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UNITED BANK FOR AFRICA PLC - Profits moderate y/y on Opex, Provisions growth

Opex, provisions continue to drag profits
UBA recently released its 9M’20 results, reporting 6% y/y growth in Gross Earnings to ₦454 billion (Vetiva estimate: ₦444 billion). This was driven by a 6% y/y rise in Interest Income to ₦317 billion, whilst Non-interest Income also grew to ₦137 billion (up 5% y/y). Furthermore, Net interest Income improved by 17% y/y to ₦186 billion (Vetiva Estimate: ₦178 billion), thanks to a 6% y/y drop in Interest Expense. On the other hand, the bank recorded a 72% y/y jump in Impairment charges to ₦11 billion (Vetiva estimate: ₦12 billion), whilst Opex jumped 37% y/y to ₦221 billion (Vetiva estimate: ₦225 billion). The higher Opex was a holdover from the one-off expenses reported in Q2, as the line moderated 11% q/q to ₦72 billion. Consequently, PBT fell 8% y/y to ₦90 billion, while PAT printed at ₦77 billion (Vetiva estimate: ₦62 billion), yielding a 9M EPS of ₦2.16.

On course for positive Q4 performance on weak Q4’19 base
Whilst UBA’s Q3’20 profit performance was weaker than Q3’19, this was mainly due to increased provisions in Q2 and Q3. Looking forward, we anticipate a stronger Q4 this year, as Q4’19 performance was particularly weak, with the bank reporting only ₦7 billion in PAT due to extremely high provisions on the back of aggressive loan growth. We forecast milder provisioning in the final quarter of the year, and project ₦18 billion as the final figure. Furthermore, following Q3 run rate, we expect Opex growth to soften, as one-off costs that were recognized in Q4 of 2019, this year appeared in Q4. Therefore, we forecast Opex of ₦288 billion in FY’20.