UBA reports Robust revenue growth for 2023 financial year
United Bank for Africa (UBA) delivered strong financial performance in its FY23 audited financial results. Pre-tax profits and Net Profits saw significant growth of 277.2% y/y and 261.6% y/y, respectively. Q4 results were also impressive, with Pre-tax profits increasing by 309.7% y/y and Net profits rising by 191.8% y/y. As a result, the board recommended a final dividend of N2.30/s (Total dividend: N2.80/s FY23) based on the full year 2023 EPS of N17.49.
This translates to a dividend yield of 12.3% on the closing price as of Thursday (25 April). The improved earnings were driven by Net Interest Income, supported by higher earnings from Investment securities and customer loans. Additionally, revenues from trading and foreign exchange income contributed to earnings, benefiting from fair value gains on derivatives and foreign exchange trading income. Despite general bearish sentiment on banking stocks, particularly due to the CBN’s recapitalisation plan, the market reaction to the results was subdued.
Financial Performance
During the period under review, interest income showed significant growth, expanding by 93.0% year-on-year. This growth was primarily driven by a 110.9% increase in interest earned on investment securities, as well as a 49.0% increase in interest on customer loans. The growth in interest earned was supported by a 77.2% increase in investment securities and a 64.3% increase in gross loans, surpassing the management’s forward guidance of 40% for 2023.
On the other hand, interest expense also experienced substantial growth, increasing by 107.0% year-on-year. This was mainly due to an 89.2% increase in interest paid on customer deposits, which expanded by 90.3% year-on-year. Additionally, interest paid on borrowings increased by 91.8%, reflecting rising borrowing costs during the period. As a result, the cost-of-funds rose by 56 basis points to 2.7%. The CASA mix, which represents the proportion of current and savings accounts in the total deposit mix, declined significantly to 51.9% from 85.1% in FY22. However, net interest income still grew by 86.4%, with the net interest margin increasing by 66 basis points to 4.8%.
Non-interest income showed remarkable growth, advancing by 312.5% year-on-year. This was primarily driven by a significant increase of 813.7% in net trading and foreign exchange income, supported by fair value gains on derivatives and FX trading incomes. This growth can be attributed to the devaluation of the Naira against the US Dollar during the period. Additionally, fees and commission income grew by 47.4% year-on-year, surpassing the N300 billion mark for the first time. This growth was supported by electronic banking income, commission on transactional services, and credit-related fees and commissions.
On the expense side, operating expenses increased by 68.9%, mainly due to contract services, fueling, repairs & maintenance, and the AMCON levy. However, the cost-to-income ratio declined to 37.2% from 59.1% in FY22. Consequently, pre-provision operating profits rose by 297.8%. Loan loss provisions also increased significantly by 393.7% year-on-year, with the cost-of-risk increasing to 4.4% from 1.3% in FY22. Overall, pre-tax profits showed
Asset Quality
The percentage of non-performing loans increased to 5.9% (compared to 3.0% in FY22), surpassing the regulatory threshold of 5.0% due to a challenging macroeconomic environment. On the other hand, the Capital Adequacy Ratio (CAR) of the group stood at 32.6%, well above the minimum regulatory requirement of 15.0%.
In conclusion, UBA’s financial performance, similar to its competitors, was quite impressive in our assessment. Looking forward, we anticipate that the uptick in market yields will bolster interest earnings. For the year 2024, the group has projected a higher net interest margin of 7.5%. It is important to highlight the impact of hyperinflationary pressures, resulting in a monetary loss of N32.8bn from its subsidiaries in Ghana and Sierra Leone, which could affect earnings if there is further currency devaluation in those regions. Regarding recapitalization, the group has disclosed its intentions to raise additional capital from both local and international markets. SOURCE: Coronation Asset Management Limited
