By The Editor
United Bank for Africa Plc [UBA] is expected to post one of the most improved corporate results for the 2019 operations. The highest profit advancement since 2013 is to be expected from the bank’s operations last year, the result of which is expected to reach the investing public in weeks. This will be a breakout from a trend of decelerating profit over the preceding three years.
Management seemed to have worked extra time last year to moderate the impacts of adverse operating developments that hindered profit improvement in 2018. It also retained the key operating strengths that enabled the bank to defend profit in the prior year.
The bank’s latest interim report at the end of September 2019 shows a step up in revenue growth from a slowdown in the preceding year and moderated impacts of interest expenses and operating cost.
A major strength in the preceding year was write backs of previous credit losses – which was retained in 2019. Net loan loss expenses had dropped by as much as 86 percent in 2018, reducing credit losses to the lowest figure in four years. Another major drop in loan impairment expenses in 2019 powered profit capacity building in the year.
The bank’s management succeeded in growing revenue from both angles of interest and non-interest earnings. Interest income grew by 11 percent to N298 billion, an impressive performance by the banking industry standard in the year. This was further strengthened by non-interest income, which grew twice as fast as interest income to over N107 billion during the same period.
The bank’s full year revenue expectation for 2019 is positive, reflecting a strengthened performance from the 2018 record. The bank grossed about N405 billion at the end of September 2019, which ranks it one of the biggest revenue generators in the banking sector. At an increase of 13.5 percent year-on-year at the end of the third quarter, UBA stood out as one of the leading banks by revenue growth in 2019.
The bank’s management had built a big profit capacity as at the end of the third quarter of last year. Taking advantage of the gains in revenue, it stretched out net profit margin from 15 percent at the end of 2018 to 20.2 percent at the end of the third quarter of 2019. This gave the bank the highest net profit margin in six years.
A strong growth in revenue and a big gain in profit margin were the profit building blocks that UBA’s management put together in 2019. The result is a profit advance of 32 percent for the bank at the end of the third quarter. UBA closed the nine months of the year with an after-tax profit of close to N82 billion. The figure had already exceeded the closing net profit figure of about N78 billion in 2018.
The third quarter position is a breakout growth for the bank from a slowdown in the preceding three years. Based on the nine-month position, the bank is expected to present one of the most impressive corporate earning stories in many years from the 2019 operations. The 2018 financial year ended with profit flat while a breakout growth seen in the interims is expected to be confirmed in the full year earnings report.
The bank’s management combined cost saving and revenue improvement to enhance profit capacity in 2019. The biggest cost saving was extracted from credit impairment expenses – which dropped for the second year as at the end of the third quarter. At N6.6 billion at the end of the third quarter, loan loss expenses went down by 37.5 percent after dropping by as much as 86 percent in 2018.
The ability to keep credit losses down for the second year is a major accomplishment of the Kennedy Uzoka-led management of the bank. It is a pointer to progress in rebuilding the bank’s overall risk asset quality standard. With the drop in net loan impairment charges, net interest income after loan impairment expenses grew by 14 percent to N259 billion at the end of September 2019. The strong growth in interest income is also linked to improved credit portfolio quality.
Improvement in gross earnings enabled the bank’s management to moderate operating cost. While operating expenses grew, it claimed a reduced share of gross earnings from 42 percent in the same period in 2018 to 40 percent at the end of September 2019. This is one of the lowest operating cost margins for the bank in several years.
Management faced a challenge from rising interest expenses in 2019 and that happened for the second year. It was however able to diffuse the impact of the rising cost of funds in 2019 through a sharp slowdown in the growth rate. Interest expenses slowed down from a growth record of over 33 percent at the end of 2018 to 17 percent growth year-on-year at the end of September 2019.
UBA’s earnings story as at the end of the third quarter of 2019 sums up to an exciting reading of reasonably improved revenue and big costs saved. The favourable developments powered the biggest profit capacity the bank has built any time since 2013.
Net profit margin improved from 17.3 percent in the same period in 2018 to 20.2 percent at the end of September 2019. This is the highest net profit margin for UBA since 2013 and the first improvement since 2015.
UBA closed the third quarter operations in 2019 with a balance sheet size of close to N5 trillion, a customer credit portfolio of nearly N2 trillion built upon a customer deposit base of N3.4 trillion and an equity cushion of over N555 billion.
