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UNITED BANK FOR AFRICA PLC FY'19 Earnings - Strong Interest Income boosts FY’19 earnings

Gross Earnings boosted by better than expected Interest Income
UBA recently released its FY’19 results, reporting a 20% y/y growth in Gross Earnings to ₦560.2 billion (Vetiva estimate: ₦547.5 billion), driven by a 12% y/y growth in Interest Income (II) to ₦404.8 billion and a 51% y/y jump in Non-Interest Income to ₦155.4 billion. However, this impressive earnings performance was somewhat dampened by the 303% y/y spike in Impairment charges to ₦18.3 billion (Vetiva estimate: ₦9.0 billion); this was due to a 93% y/y decline in recoveries, as overall credit allowances declined by 59% y/y. Consequently, PBT growth was limited to 4.2% y/y, as PBT printed at ₦111.3 billion, while PAT grew by 13% y/y to ₦89.1 billion (Vetiva estimate: ₦105.2 billion), the result of a reduced tax bill of ₦22.2 billion (Vetiva Estimate: ₦28.9 billion), giving the firm a FY’19 ROAE of 16.2% (9M’19 ROAE: 20.6%) and EPS of ₦2.52 (FY’18: ₦2.20).

Asset quality improves despite Loan Book growth
UBA’s NPLs improved q/q to 5.3% from 5.7% despite a 4% q/q and 18% y/y growth in Total Loans to ₦2.1 trillion. However, the bank’s cost of risk worsened q/q to 0.8% from 0.5% as at Q3’19. Looking forward, we expect the bank to adopt a cautious loan growth strategy, thus we forecast a 9% y/y growth in loans and advances in FY’20 (FY’19: 19%), despite the minimum LDR requirement which the bank has thus far been unable to meet (FY’19 LDR: 56%). Based on this, we expect a 30bps moderation in NPLs y/y to 5.0% by year-end.