United Bank for Africa (UBA) Plc last year recorded double-digit growths across key performance indicators in, a year locked down by COVID-19 pandemic and disruptions. In this analysis, Deputy Group Business Editor, Taofik Salako, examines the underlying strengths behind the group’s resilient performance
United Bank for Africa (UBA) Plc’s total assets last year leapt two spaces to N7.70 trillions from N5.62 trillion in 2019, about 37 per cent increase. The balance sheet performance is reflective of the overall performance outlook for the pan-African banking group. Market pundits are placing a “buy” note on UBA on the heels of the 2020 performance. UBA has the highest upside potential among the five stocks recommended by Cowry Asset Management Limited as the stock market reopened last week. Analysts at Cowry Asset Management believe UBA’s share price could nearly double over the next financial year. Cordros Capital, an investment banking group, stated that the performance of UBA belied the COVID-19 pandemic, given the bank’s strong growths in both funded and non-funded incomes.
Headline figures
Key extracts of the audited report and account of UBA for the year ended December 31, 2020 showed a well-rounded performance with double-digit growths in gross earnings and profitability. The profit and loss position was also strengthened by impressive balance sheet performance, with greater asset creation and reduction in risks.
The 12-month report showed that gross earnings rose by 10.8 per cent to N620.4 billion in 2020 compared with N559.8 billion recorded in the corresponding period of 2019. The overall top-line performance was driven by growths across the income lines. Interest incomes had grown from N404.83 billion in 2019 to N427.86 billion in 2020. Net interest income stood at N259.47 billion in 2020 as against N221.88 billion in 2019. Fees and commission incomes also rose from N110.56 billion in in 2019 to N126.94 billion in 2020 while net trading and foreign exchange income increased from N37.63 billion to N59.45 billion. Segmented analysis showed the continuing growth and profitability of the group’s non-Nigerian subsidiaries, providing diversification that helped to cushion and insulate the group from market fluctuation. The “Rest of Africa”-other African subsidiaries excluding the main Nigerian market, saw turnover growth from N166.27 billion in 2019 to N232.06 billion in 2020, repeating the same trend in pre-tax profit, which rose from N52.15 billion to N75.12 billion. The group also recorded increased incomes and profit across its business lines with corporate banking, retail and commercial banking and treasury and financial markets recording N201.02 billion, N214.39 billion and N204.96 billion respectively in 2020 as against N181.4 billion, N193.46 billion and N184.95 billion respectively in 2019. The businesses also sustained improved profit. Corporate banking netted N62.32 billion in 2020 as against N47.9 billion in 2019. Retail and commercial banking recorded net profit of N30.23 billion as against N24.36 billion while net profit on treasury and financial marker dealings improved from N16.23 billion in 2019 to N21.22 billion in 2020.
On the cost side, operating expenses grew by 10.1 per cent to N249.8 billion, as against N217.2 billion in 2019, well below average inflation rate of 13.2 per cent for the year, thus reflecting the bank’s cost effectiveness. Despite the challenging business environment during the COVID-19 pandemic and the resultant effect on economies globally, the bank’s profit before tax rose to N131.9 billion compared with N111.3 billion in 2019. Profit after tax rose by 27.7 per cent to N113.8 billion compared with N89.1 billion in 2019. Earnings per share thus rose by 26.8 per cent from N2.52 in 2019 to N3.20 in 2020.
The balance sheet also showed that UBA recorded a remarkable 24 per cent growth in loans to customers at to N2.6 trillion while customer deposits increased by 48.1 per cent to N5.7 trillion, compared with N3.8 trillion recorded in the corresponding period of 2019, reflecting increased customer confidence, enhanced customer experience, successes from the ongoing business transformation programme and the further deepening of its retail banking franchise. While the paid up capital remained unchanged at N17.1 billion, total equity funds rose from N597.98 billion in 2019 to N724.15 billion in 2020, driven mainly by increase in retained earnings and other reserves.
Beyond the surface
Underlying ratios supported the outward growth in performance indicators. Pre-tax profit margin- the key underlining index that measures the overall profitability of the operations and administration of the bank, improved from 19.88 per cent in 2019 to 21.26 per cent in 2020. Net interest margin-which measures the profitability of the core banking operations, also improved from 54.8 per cent in 2019 to 60.64 per cent in 2020. Non-performing loan (NPL) ratio- a major underlining measure for the effectiveness of credit risk management, sustainability and future profitability, dropped below the industry target average to 4.7 per cent in 2020 as against 5.3 per cent in 2019, driven by growth in the loan book, robust credit risk monitoring architecture, and payment of Past Due Obligations (PDOs). The bank’s capital adequacy and liquidity ratios stood at 22.4 per cent and 44.3 per cent respectively in 2020, considerably above regulatory minimum of 15.0 per cent and 30.0 per cent. The regulatory ratios implied significant headroom for the bank to expand its operations, without running risk of regulatory pullback.
