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UNITED BANK FOR AFRICA PLC Q1'20 Earnings Release - Solid earnings across board in tricky first quarter

Solid earnings across board in tricky first quarter                                                

UBA recently released its Q1’20 results, reporting a 12% y/y growth in Gross Earnings to ₦147.2 billion (Vetiva estimate: ₦151.9 billion), driven by an 11% y/y growth in Interest Income (II) to ₦109.1 billion and a 15% y/y jump in Non-Interest Income to ₦38.1 billion (Vetiva estimate: ₦42.7 billion). Meanwhile, Opex jumped 15% y/y to ₦68.2 billion (Vetiva estimate: ₦67.6 billion), bringing PBT to ₦32.6 billion (8% y/y), while PAT grew by 8% y/y to ₦32.6 billion (Vetiva estimate: ₦32.8 billion). This resulted in an annualized ROAE of 19.9% (FY’19 ROAE: 16.2%).   

                                               

FY’20 forecast lowered despite solid Q1 performance

The bank’s Q1 performance was solid across most line items, highlighted by the 15% y/y rise in Non-Interest Income to ₦38.1 billion and a 11% increase in Net Interest Income to ₦65.4 billion. Interestingly, UBA achieved this increase in Non-Interest Income despite recording an 8% rise in Interest Expense; the growth in interest expense was mostly due to a 103% rise in interest paid on interbank deposits. This represents a reversal in the trend observed among other Tier-1 banks that recorded moderations in Net Interest Income. We note that this increase in II was mainly a result of higher income from term loans to corporates and overdrafts to individuals. Going forward, whilst we expect the bank to continue to outperform peers in this regard, the unfavourable economic outlook and weaker yield environment are likely to drag earnings growth in the coming quarters.