United Bank for Africa Plc (UBA), in its recently released Q1 2021 earnings result, reported a 6% YoY gross earnings growth.
Interest income in Q1 2021 was unchanged, relative to Q1 2020 figures, while non-interest income grew by 23% YoY from N38.06bn in Q1 2020 to N46.86bn in Q1 2021.
Operating income grew by 15% YoY from N91.30bn in Q1 2020 to N104.62bn in Q1 2021. Operating expense also grew by 10% YoY from N58.66bn in Q1 2020 to N64.45bn in Q1 2021.
However, United Bank for Africa’s cost-to-income ratio reduced by 200 basis points from 64% in Q1 2020 to 62% in Q1 2021. Hence, profit before tax grew by 24% YoY from N32.73bn in Q1 2020 to N40.58bn in Q1 2021.
Profit after tax also grew Profit after tax grew by 27% YoY from N30.10bn in Q1 2020 to N38.16bn in Q1 2021.
Year-on-Year Solid Asset Growth Supports Earnings Capacity
The Group’s total interest-bearing assets grew by 31% YoY from an average of N5.63trn in Q1 2020 to N7.37trn in Q1 2021, largely on account of significant increases in loan and advances to customers (+22% YoY from N2.16trn to N2.64trn), and investment securities (+54% YoY from N1.69trn to N2.62trn).
Meanwhile, the low-yield environment limited upside gains, as interest income remained flat from N106.46bn in Q1 2020 to N108.48bn in Q1 2021. Based on our estimates, the Group’s asset yield declined from 7.57% in Q1 2020 to 5.89% in Q1 2021.
Cheap Funding Base Boosts Net Interest Margins
Interest expense declined by 22% YoY from N43.69bn in Q1 2020 to N34.21bn in Q1 2021, occasioned by the material increase in the Group’s current and savings deposit accounts (CASA). CASA ratio increased from 73% in Q1 2020 to 82% in Q1 2021. This implies that the proportion of low-cost funds increased on a year-on-year basis. As a result of the decline in interest expense, the Group’s net interest income grew by 14% YoY from N65.42bn in Q1 2020 to N74.38bn in Q1 2021.
