EUR 4.00 For Business Accounts Only

UBA Plc FY 2021 - Loan Repricing Boosts Earnings as Trading Performance Wanes

• Gross earnings and Profit Before Tax for UBA Plc posted respective YoY growth of 6.1% and 16.1% to ₦658.3bn and ₦153.1bn. This growth comes on the wheel of higher interest and fee & commission income as well as lower funding costs. In specific terms, interest income rose 10.8% YoY to ₦474.3bn driven by higher yield on the loan book. Management explained that repricing of loans complemented the 7.7% YoY growth in loans to drive the gains in income from loans. Yield on investment securities, however, declined 117bps to 5.7% on the impact of the CBN Special Bills of which the firm has ₦650bn earning 0.5%.
• The repayment of bank’s short-term borrowings from global banks reduced the interest expense burden by 6.4% to ₦157.6bn. This was despite an increase in interest expense on deposits in line with mobilization of CASA deposits. Hence, cost of funds moderated to 2.2% from 2.9% in 2020.
• Non-interest revenue declined 4.4% YoY due to a drag in the trading book performance on fair value loss from derivative contracts. Fee and commission income received a significant boost from electronic banking income (up by 46.0% YoY) and grew 25.0% YoY to ₦158.6bn. However, the ₦19.4bn loss on derivatives contract subsumed the growth in fee and commission income.
• Asset quality improved 110bps to 3.6% following the slowest loan book expansion in three years. This also reflected in the lower loan loss provisions (-52.4%), bringing cost of risk down to 0.35% from 0.9%. On the efficiency front, cost-to-income ratio worsened to 62.5% from 61.5% given faster growth in OPEX (+11.4%) compared to operating income (+8.7%), anchored on fast-rising regulatory costs – AMCON and Deposit insurance premium – comprising of 21.8% of total OPEX. Overall, profitability received a boost with PBT up by a respective16.1% to ₦153.1bn while PAT grew at a slower 4.3% due to higher tax rates in some of the lender’s operating regions during the year. This slower growth in PBT trickled down to RoAE and RoAE, down to a respective 15.5% and 1.5% from 17.2% and 1.7% in 2020.
• In 2022, we expect interest income growth to rest on the loan book growth as indicated by management as fixed income yields remain depressed. Persistent CRR debits from the CBN would also tighten liquidity and drive interest expense and, hence, cost of funds higher. Non-interest revenue should rise given the bank’s digital banking drive and increased proportion of millennials customer base and improvement in trading performance. This would fuel better margins for the bank in 2022 and influenced our forecast of a 12-month target price of ₦10.80 for UBA, representing a 24.1% upside at its current price of ₦8.70. The declared final dividend of ₦0.80 gives a dividend yield of 7.4% (365-day T-bill Yield: 4.07%).