequently, the bank posted a modest 2.4% and 1.4% increase in PBT and PAT to N106.8billion and N78.6billion respectively in FY 18.  

The bank reported a strong Capital Adequacy Ratio of 25% in FY 18; higher than some of its peers. However, ROAE was down 110 bps to 15.2% y/y (significantly lower when compared to other Tier1 banks). Finally, the bank declared a final dividend of N0.65k (same as in FY 17), with a dividend yield of 8.72%. Thus, total dividend for FY 18 was N0.85k (FY 17: N0.85k). 

Going forward, management aims to continue improving profitability of its foreign subsidiaries (currently c.40% earnings contribution to the Group) while leveraging on its 25% capital adequacy ratio which provides headroom for growth. 

UNITED BANK FOR AFRICA PLC Q4 2018/FY 2018 (YE: DEC)(N millions)

 

 

Q4 2018

Q/Q

Y/Y

FY 2018

Y/Y

Interest Income

93,985

15.1%

7.3%

362,922 

11.4%

Interest Expense

(33,037)

-7.1%

21.1%

(157,276)

33.3%

Net Interest Income

54,948

38.7%

-0.7%

205,646 

-1.0%

Non-interest income

14,906

-50.8%

-56.6%

102,572 

-13.8%

Profit before provisions

69,854

-0.1%

-22.1%

308,218 

-5.6%

Loan Impairment charges

6,145

-255.9%

-130.7%

(4,529)

-86.2%

Operating Expenses

(48,257)

6.3%

9.8%

(197,342)

4.1%

PBT

27,655

31.9%

6.8%

106,766 

2.4%

Tax

(10,746)

250.6%

15.9%

(28,159)

5.6%

Tax rate

38.9%

2424ps

307bps

26.4%

78bps

PAT

16,909

-5.6%

1.7%

78,607

1.4%

Source: Company financials, Investment One Financial Services Research

FY 2018 BANKS COMPARISON SHEET

 

NGN billion (unless stated otherwise)

 

ZENITH

GTB

STANBIC

ACCESS

UBA

Key Income Statement Figures

Gross Earnings

630.3

434.7

222.4

528.7

494.0

Net Interest Income

295.6

222.4

78.2

173.6

205.6

Non-interest Income

180.0

125.8

102.6

138.2

102.6

Total Expenses

-225.5

-127.8

-95.601

-194.0

-197.3

Loan Impairment Charges

-18.4

-4.9

2.9

-14.7

-4.5

Profit Before Tax

231.7

215.6

88.2

103.2

106.8

Y/Y PBT Growth

 

16.2%

9.1%

44.1%

32.0%

2.4%

Dividend (Kobo per share)

250

245

150

25

65

EPS (kobo per share)

615

654

704

331

220

Key Balance Sheet Figures

Total Assets

5,996

3,287

1,664

4,954

4,870

Total Liabilities

5,140

2,712

1,424

4,464

4,636

Total Equity

856

576

240

491

503

Key Ratios

Net Interest Margin

8.9%

9.2%

5.2%

5.3%

6.1%

Cost of Fund

3.1%

3.1%

4.0%

5.5%

4.2%

Cost to Income

49.3%

36.6%

52.9%

62.2%

63.9%

NPL ratio

5.0%

7.3%

3.9%

2.5%

6.4%

Liquidity (bank level)

72.0%

n/a

n/a

50.9%

n/a

Cost of Risk

0.9%

0.3%

0.7%

0.7%

0.3%

Capital adequacy ratio (bank level)

25.0%

23.4%

24.7%

19.9%

25.0%

ROE

23.8%

30.9%

34.5%

19.0%

15.2%

ROA

3.4%

5.6%

4.8%

2.1%

1.7%

Source: Company financials, Investment One Financial Services Research

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