Nigeria’s deposit money banks have seen rapid earnings growth in 2022, riding off a high-interest rate environment. UBA Africa Bank followed a similar rhythm, recording a +12.3% profit before tax (PBT) from N123.35bn in 9M 2021 to N 138.49bn in 9M 2022 with sufficient support from interest and digital banking income.

The group’s financial position improved with increased customer deposits, shareholder funds, and customers’ loans and advances. However, the bank’s cost-minimization strategy pinched a bit, with the CIR rising to 63.20% as operating expenses increased. Analysts noticed the group’s impairment charge grew by +107%, resulting from a larger loan book and a rise in loan defaults.

Key Highlights 

• UBA’s net interest income grew by +23.2% between 9M 2022 and 9M 2021 with support from interest income and fees and income commission
• Profit before tax increased by +12.3%, while Profit after tax had a +10.9% appreciation between 9M 2021 and 9M 2022. 
• The group’s depreciation and amortization rose by +13.1% from N16.30bn in 9M 2021 to N18.44bn in 2022.
• Between 9M 2021 and 9M 2022, UBA’s loans and advances rose by +6.2% to N3.05trn
• UBA’s customer deposit increased to N7.03trn in 9M 2022 from N6.08trn, which generated a +20% rise in interest expense 
• Shareholder’s equity slightly appreciated N808.6bn in 9M 2022 from N798.3bn in 9M 2021. 
• Earnings per share leaped to N3.27k in 9M 2022 from N2.94k in 9M 2021.
• Retained earnings rose by +33.1% from N304.37bn in 9M 2021 to N405.09bn in 2022. 

Share Price Movement

UBA’s YTD share price displayed a seesaw pattern, swinging between N8.75k and N7.00k in 9M 2022. The bank’s stock has been bearish, with the share price YTD return at -13%, suggesting that the bank’s performance in H1 2022 was not a sufficient catalyst for capital appreciation. Analysts observed the share price maintained this pattern despite profit-taking in March and September, with the support and resistance prices at N6.55k and N8.85k, respectively (see chart 1 below). 

Chart 1: 

Profitability

As regards profitability, UBA Plc has experienced fast-paced growth since the shortfall in 9M 2020, where the PBT dipped to N90.37 from N98.23bn in 9M 2019. The combined interest and non-interest income improvement by +22% and +25% strengthened the group’s performance. Analysts observed that the e-banking contribution to earnings improved by +14.4% in this quarter which helped lessen the +27.5% rise in operating expenses (see chart 2 below). 

Chart 2:

Impairment Charge 

The group’s loan impairment charge doubled between 9M 2021 and 9M 2022, rising to N13.59bn in 9M 2022 from N6.57 in 9M 2021. The rise in loan disbursement to customers and written-off loans to N4.04bn from N2.48bn in the preceding year spurred a higher risk, pushing up the impairment charge. The impairment charge rise suggests a lesser quality of loan assets than previous years (see chart 3 below). 

Chart 3:

Total Assets

The tier 1 bank’s asset base increased in 9M 2022, rising to N9.32trn from a record low of N4.96trn in 9M 2019. Analysts noticed the group acquired some new fixed assets as Property and equipment rose by +14.4%, with the increase in loan books and other financial assets supporting the growth (see chart 4 below). 

Chart 4:

Cost-to-Income Ratio (CIR)

After surviving the covid pandemic operating shocks, UBA trimmed CIR in 9M 2021 to 61.90% from 65.40% in 9M 2020. However, the CIR climbed up in 9M 2022 to 63.20%, driven by rising inflation. The CBN’s review of the savings deposit rate from 10% to 30% of the MPR in August contributed to the hike as higher costs were incurred on large customer deposits (see chart 5 below).  

Chart 5:

Return on Equity (ROE)

Despite the steady rise in bottom-line earnings in the past three years, the group has maintained the same Return on equity ratio (ROE), staying at 19.20%. Analysts observed the group’s equity rose slightly to N808.6bn in 9M 2022 from N798.28bn in 9M 2021 (see chart 6 below). 

Chart 6:

Final Thoughts

The financial position of UBA showed improvement for the first nine months of 2022; its earnings remained strong with large support from e-banking and interest income. Analysts envisage a recurrence in Q4 as CBN maintains aggressive rate hikes to tackle inflation. However, the sudden rise in impairment charges might restrain growth (a higher loan default), threatening the group’s interest income and generating an extra cost for loan recovery.