FREE

UNITED BANK FOR AFRICA PLC Q1'21 Earnings Release - Profits soar after strong Non-Interest Income returns

UBA recently released its Q1’21 earnings, posting a 6% y/y growth in Gross Earnings to ₦155 billion (Vetiva: ₦169 billion). This growth was driven by Non-Interest Income, which grew 23% y/y to ₦47 billion on the back of a 24% rise in fees and commissions, while Interest Income remained flat at ₦109 billion (Vetiva: ₦119 billion). However, Net Interest Income grew 14% y/y to ₦74 billion (Vetiva: ₦73 billion) thanks to a 22% slump in interest Expense, which printed at ₦34 billion (Vetiva: ₦45 billion). The drop in Interest Expense was particularly significant as it was driven solely by a 30% y/y drop in interest paid on deposits to ₦19 billion. Amid this, Impairment charges fell 23% y/y to ₦2 billion - 20% below our estimate, while Opex grew 16% y/y to ₦79 billion, driven by a 33% y/y increase in AMCON charges to ₦7 billion. Consequently, PBT grew by 24% y/y to ₦41 billion, while PAT grew 27% y/y to ₦38 billion (Vetiva: ₦40 billion), yielding an annualized ROAE of 23.8% (FY’20 ROAE: 18.7%).

FY’21 profit forecast lowered despite solid Q1 performance The bank’s Q1 performance was impressive across several line items, most especially the 23% y/y rise in Non-Interest Income to ₦47 billion and 14% increase in Net Interest Income to ₦74 billion. However, the bank’s Interest Income fell significantly short of expectations, as income from investment securities declined 7% y/y to ₦38 billion, saved only by the steep decline in Interest Expense. Going forward, we expect to see slightly higher interest expense charges, especially on customer deposits, as interest rates are expected to trend higher. Therefore, we have lowered our Net Interest Income forecast to ₦288 billion (Previous: ₦293 billion). Furthermore, we have revised our FY estimate for the bank’s Opex to ₦309 billion (Previous: ₦304 billion). This gives us a new FY’21 PAT estimate of ₦123 billion (Previous: ₦131 billion).