- UBA’s 18.8% YoY loan growth in FY’19 reflected the impact of CBN’s measures to stimulate bank lending to the overall economy. Loan growth was particularly stronger in Nigeria (+26.7% vs. other regions: 14.7%), which contributed c.77.8% of new loans created.
- Net interest income (NII) grew by 7.9% YoY despite concerns about the potential impact of yield moderation in the latter part of the year. We note that Q4’19 net interest income surprisingly surged by 29.0% YoY.
- Non-interest revenue (NIR) improved by 21.3% YoY, supported by growth in net fee and commission income (+22.2% YoY) and fixed income trading gains (+58.7% YoY). We note the 2.5x increase in net e-banking fees which, in our view, is indicative of the bank’s recent strengthening of its digital footprint across its key markets.
- Although operating expenses rose by 10.0% YoY, we note the improvement in efficiency highlighted by the 131 bps contraction in cost to income. We link the improvement in cost to income ratio to the 12.4% growth in operating income.
- Despite the growth in FY earnings, we note some underlying concerns in UBA’s Q4’19 performance. Firstly, we highlight the 3.3x QoQ jump in impairment charges, attributable to the aggressive loan growth undertaken by the lender in the last two quarters. This, consequently, drove a 60bps rise in the cost of risk to 0.9% for FY’19. For context, the cost of risk soared from 0.7% in Q3’19 to 2.2% in Q4’19.
- Secondly, NIR plummeted by c.50.0% QoQ in Q4’19. This may have been driven by the 38.7% contraction in net fees and commission income and the N10.6 billion FX revaluation losses (vs. FX gain of c.N440 million as at 9M’19) reported in the quarter.
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