United Bank for Africa (UBA) Plc, which operates in 19 African countries, will grow its loan book this year at a pace similar to 2013, led by opportunities in the power sector.
UBA is also expecting a positive re-rating of the bank, based on its improved fundamentals, Chief Executive Officer Phillips Oduoza said in a Jan. 7 interview at the bank’s headquarters in Lagos.
“The re-rating may take place in 2014 as the balance sheet is much stronger and growing,” Oduoza said.
UBA grew its loan book by 47 percent in 2013, the highest rate of growth for any Nigerian lender as the 23 percent growth in deposits from customers led to a significant increase in risk assets creation.
The emerging power sector, telecoms, upstream oil and gas and agriculture, will underpin loan book growth in 2014, according to Oduoza.
The banks African operations are investments that will increasingly come into play in 2014 as the bank consolidates their operations and more of them become profitable.
“It is an investment for tomorrow, 14 of our African operations are making profit now and we expect most of them to be profitable in 2014 and begin to contribute to the bottom-line,” Oduoza said.
The African operation ex- Nigeria enables UBA to diversify its income stream and minimise the income loss from regulatory actions in Nigeria.
The CBN had in 2013 cut the commission on turnover (COT) banks charge to N3 per million from N5 per million, eliminated the N100 ATM charge, increased the minimum interest payment on savings deposits to 30 percent of the monetary policy rate (MPR) or 3.6 percent from 1 percent, and increased the cash reserve requirements (CRR) on public sector deposits to 50 percent.
The bank has also consciously moved away from investing in Government securities to risk asset creation, and has significant levers to pull to improve profitability, according to Oduoza.
UBA’s loan to deposit ratio – a measure of how much banks are inclined to lend- rose to 47 percent in the most recent period from a low of 38 percent at the beginning of 2013.
Oduoza says he would like to see the cost to income ratio (CIR) fall to 50 percent, which would directly translate into boosting the bottom-line.
The CIR has declined from 78 percent in FY 2012 to 62 percent at Q2 2013.
UBA announced revenues of N188 billion for the nine month period to September 2013, representing a 12.5 percent increase from N167 billion in the same period of 2012 as net interest income rose 18.8 percent to N133 billion.
Profit before tax (PBT) rose marginally to N43.4 billion while total comprehensive income for the period rose by 28.5 percent to N48.74 billion.
“UBA offers an attractive 45 percent upside potential over 12 months, among the highest in CEEMEA (Central and Eastern Europe, Middle East and Africa) banks,” said JP Morgan in a report released October 2013.
“We think UBA’s valuation, despite a strong rally since the beginning of the year, offers an opportunity to buy into probably the deepest valuation discount in CEEMEA banks.”
UBA stock which closed trading at N8.85 per share on Monday has risen by 77 percent in the past year. The lender has a market capitalisation of $1.78 billion.
By: PATRICK ATUANYA
