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UNITED BANK FOR AFRICA PLC H1'20 Earnings Release - High costs and impairments impact half-year profits

High costs and impairments impact half-year profits                                                       

Cost drag moderates performance as Opex rises y/y

UBA released its H1’20 results yesterday, reporting mild 2% y/y growth in Gross Earnings to ₦300.3 billion (Vetiva estimate: ₦287.1.9 billion). This was driven by a 6% y/y uptick in Non-interest Income to ₦94.7 billion while Interest Income remained flat. However, Net interest Income did improve by 8% y/y to ₦119.3 billion, in line with our estimate, thanks to a 9% y/y drop in Interest Expense. The good news ended there, as the bank recorded a 150% y/y spike in Impairment charges to ₦7.8 billion (Vetiva estimate: ₦7.2 billion), whilst Opex jumped 36% y/y to ₦149.4 billion (Vetiva estimate: ₦135.6 billion). The hike in Opex was due to an increase in contract services and donations, both of which added a whopping ₦9.5 billion to the bank’s expense line, although these may be one-off expenses.

                       

Covid-19 effects acutely felt in Q2

As expected, UBA’s Q2 performance was a mixed bag. Whilst Interest Income declined 12% q/q to ₦96.5 billion amid a 3% decline in net loan book, Non-Interest Income improved 49% q/q, on the back of an impressive 185% q/q rise in foreign exchange and securities income (₦26.1 billion). The bank took on a 95% increase in impairments in the quarter, with total allowances for credit losses increasing by 14% ytd as a result of the economic impact of the virus. Looking forward, we expect impairments to remain high, maintaining our FY’20 forecast at ₦18.1 billion.