The board of the bank has proposed a final dividend of 35 kobo for every ordinary share of 50 kobo. The final dividend, which is subject to the affirmation of the shareholders at the annual general meeting, will bring the total dividend for the year to 52 kobo. The bank had paid an interim dividend of 17 kobo earlier in the year. “In our view, the much-reduced dividend may be tied to the need to be prudent, given the still under pressure operating environment,” Cordros Capital stated, a position that reechoed the commendations that have trailed the prudent dividend position of the board, given the prevailing uncertainties. To analysts, locking in earnings to generate further growth enhances the bank’s sustainable return outlook and increases prospect of higher returns in the years ahead, despite prevailing environment.
Management outlook
Group Managing Director, United Bank for Africa (UBA) Plc, Mr. Kennedy Uzoka said that despite the pandemic, last year was important for the UBA Group, as it gained further market share in most of its countries of operation.
According to him, the bank ended a very challenging year on a reassuring note as shown by double-digit growth in both top and bottom lines. Despite the tumultuous impact of the pandemic globally and across UBA’s 23 countries of operation, the group created N519 billion additional loans as it continued to support customers and their businesses.
He outlined that customer deposits grew 48.1 per cent to N5.7 trillion, driven primarily by additional N1.8 trillion in retail deposits, assuring that as a global bank, UBA remains well capitalized and determined to successfully drive financial inclusion on the continent through innovative products and vast network.
He pointed out that the bank’s capital adequacy and liquidity ratios came in at 22.4 per cent and 44.3 per cent were well above the respective regulatory minimum of 15.0 per cent and 30 per cent.
“Our primary strategy will continue to focus on providing excellent services from our customers’ standpoint, putting the customer first always. Looking ahead, I am inspired by the achievements we have made since the launch of our transformation programme. We have expanded market share considerably across the geographies where we operate and are consolidating our digital banking leadership in Africa. We will continue to leverage our diversified business model and dedicated workforce to further strengthen our position as ‘Africa’s Global Bank,” Uzoka said.
Group Chief Financial Official, United Bank for Africa (UBA) Plc, Ugo Nwaghodoh said the persistent low interest rate environment in 2020 exerted significant downward pressure on margins, notwithstanding, the bank’s interest income for the year grew by 5.7 per cent to N427.9 billion, driven by 8.2 per cent and 7.5 per cent year-on-year growth on interest income on loans and investment securities respectively.
“We have prudently stepped-up our reserves for loan impairments, hence the 37.4 per cent growth to N22.4 billion, implying a 0.9 per cent cost of risk. These reserves provide adequate cover for impairments and should help minimise the need for further reserves in the current year, in view of the improving global operating environment.
“As Nigeria continues to see signs of recovery from the Covid-19 pandemic led by resumption of economic activities across the globe, increase in consumer spending, and continued progress on vaccine deployment, UBA is well- positioned for greater synergy across the Group. We remain committed to our prudent risk management practices, and optimistic of best value for our stakeholders in the days ahead,” Nwaghodoh said.
Social impact
One of the oldest surviving financial institutions in Nigeria, UBA holds a distinctive position as a general wealth distributor, which makes its financial performance more profound and impactful. With about 274,000 shareholders, about 72 per cent holding between one and 10,000 ordinary shares, UBA has the most diversified shareholders’ base. It is also one of the most actively traded stocks at the Nigerian stock market, and a major influence in the traditionally most active banking sector. A total of 6.95 billion ordinary shares of UBA were traded at the stock market in 2020 while the bank’s share price rose by 21 per cent, more than a double of average return of 10.1 per cent recorded by the NSE Banking Index. With more than 21 million customers and 1,000 business offices and customer touch points in 20 African countries, UBA is a systemically important, tier 1 financial institution. With its presence in the United States of America, United Kingdom and France, UBA is a strategic bank not only to African continental trades but also global trades. Incorporated in February 1961, under the Companies Ordinance [Cap 37] 1922, UBA took over the assets and liabilities of the British and French Bank Limited, which had carried on banking business in Nigeria since 1949. It merged with Standard Trust Bank Plc in August 2005 and acquired Continental Trust Bank Limited in December 2005.
Despite the disruptions caused the COVID-19 pandemic, the group remained a major developmental partner for its host communities, environment and economy. UBA Group donated N5.10 billion to various corporate social responsibility (CSR) initiatives during the year, operating through its UBA Foundation.
The 2020 performance no doubt shows the resilience of the uniquely diversified operating model of the UBA, and brings to bear the gains from continuing investments in its pan-African outlook. Analysts are optimistic the group will sustain its growth trajectory, given expected improvements in national and global environments in 2021.
