Defying Economic Slowdown, UBA Improves in Profitability
In the face of many economic headwinds, United Bank for Africa Plc grew profit by 32 per cent and reward shareholders with handsome dividend for the 2016 financial year,
Contrary to apprehension that the economic headwinds would lead to poor financial performance by banks, all the banks that have released their scorecards have posted higher bottom-lines. One of the banks is United Bank for Africa (UBA), the pan-African financial services group, operating in 19 African countries.
The bank, last week, released its audited financial statement for the year ended December 31, 2016, showing significant growth in gross earnings and profits. The performance is an attestation to its resilience, enhanced productivity and geographic diversification, evident in the impressive contribution from its African subsidiaries.
The Group recorded an impressive 22 per cent growth in gross earnings to N384 billion in 2016, from N315 billion in 2015, illustrating the bank’s ability to grow profitability despite the difficult macro-economic environment. In addition to the rising adoption of electronic banking channels in many of the African markets, where UBA operates, the bank leveraged its strong franchise and geographical footprints.
Net interest income rose by 23 per cent from N133.6 billion in 2015 229 billion to N264 billion, while operating income grew faster by 37.9 per cent to N105.7 billion, from N76.73 billion.
The bank saw a significant 32 per cent growth in profit before tax (PBT) to N91 billion, compared to N68 billion profit recorded over the same period of 2015. Similarly, UBA’s profit after tax (PAT) grew by 22 per cent to N72 billion, from N60 billion recorded the previous year. The performance was buoyed by considerable growth in interest and non-interest income, as well as increasing efficiency gains from cost management initiatives.
A further analysis of the figures showed that return on average equity remained stable at 19 per cent, while total assets rose by 27 per cent from N2.75 trillion to N3.5 trillion.
Net loans grew by 45 per cent to N1.51 trillion partly driven by naira depreciation. Deposits rose by 19 per cent to N2.49 trillion, indicating customer’s confidence in the bank.
Demonstrating its prudent culture of risk asset creation and management, UBA maintained a conservative balance sheet, with 3.9 per cent non-performing loan ratio and 20 per cent BASEL II capital adequacy ratio.
UBA’s subsidiaries outside of Nigeria are increasingly gaining market share, reinforcing the strong and impressive subsidiary contribution to the Group, estimated at one-third of profit in 2016, from a quarter in 2015 financial year.
Following the impressive performance, the Board of Directors proposed a final dividend of 55 kobo.
The bank had earlier paid an interim dividend of 20 kobo to shareholders, bringing the total dividend for the 2016 financial year to 75 kobo, an unprecedented yield of 13.9 per cent, based on the stock’s unit price of N5.39 on the day the results were released on the floor of the NSE. The results and dividend proposal justify investor confidence in the bank, as reflected in the 20 per cent year-to-date rally in the share price, thereby outperforming the Nigerian Stock Exchange (NSE) All-Share Index, which had declined by over 5.0 per cent.
Commenting on the results, the Group Managing Director and Chief Executive Officer, Kennedy Uzoka, expressed satisfaction at the resilience of the bank, despite the macroeconomic challenges in a number of countries where UBA operates.
“Given the operating environment in 2016, I am very pleased with our profitability - an impressive 32 per cent growth in PBT to N91 billion - whilst we have also focused keenly on operational efficiencies, illustrated by the reduction in our Cost-to-Income Ratio.” Uzoka said.
Speaking on its outlook for the 2017 financial year, Uzoka said he was optimistic as the bank’s pan-African operations increasingly gain critical mass across its chosen markets.
“As we implement our Customer First Philosophy, we are approaching 2017 with real optimism, especially with the outlook remaining positive in many of our markets, where we benefit from our increasingly diverse revenue streams. We reiterate our pledge to delivering excellent service to our customers, and remain committed to creating superior and sustainable return for our shareholders,” he said.
Speaking in a similar vein, Chief Financial Officer (CFO) of UBA Group, Ugo Nwaghodoh, said the bank extracted efficiency gains across its operations to boost profitability.
According to him, the bank has seen significant improvement across major performance metrics, including an improvement in the net interest margin.
“Our performance in 2016 reflects the strong potential and resilience of our business. We grew top and bottom lines by 22 per cent and 32 per cent respectively, despite the stagflation in Nigeria, our core market. Reflecting improved balance sheet management and better value extraction, our net interest margin (NIM) improved 40bps YoY to 6.7 per cent,” the CFO noted.
He also expressed delight at the performance of the Group’s African subsidiaries (ex-Nigeria), which contributed a third of the group’s profits, adding that the bank will continue to leverage innovative offerings to grow its share of the respective markets.
“As we diligently execute our Customer First initiative, I am particularly upbeat on the future of business and the value creation for shareholders,” he noted.
Assessing the results, analysts at Afrinvest West Africa said despite the poor appetite for loan growth in the sector, interest income advanced 15 per cent to N264 billion while non-interest income surged 37.9 per cent to N105.7 billion.
“UBA saw a faster growth in operating income (up 28.8 per cent to N270.9 billion) which more than offset growth in operating expenses (up 11.6 per cent to N152.5 billion) notwithstanding inflationary pressure and exchange rate volatility. As such, Cost to Income (CIR) Ratio witnessed significant improvement, moderating to 56.3 per cent from 65 per cent in prior year,” they said.
The analysts noted that UBA continues to maintain superior asset quality metrics with Cost of Risk (CoR) ratio at 1.2 per cent and NPL ratio at 3.9 per cent , outperforming peer average CoR of 2.1 per cent. Gross loans and advances expanded 45.4 per cent to N1.5 trillion driven by foreign exchange adjustment amid conservative appetite for risk assets whilst financial assets rose 18.8 per cent to N1.0 trillion driven by attractive yield in the debt market.
Loan to deposit settled at 58.9 per cent while liquidity ratio closed at 40.0 per cent both within the regulatory threshold. UBA’s BASEL II Capital Adequacy Ratio (CAR) is maintained at 20.0 per cent, well above the required 16.0 per cent for Systemically Important Banks (SIBs).