On Tuesday, United Bank for Africa (UBA) kicked off the first half of 2010 (1H10) reporting season on a solid footing. They did this by showing that the recovery in the Nigerian banking landscape is gaining momentum. Whilst the bottom line profit figures remained light in 2Q10 on the back of low revenue growth.
Renaissance Capital said “we were very encouraged to see loan growth picking up in the past quarter. Notably, UBA grew its 2Q10 loan book by 13% qoq to N664 billion. This is after shrinking its loan book by 3% qoq in 1Q10!” According to Renaissance Capital, “Focusing on UBA’s 2Q10 results, we would highlight the following: Net interest income recovering, albeit slowly. 2Q10 net interest income of N19 billion was up 3% qoq, with interest expense down 37% qoq. Although interest income fell 17% qoq, we are confident that, as UBA continues to grow its loan book, its total interest income will improve notably. Note that, despite holding its deposits flat qoq and growing its net loans 13% qoq, UBA’s loan to deposit ratio was still below 50% (at 48%). The weakness in its net interest income can be explained by the low yields it is earning on inter-bank placements and securities. At N729 billion, UBA’s inter-bank placements and securities represent 44% of its total assets.”
“Non-funded income recovering well in 2Q10: With N34 billion of non-funded income in 2Q10, this income grew 14% qoq. This we believe is a reflection of the bank’s volume growth. Yet another sign of the recovery gaining momentum.”“Cost growth managed well. 2Q10 operating expenses of N25 billion were 4% below 1Q10 levels and we expect the group to maintain them at this quarterly run-rate over the course of the year. Continued cost control should further support future profit growth at UBA.”
“Provision write-backs: While we are expecting UBA to make N9 billion of provisions over the course of the year, it posted a 1H10 provision write-back of N321 million. In 2Q10, the provision charge was N1.4 billion. Whilst the resilient macro-environment would have contributed to this result, we believe that the adoption of the new prudential guidelines was also a positive for UBA. Over the 2H10 we continue to expect UBA and all Nigerian banks to benefit from the new prudential guidelines. Importantly, the risk charges being assumed for Nigerian banks need to be lowered”.