FSDH Initial Reaction: United Bank for Africa 2Q23 results
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September 14, 2023/FSDH Research
Key Performance Highlights:
- United Bank for Africa reported a robust set of numbers for 2Q23, with the gross earnings vaulting 277.7% YoY to N710.6 billion and the net profit jumping 1025.8% YoY to N324.6 billion in 2Q23. The growth in gross earnings was driven by a solid 79.0% YoY rise in interest income on amortised cost and FVOCI securities (33.2% of 2Q23 gross earnings) to N236.1 billion, coupled with a 35.8% YoY surge in fee and commission income (10.4% of 2Q23 gross earnings) to N73.7 billion in 2Q23 and a significant rise in the Bank’s net trading and foreign exchange income to N392.2 billion (55.2% of 2Q23 gross earnings) in 2Q23. Despite interest expense rising 96.3% YoY to N77.9 billion in 2Q23, primarily driven by increased customer deposits and bank deposits, net interest income soared 71.2% YoY to N158.5 billion.
- A handsome growth in fee & commission income (+35.8% YoY) was partially offset by an increase in fee & commission expense (+30.8% YoY), resulting in a net fee & commission income growth of 38.5% YoY to N49.3 billion in 2Q23. The fee & commission income was boosted by increased electronic banking income and credit-related fees and commissions. Moreover, the fee & commission income was supported by a rise in the account maintenance fee, an increase in trade transactions income, and a rise in the commissions on transactional services. The rise in fee & commission expenses was mainly driven by increased e-Banking expenses.
- The Group reported a net profit in trading and foreign exchange operations of N392.2 billion, compared to a loss of N5.8 billion in the prior period, primarily driven by a growth in the fixed income and a gain in foreign currency revaluation. Furthermore, other operating income for the period increased by 12.1% YoY to N8.3 billion in 2Q23, mainly due to dividend income. Consequently, non-interest income soared to N449.8 billion compared to N37.2 billion in 2Q22. However, the impairment charge for credit losses on loans increased to a massive N137.3 billion in 2Q23 from N8.0 billion in 2Q22.
- The Bank’s employee benefit expenses grew 42.7% YoY to N38.1 billion primarily due to a rise in wages and salaries, and the other operating expenses vaulted by 42.3% YoY to N71.5 billion in 2Q23. Consequently, profit before tax was up 730.0% YoY to N342.3 billion in 2Q23. UBA paid the income tax at an effective tax rate of 5.2% in 2Q23, down from 30.1% in 2Q22, resulting in after-tax profit growth. Resultantly, the after-tax profit improved by a solid 11.3x YoY to N324.6 billion in 2Q23. The group earnings per share went from N0.84/share in 2Q22 to N9.47/share in 2Q23.
- Sequentially, the Company recorded a steady 162.0% QoQ growth in gross earnings to N710.6 billion in 2Q23. The net interest income grew 32.5% QoQ to N158.5 billion, primarily due to a 23.2% QoQ increase in interest income from amortised cost and FVOCI securities. Additionally, this was supported by a 41.3% QoQ increase in net fee & commission income to N73.7 billion in 2Q23, compared to N52.2 billion in 1Q23 and a significant rise in net trading and foreign exchange income to N392.2 billion in 2Q23, compared to N26.1 billion in 1Q23, leading to a robust 242.6% QoQ expansion in operating income to N608.2 billion in 2Q23. The Company paid the income tax at an effective tax rate of 5.2% in 2Q23, down from 12.7% in 1Q23, which helped the Company to report a net profit of N324.6 billion in 2Q23 compared to N28.8 billion in 1Q23, a significant 505.8% QoQ expansion.
- On 12 September 2023, UBA proposed an interim dividend of N0.50 per share, subject to appropriate withholding tax and shareholder approval. The interim dividend will become payable on 6 October 2023 to all shareholders registered in the Company’s books at the close of business on Friday, 26 September 2023.
Market Reaction: The investor reaction to the robust 2Q23 results was buoyant as the United Bank for Africa stock rose 9.78% to close at N15.15 on 13/9 against a 0.93% rise in the All-Share Index.
United Bank for Africa 2Q23 Earning Highlights
