MODERATE GROWTH IN INTEREST INCOME A MAINFESTSTION OF TOUGH ENVIROMENT
UBA plc was incorporated on February 23, 1961 and was the first of the international banks operating in Nigeria at the time to be registered under Nigerian Law. Today the bank has over 700 branches and cash offices in Nigeria’s major commercial centers, state capitals and Federal Capital Territory with two offshore branches in New York and Grand Cayman Island.
For the year ended December 2014, UBA posted a 9.57 percent increase in gross earnings to N290.01 billion from N264.68 billion the same period of the corresponding year (FY) 2013.
Interest income jumped by 5.91 percent to N196.68 billion in FY 2014 compared with N185.70 billion as at December 2013. The growth in interest income is driven by strong growth in loans and advances in the period under review.
Interest expense however moved by 9.78 percent to N90.54 billion in the period under review, compared with N82.47 billion as at December last year, while net interest income rose by 2.89 percent to N106.13 billion as against N103.23 billion last year.
The increase interest expense is connected to the high interest rate environment created by the CBN hike in interest.
Nigeria’s CBN raised Monetary Policy Rate (MPR) by 100 basis points from 12 to 13 per cent, as it sought to stem losses to its foreign reserves from defending the local currency.
It adjusted the exchange rate from N155 to N168 to a dollar and also increased the Cash Reserve Ratio (CRR) on private sector deposits from 15 to 20 per cent while also retaining CRR on Public Sector deposits at 75 per cent.
INCREASE IN PROFIT DESPITE TOUGH OPERATING ENVIRONENT
The bank has been to maintain impressive growth in profitability given the tough operating environment lenders in Africa’s largest economy operate in. Just like other banks that have released earnings results, UBA has effectively and efficiently kept cost at a reasonable level that enabled it boost profits.
Glaringly, the amount a bank like UBA spent on diesel oil to power generators at the head office and branches invariably left it with huge energy costs thus swelling operating expenses.
Additionally, regulatory induced costs such as the Asset Management Corporation of Nigeria (AMCON) charge contributes to spiraling expenses. Nigeria banks are mandated to contribute 0.5 percent of their total assets on annual basis to the sinking fund. This policy is bleeding the bottom line of Nigerian lenders and also contributing to increased cost to income ratio.
Margins were also affected as after tax profit margin reduced to 16.51 percent in 2014 compared with 17.60 percent as at December 2013, while pretax profit fell to 19.31 percent in 2014 as against 21.18 percent as at December 2013.
UBA’s operating expenses increased by 14.50 percent to N129.67 billion from N168.32 billion the same period of the corresponding year 2013. Cost to income ratio increased to 67.28 percent in December 2014 as against 64.06 percent in December 2013. The increase in operating expenses was caused by the AMCON charge aforementioned and the menacing epileptic power supply that spikes energy costs. It means UBA will pay as much as N13.81 billion as AMCON charges from its N2.76 trillion total assets.
Regulatory headwinds couldn’t stunt UBA’s growth as profit after tax (PAT) increased by 2.78 percent to N47.90 billion in December 2014 from N46.60 billion as at December 2013, while profit before tax (pretax) remained flattish at N56.20 billion.
Earnings per share EPS increased by 2.63 percent to 156k in December 2014 compared with 152k as at December.
A 12.27 percent growth in income tax to N8.29 billion in December 2014 from N9.45 billion also helped boost bottom line.
“The significant year on year growth in PAT relative to PBT was driven by a tax credit of N622m compared with a -N3.4bn tax charge in Q4 2013. As to the drivers behind the 8% growth in PBT, a strong growth of 36% y/y on the non-interest income line was significant – and was helped by a -58% y/y reduction in loan loss provisions,” said Olubunmi Asaolu, equity research analyst with FBN Capital said in a March 26 note.
“It would appear that FX trading, the second largest contributor to non-interest income, provided the boost to non-interest income, similar to what we saw in some tier 1 banks’ results,” said Asaolu
Operating income increased by N192.72 billion in December 2014 as against N168.32 billion as at December 2013. The growth in operating income was driven by 83.62 percent increase in net trading foreign exchange income.
Loans and advances to customer increased by 15.16 percent to N1.12 trillion in December 2014 compared with N963.87 billion the same period of the corresponding year 2013. The increase can be attributed to the aggressive growth risk asset creation.
Loans to deposit ratio increased to 50 percent in December 2014 as against 43.4 percent as at December 2013. It means the lender is aggressive about lending. Customer deposit remained flattish at N2.22 trillion.
MAINTAINS STRONG GROWTH IN TOTAL ASSETS
The bank maintained strong asset growth as total assets increased by 4.54 percent to N2.76 trillion in December 2014 compared with N2.64 trillion as at December 2013, while shareholders funds increased by 12.92 percent to N265.40 billion in December 2014 from N235.03 billion as at December 2013.
Return on average assets (ROAE) increased to 19.1 percent as at December 2014 as against 21.0 percent as at December 2013, while return on average assets (ROAA) reduced to 1.77 as at December 2014 compared with 1.90 percent as at December 2013. However, despite the decline, the banks return metrics are still one of the highest in the industry.
UBA is giving back to the owners of the business as it is proposing a dividend of N0.10 per share, which is 80% below the N0.50 Dividend Per Share, which it paid out in 2013. The DPS implies a dividend yield of 2.5% and a dividend payout of 7.3%.
“We welcome the fact that the bank has decided to make a significant cut to its dividend, given the need to preserve capital from a regulatory point of view. UBA’s capital adequacy ratio (CAR), post a tier-2 capital raise in December 2014, stands at 18%. This is among the lowest of the tier 1 banks, and provides only some modest comfort/buffer over the 15% minimum regulatory ratio,” said Asaolu.
BALA AUGIE
