UBA 9M 2021 Result: A Delicate Balance between Debt and Growth


Thursday, November 25, 2021 / 09:00 AM / by Adaeze Nwachukwu, Proshare Research/ Header Image Credit: UBA

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Riding on the coattails of falling international interest rates and rising global financial liquidity, UBA Plc has successfully raised US$300m under a recently announced (Global Medium-Term Note) GMTN programme of US$1.5bn. The issue was a 5-year senior unsecured note listed on the London Stock Exchange. The notes to mature in November 2026 were rated by Fitch (B) and S&P (B-) and were issued at a coupon of 6.75%. According to the Bank, the investor interest was global and was oversubscribed by 1.7x.


The recent Eurobond issue comes just before the maturity of the bank's outstanding Eurobond of US$500m, which was issued in June 2017 at a coupon rate of 7.75% maturing in June 2022.


United Bank for Africa (UBA) posted its 9months 2021 result, which showed resilience in a harsh business environment. Bottom-line earnings grew on the back of a significant decline in impairment charges and a rise in interest income.


Key Highlights/Takeaways

  • Gross earnings increased Year-on-Year (Y-o-Y) by +7.90% from N454.4bn in 9months 2020 to N490.3bn in 9months 2021.
  • Profit before tax up by +36.50% Y-o-Y from N90.4bn in 9months 2020 to N123.4bn in 9months 2021.
  • Earnings per share increased Y-o-Y by +36.11% from N2.16 in 9months 2020 to N2.94 in 9months 2021.
  • Impairment charges for credit losses on loans fell by -70.33% Y-o-Y, from N11.48bn in 9months 2020 to N3.41bn in 9months 2021.
  • Total assets increased Y-o-Y by +18.27% from N7.06trn in 9months 2020 to N8.35trn in 9months 2021.
  • Total equity grew Y-o-Y by +21.81% from N655.33bn in 9months 2020 to N798.28bn in 9months 2021.
  • Return on average equity increased to 19.20% from 16.40% in 9months 2020.
  • Customer's deposit was up Y-on-Y by +16.95% to N6.08trn from N5.20trn in 9months 2020.
  • Net loans and advances increased +20.54% to N2.87trn from N2.38trn in 9months 2020.


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The Pan Africa Bank's gross earnings grew Y-on-Y by +7.90% to N490.3bn in 9months 2021 from N454.4bn in the corresponding period of the previous year. The growth rate recorded in the period was slightly above growth in 9months 2020 (see chart 1 below).


Growth in interest income and a fall in interest expense both supported the increase in gross earnings. Interest income grew by +8.26% to N341.29bn while interest expense fell by -12.72% to N114.44bn in 9months 2021.


Contrary to the growth recorded in Naira terms, the gross earnings of the Group were negatively impacted by the harsh macroeconomic environment. In US dollar terms, gross earnings fell by -0.19% to US$1.19bn from US$1.20bn recorded in 9months 2020. Analysts used the I & E FX window rates for currency conversion at the different periods.


Chart 1: UBA's Gross Earnings 9M 2017 - 9M 2021 (N'bn)

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Source: UBA's Financial Statement, Proshare Research


Profit before tax grew in double-digits above growth in gross earnings; it is also the highest growth rate in PBT the Group has recorded in recent times.


PBT grew Y-on-Y by +36.50% to N123.35bn in 9months 2021 from N90.37bn in the same period of the previous year. Operating income rose Y-on-Y by +12.90%, higher than the +6.93% rise in operating expenses (see chart 2 below).


Total non-interest income fell slightly by -4.96%, attributed to the -40.23% decline in net trading and foreign exchange income.


In US dollar terms, PBT had a slower growth of +26.26% to US$300.28m from US$237.82m in 9months 2020.


Chart 2: UBA's Profit Before Tax 9M 2017 - 9M 2021 (N'bn)

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Source: UBA's Financial Statement, Proshare Research

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DuPont Analysis

The African bank's net profit margin has not been unstable in recent quarters, majorly because of the volatility of its profit after tax (PAT). In 9months 2019, the net profit margin rose by 16base points (bps) to 19.06%. In 9months 2020, the growth in net profit margin was reversed, declining by 11bps to 16 .97%.


However, the net profit margin grew by 26 basis points (bps) to 21.33% in 9months 2021 as PAT rose by 35.60% to N104.59bn. Growth in the bank's gross earnings has been relatively stable, rising steadily in recent months.


UBA's asset turnover has steadily spiralled downwards. Values were relatively unchanged between 2018 and 2019 as gross earnings, and total assets grew at similar rates. For 9months 2021, the asset turnover ratio fell to 0.064 from 0.076. Though both gross earnings and total assets grew in the period, the growth rate in total assets outpaced the growth in gross earnings.


Contrary to the downward trend of asset turnover ratio, the equity multiplier has an upward trend attributed to both growth in total assets and total equity of the bank. For 9m0nths 2021, the equity multiplier ticked up to 10.60 from 9.93 in the same period in the previous year (see table 1 below).



Table 1: UBA's DuPont Analysis 9M 2018 - 9M 2021

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Falling Cost

Cost-to-income ratio (CIR) dipped in 9months 2021, from 65.40% in 9months 2020 to 61.90%, despite the +6.93% rise total operating expenses in the period (see chart 3 below).

Operating income rose Y-on-Y by +12.90% to N331.68bn. A driver of the bank's operating income growth was the +23.74% uptick in other income, which was a +49.24% rise in income on cash handling.

Chart 3: UBA's cost-to-income Ratio 9M 2017 - 9M 2021

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Source: UBA's Financial Statement, Proshare Research



As expected, net deposits have grown faster compared to the growth rate in loans and advances to customers. For the first nine months in 2021, loans and advances to customers and customer deposits saw slower growth. Net deposits grew by +16.95% to N6.08trn, while loans and advances to customers edged up by +20.54% to N2.87trn (see chart 4 below).


The retail lender's net loans-to-deposit ratio (LDR) increased to 47.21% from 45.80%, below the regulatory minimum of 65%.


Chart 4: Growth Rate of Net Loans & Deposits 9M 2017 - 9M 2021

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Source: UBA's Financial Statement, Proshare Research


UBA's total borrowings fell by -19.44% to N479.25bn in 9months 2021 from N594.93bn in 9months 2020.


With the addition of the recent Eurobond issue, total borrowings tip over N600bn at the end of the year. Converting the US$300m to Naira using the I & E FX window rate as of 11th November 2021 (US$/N414.73) was N124.45bn, bringing UBA's total borrowings to N603.67bn.


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