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CardinalStone Research
United Bank for Africa Plc (UBA: TP 8.68 – BUY) has reported a 34.9% YoY increase in EPS to N2.32 for 9M’19, supported by growth across both net interest income (+5.5% YoY) and non-interest income (+22.1% YoY) lines, as well as a moderation in provision for loan losses (-37.6%).
Some positives:
- Gross loans to customers grew by 14.6% in Q3’19 to N2.0 trillion from the level as at Q2’19. This implies a year-to-date loan growth of 11.5% compared to the 2.6% contraction observed in H1’19. It is unclear, however, how much of this loan growth can be attributed to the bank’s Nigerian operations, in line with the CBN’s latest push to stimulate banks’ lending to the private sector.
- Notwithstanding the growth in loans, we did not observe any immediate implication on asset quality as the NPL ratio was relatively flat at 5.7% compared to H1’19 (FY’18: 6.5%).
- Operating expenses declined during the quarter (-9.7% QoQ), though cost-to-income ratio came in higher (Q3’19: 62.4% vs Q2’19: 58.3%) due to a 15.7% QoQ decline in operating income. On a year-to-date basis, however, the cost-to-income ratio at 60.8% is 1.8 ppts lower than the preceding period, highlighting the bank’s efforts to enhance operating efficiency.
- Annualised ROE and ROA at 20.6% and 2.2% respectively are currently higher than FY’18 levels of 15.6% and 1.8% respectively.
Some concerns:
- Quarterly earnings weakened to its lowest in three quarters, weighed by a slowdown in net interest income (-6.3% QoQ) and higher loan loss charges (+152.0% QoQ)
- The decline in non-interest income in Q3’19 was largely driven by an 88.8% QoQ decline in net trading gains, which offset the 41.2% QoQ increase in net fees and commission income. We highlight that in Q2’19, UBA recorded more than 3-fold increase in net trading gains, especially across fixed income and derivative instruments, which in our view were unlikely to recur.
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